In volatile markets, consumer stocks can be a safer choice for investors. Today we look at a Canadian retailer with loyal customers. Metro Inc. is one of the two major grocery chains we recommend (Loblaw, Toronto symbol L, is the other—read Shoppers Drug Mart takeover boosting the value of Loblaw’s stock). Metro has grown through a series of astute acquisitions, most recently with a controlling interest in Quebec’s Premiere Moisson bakery. The company is well positioned as a growth stock, with strong cash reserves and low debt. Its dividend appears secure.
As part of our three-prong approach to investing, we recommend investors spread their money out across the five main economic sectors: Manufacturing, Resources, Consumer Goods, Finance and Utilities. We also advise investing mainly in well-established companies, and downplaying stocks in the broker/media limelight.
Due to recent stock market turmoil, investor interest in one of the less-volatile sectors—Consumer Goods—is rising.
That includes the Canadian retailer we analyze below. It is profiting from recent acquisitions, while its upgraded stores are attracting more shoppers. It’s also rolling out effective loyalty programs that spur repeat visits.
METRO INC. (Toronto symbol MRU; www.metro.ca) operates 600 grocery stores and 250 drugstores in Quebec and Ontario.
The company is benefiting from the 75% of privately held bakery Première Moisson it bought last year. Metro paid $101.6 million for its stake in this business, which has 23 stores and three plants in Quebec. Rising food prices are also boosting its sales and earnings.
In its fiscal 2015 third quarter, which ended July 4, 2015, Metro’s earnings gained 13.1%, to $163.5 million from $144.5 million a year earlier. It spent $203.0 million on share buybacks in the quarter, causing earnings per share to rise at a faster pace of 18.5%, to $0.64 from $0.54.
Sales rose 6.1%, to $3.8 billion from $3.6 billion. Same-store sales gained 4.3%.
Profit from Canada’s real blue chip stocks
Pat McKeough identifies the true blue chips. Some stocks with the “blue chip” label are resting on past glories and no longer deserve the name, says Pat. In The Successful Investor, he recommends stocks like BCE, TD Bank and Imperial Oil whose strong performance and intelligent management make them blue chips you can continue to rely on for growth and income.
Growth stocks: 5.7% interest in Alimentation Couche-Tard gives added boost to Metro earnings
Metro also owns 5.7% of Alimentation Couche-Tard (Toronto symbol ATD.B), which operates convenience stores in North America, Scandinavia and Eastern Europe and is a recommendation of Stock Pickers Digest, our newsletter for aggressive investing. Due to a special charge, Metro’s share of Couche-Tard’s earnings fell to $8.7 million in the latest quarter from $9.1 million a year earlier.
The company is in a strong position to keep making acquisitions and buying back shares. Its long-term debt of $1.1 billion is a low 13% of its market cap, and it holds cash of $5.1 million.
The stock trades at 17.2 times the $2.03 a share Metro will likely earn in fiscal 2015. The $0.47 dividend yields 1.3%.
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