In the latest issue of The Successful Investor, we’ve updated our buy/sell/hold advice on grocery retailer Metro Inc. (symbol MRU.A on Toronto).
Metro: An aggressive pick that matured into a stock more suitable for conservative investing
Metro is a good example of a stock that has graduated from Stock Pickers Digest, our newsletter for aggressive investors, to The Successful Investor, which focuses on more conservative selections.
Stock Pickers Digest is where we analyze junior or aggressive stocks that are attractive but not yet suitable for The Successful Investor’s conservative investing focus. Ideally, many of our Stock Pickers buys will one day mature into investments we can recommend in The Successful Investor.
We first added Metro to the stocks we analyze in Stock Pickers Digest in June 1998. At the time, it was trading at around $10. In December 2007, when we moved it to The Successful Investor, it was trading at about $32, for a 220% gain.
The Successful Investor has two main goals. First, it explains our three-pronged conservative investing approach, which consists of investing mainly in well-established companies, spreading your investments out across the five main economic sectors, and downplaying stocks that are in the broker/public relations limelight.
Second, it gives you conservative investing recommendations that you can use to implement our investment approach.
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Why Metro is attractive for conservative investing
By December 2007, Metro had clearly reached a point where it deserved a spot in The Successful Investor. With its 2005 purchase of A&P Canada, the company had expanded out of its home market of Quebec, where it operated 385 supermarkets under the Metro, Super C and Marche Richelieu banners.
Adding A&P made Metro the third-largest supermarket operator in the country, behind Loblaw and Sobeys. As well, the A&P purchase pushed up the company’s sales substantially. In fact, since we switched Metro to The Successful Investor, it has risen 41.5% — quite a gain in light of the drop of 11% or so in the market since then.
Recent moves cement Metro’s place as a strong conservative investing stock
The company’s earnings rose sharply in 2009. Several successful initiatives were behind the higher 2009 earnings, including the company’s conversion of all of its Ontario supermarkets (which used to operate under the A&P, Dominion, Loeb, The Barn and Ultra banners) to the Metro brand. That cuts the company’s marketing costs. Metro is also consolidating its private-label products into two main brands: “Irresistibles” for more specialized products, and “Selection” for household staples. Limiting its private-label products to just two brands lowers Metro’s production costs.
In the past two years, the company has launched over 900 Irresistibles products and 2,500 Selection products. This helped increase sales of its private-label products by 12.9% in fiscal 2009. That’s good news for Metro, since it earns higher profits from selling its own private-label products than national brands.
Reasonable p/e, rising dividend add to Metro’s conservative investing appeal
Despite this jump, Metro still trades at a moderate 12.9 times the $3.52 a share that it should earn in fiscal 2010. Metro has also has a long history of raising its dividend. The current annual rate of $0.68 yields 1.5%.
You can get our latest buy/sell/hold advice on Metro and 20 other high-quality companies in the latest issue of The Successful Investor. Even better, if you act now, you can get this issue absolutely free. Click here to learn how.
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