Loblaw Companies Ltd

L-T

(A Top Pick Aug 01/18, Up 29%) Sold it in the spring because it was getting fully valued, but made a 20%+ return.

(A Top Pick Aug 01/18, Up 25%) A good return, but complicated, because it involved a spin-off of a REIT. He sold it at profit at $66 in April when the shares looked fully valued.

The largest grocery retailer nationally. It is a nice consumer name. It is not unreasonably priced at 16 times forward earnings. They have scale, great locations and loyalty program, and they have their digital initiatives. (Analysts’ price target is $72.10)

The supermarket stocks Loblaw is the best. Empire made an acqusition in 2012 but had issues with it; they are good but lack a decent discount franchise. Loblaw has combined with Shoppers Drug Mart as food and value are a good match these days, and this has expanded margins. The Optimum loyalty card helps these businesses. Also, Loblaw's No Name products are strong sellers, and No Frills is a solid discount chain. Loblaw has the full package. Also, they are a big real estate player.

A defensive play that'll move up and down with recession worries. They will sell of real estate to improve their balance sheet, not his favourite idea, but it is a well-run company. Lots of insider ownership, which is good.

Is George Weston a better investment? Weston is a beneficiary owner of Loblaw (50%). He prefers Loblaw. They have some difficulties in terms of increased minimum wage, food inflation and the uncertainty with trade with the US. Many of their goods are imported. They are focusing on the digital side now. They are trying to have better royalties programs. You will be fine with it.

Grocers got hit in the last quarter last year. There is high competition and the acquisition of Shoppers was good. However, the low yield holds him back from buying. Yield 2%

As a recession approaches, what sectors should an investor sell? Look at the defensive interest-sensitives for safety, like utilities and consumer stocks like Loblaw who had a good move in the Q4-2018 sell-off.

It's been sideways since 2015. Trades at under 11x enterprise value over EBITDA in line with 10-year averages. They've done vs. TSX since mid-October. Investors have shifted from cyclical into consumer staples like L-T. There's a lot of competition ahead with cost challenges while minimum wage moves higher. 60% of their goods are from the US whose currency is strengething. Prefers ATD.

Has been out of grocery for a couple of years. Low margins. Most people go to Costco. There are so many pressures like e-commerce, competition, inflation. Have to get so many things right, and so little wiggle room. He's not a fan of buying back stock, companies need to buckle down and innovate. Great assets, but he's not interested at all.

He is trying to figure out how the George Weston REIT is working out alongside this asset. Loblaw's is very stable, and he is investigating it. Not quite ready to pull the trigger yet. Yield is less than 2%.

He fears that the grocery sector will get disrupted. Not optimistic. Loblaw has spent so much on beautifying their stores, but failed to earn a sales increase from consumers. Meanwhile, people are buying food online with the Amazon-Whole Foods deal.

Threatened by online shopping? He likes it, because it dominates grocers in Canada with good real estate. It's a little vulnerable to online shopping, but grocers like Loblaw won't be affected much. Also, Loblaw has click-and-collect e-shopping where a customer orders groceries online then picks them up. He expects double-digit earnings growth after Loblaw absorbs minimum wage hikes and provincial drug reform and inflation from transportation costs. He'd buy it here.