2 consumer retail stocks to buy

Here are two disparate consumer retail stocks to buy. One is an established blue chip stock, a 70-year-old dividend aristocrat that operates drug stores, supermarkets and other grocery stores. The other is a 45-year-old retailer, but just new to the public stock markets, that sells iconic apparel, leather bags, footwear, active athletic wear, small leather goods and home furnishings.

Consumer Retail StocksMontreal-based Metro Inc. (TSX—MRU) earned record-high profits in the year to September 30, 2017. It’s expected to earn record profits both this year and next, particularly as it integrates Greater Montreal Area-based Jean Coutu Group.

Metro is one of Canada’s largest grocery and drugstore operators, with 338 Metro banner supermarket stores. The company also operates over 200 discount stores under its Super C (Quebec) and Food Basics (Ontario) banners.

We expect this dividend aristocrat to continue to raise its dividend each year. Metro remains a ‘buy’ for further long-term share price gains as well as modest, but growing, dividends. The current dividend of 65 cents a share yields a modest 1.6 per cent.

With fiscal 2017 sales of $13.175 billion, Metro operates supermarkets and drugstores, mostly in Quebec and Ontario, but also drugstores in New Brunswick. The acquisition of Jean Coutu will increase the weighting of its drugstore operations in the overall company.

Next year, Metro’s results will reflect the disposition of its shares of Alimentation Couche-Tard, the acquisition and integration of Jean Coutu Group, and the issuance of $1.2 billion of lower-cost notes.

Iconic brand is new to the stock market

Roots Corp. (TSX—ROOT) offers premium apparel, leather goods, accessories and footwear. It delivers products to its customers through its store network, online platform and international partnerships.

Roots is an iconic brand platform that has a distinctively high level of brand equity that separates it from the rest of the specialty apparel pack.

According to BMO Capital Markets analyst John Morris, Roots has multiple growth vehicles, which should support 15 per cent sustainable top line growth. Included are moderate retail store growth, a 32 per cent five-year compound annual growth rate, e-commerce growth, expansion in the leather and footwear categories, and international expansion.

Mr. Morris says “indeed, some retailers see a long-term balance of 40 per cent to 50 per cent e-commerce as part of their long-term strategy, which we believe Roots could also achieve over a long time period.”

He projects that Roots could be a $650 million brand in five years. As such, the analyst gives the stock an ‘outperform’ rating.

This is an edited version of an article that was originally published for subscribers in the December 2017/Second Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.

The MoneyLetter, MPL Communications Inc.
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