Friday, October 12, 2007

Loblaws

The Money Gardener asked me a good question in the comments section of my blog but I thought I’d answer it as a post as I’ve recently received a few email regarding Loblaws.

"I am surprised that you still hold Loblaws. Are you in this name for the long term? What is your rationale for holding on to this dog?"

Good question...I bought L with the intention of holding for the long term. However, my patience is starting to wane. Since I bought it has been disappointment after disappointment however, I am going to continue to hold and give them a chance to execute their strategy and get their supply chain issues sorted out. I still believe that L is the best CDN grocery retailer and has well respected brands in both the discount and upscale grocery market. Additionally, free cash flows are starting to increase and at 18X estimated 2007 earnings and 16X 2008 estimated earnings I don’t think the stock has a lot of downside from here as the valuations are getting reasonable. Additionally, the stock is considered to be in a defensive sector and the markets expectations are already so low that the stock won’t be severely punished from here (unless they miss earnings by a huge margin). For now I am going to continue to hold and collect the 2% dividend, but as I said my patience is starting to wane and if they continue to disappoint and falter in the execution of their strategy I will be a seller.

7 comments:

MG said...

Once again, you have more patience than I do. Whether that is a good or bad thing in this situation...remains to be seen.

Middle Class Millionaire said...

I agree. I think the Loblaws restructuring is either going to be a tremendous success or a huge failure. Personally, I think the Walmart threat is not as immediate or damaging as people think. I'm hoping L will have the same fate as Canadian Tire. When Walmart burst onto the scene many people thought CDN Tire would be forced out of the market...look at their performance over the last 5 years...

MG said...

Loblaws is the only stock I have ever sold. The straw that broke the camels back was when they had a huge meeting at the old Maple Leaf Gardens and announced their lofty goal of 5% earnings growth.

Nurse B, 911 said...

MCM,

I'm curious what your thoughts are on their strategic intention to compete on pricing instead of other more profitable opportunities. We're probably both aware of the margins on most products, but do you have thoughts on how a company should compete on price or disagree with my own position on the topic?

Thicken My Wallet said...

What I have always found interesting about Loblaws is that they made 3-4 bad business moves with the intention of combating Walmart and by the time they did them all (mostly unsuccessfully), the Wall Street Journal writes a piece on the decline of Walmart.

Talk about psyching yourself out.

Anonymous said...

Now I am going away to do my breakfast, afterward having my breakfast coming
over again to read further news.

Look at my web blog :: loan payday
my web page: long term cash advance

QUALITY STOCKS UNDER 5 DOLLARS said...

Interesting review on loblaws.