Friday, October 30, 2009

Loblaw Companies Ltd 2

On Monday, I will talk about how to start up a portfolio, or what to include in a small portfolio of dividend paying stocks. It is good to talk about individual stocks, as I usually do, but to invest, you have to start somewhere. Today, I will continue my reviewing this stock (TSX-L) as I have updated my spreadsheet with the December 2008 financials and the 2nd quarterly financials. I do not currently own this stock.

I first looked at the Insider Buying and Insider Selling on this stock. Some director bought a small amount back in May 2009 for just over $35.00 a share. There has been no activity since them. So there is not much information here.

The next thing to look at is the ratios. The most common ratio to use is the P/E ratio. I get a ratio of 13.4 using the current price and the estimated earnings for 2009. Sites that use the last 12 months earnings get a slightly lower P/E of around 12.5. This is not a bad P/E. Also, the 5 year low average is 18.9. I noticed that the stock market has fallen a lot today. This is great. There might be some very good buying opportunities for investors, before we get to the start of the year end rally.

Another ratio to look is the Price/Cash Flow ratio. This was 9.7 at the end of 2008 and based on cash flow estimates it is now just 7. The 5 year average is 10.5, so the current one is saying price is relatively good. Another well-liked ratio is the Price/Book Value. The currently ratio is only 44% of the 10 year average. A good price is one where the ratio is less than 80% of the 10 year average. The value of this is that we know what the book value is and we know what the current price is. This ratio is unlike P/E and Price/Cash Flow ratios where we are dealing with estimates for the earnings and cash flow.

I will next talk about the yield. A lot of dividend stock investors like to buy based on yield rather than P/E. This is, of course, just another way of looking a how to tell if the stock price is good. For this stock, the yield is now 2.8%. The 5 year average is 1.8% and the 10 year average is even lower at 1.3%. The yield is the one item we want to be higher than average. For most ratios, we want the current one to be lower than average.

The next thing to look at is the Graham Price. I get a Graham Price of $30.86 for the end of 2008 and a currently one of $33.04 based on expected earnings for 2009. The current price of $29.91 is lower than either of these Graham Prices. This is showing that the current stock price is good. I had not included the Graham Price calculations in the spreadsheet I loaded yesterday, so I will reload this spreadsheet today.

When I look at analyst recommendations, I see Strong Buys, Buys and Hold recommendations. The consensus recommendation will be a Buy. However, I know that there are quite a number of analysts following this stock and quite a number have a Hold rating on this stock. (See my site for information on analyst ratings.)

I think you get Buy ratings because food is something that everyone will buy. It does not matter that we are in recession or not, people still need food. Some analysts feel that food stores are a recession proof business and are rating food stores a buy. I think there are lots of Hold ratings on this stock because people are worried about the competitive environment that Loblaw operates in. Certainly, Loblaw does not seem to the confidence to raise it dividend.

Loblaw, a subsidiary of George Weston Limited, is Canada’s largest food distributor and a leading provider of general merchandise, drugstore and financial products and services. Corporate owned store banners include Atlantic Superstore, Dominion(1) (in Newfoundland and Labrador only), Extra Foods, Loblaw, Maxi, Maxi & Cie, Provigo, the Real Canadian Superstore and Zehrs and wholesale outlets operating as Cash & Carry, Presto and The Real Canadian Wholesale Club. The Company’s franchised and associated stores operate under the trade names Atlantic SaveEasy, Fortinos, no frills, SuperValu, Valu-mart and Your Independent Grocer. W. Galen Weston and George Weston Ltd own 63% of this company. Its web site is See my spreadsheet at

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website at for a list of the stocks for which I have put up spreadsheets.

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