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.