Four Key food stocks that we regularly review include High Liner Foods, Loblaw Companies, Metro Inc. and Saputo Inc. The stocks are generally defensive in nature. That’s thanks to six positive attributes that all four share.
We regularly review 10 food stocks in our weekly feature ‘The Back Page’. Of the 10, four are Key stocks. They’re High Liner Foods (TSX—HLF), Loblaw Companies (TSX—L), Metro Inc. (TSX—MRU) and Saputo Inc. (TSX—SAP).
An attractive aspect of food stocks is that they’re generally ‘defensive’. That is, they protect their shareholders’ money more than companies that operate in more cyclical industries. That’s largely thanks to six positive attributes.
One is that food stocks sell necessities. Even in difficult times, people eat. As a result, food stocks’ sales, earnings and cash flow fall less than the economy. Companies that sell luxuries find that in difficult times consumers will cut back on, or entirely cut out, spending on jewelry, expensive travel and so on. To the extent that people eat at home instead of in restaurants, food retailers’ sales hold up better.
Food stocks can plan their growth
A second positive attribute is that food stocks can build their businesses with a considerable amount of confidence. They know how many of their stores a community can support and where to build locations. Many companies in, say, the resources and manufacturing sectors lack earnings visibility.
A third positive attribute is that food stocks benefit from repeat business. Consumers shop for food regularly throughout the year. This also gives food stores the ability to sell related items, such as plates, pots and pans, magazines and so on. Repeat business tends to build customer loyalty.
A fourth positive attribute is that many food stocks raise their dividends each year. Indeed, High Liner Foods, Loblaw Companies, Metro and Saputo are all ‘dividend aristocrats’ that have raised their dividends more than five years in a row. We expect them to continue to do so each year. This makes these stocks more appealing to income-seeking investors than stocks that fail to pay dividends.
A fifth positive attribute is that food stocks have the means to finance acquisitions. Saputo, for instance, has made many acquisitions over the years. When a company makes acquisitions in its industry, it can strengthen it.
A sixth positive attribute is that food stocks operate in many locations. As a result, natural disasters such as floods, fires and so on will have a limited impact on the companies’ total sales and earnings.
Other Key stocks share some of these positive attributes. One that comes to mind is blue chip stock Alimentation Couche-Tard (TSX—ATD.B), which operates convenience stores and gas stations, of course.
This is an edited version of an article that was originally published for subscribers in the August 24, 2018, issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.
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The Investment Reporter •11/20/18 •