CA - Loblaw: Canadians Will Always Have To Eat
2024-07-06 10:03:06 ET
Summary
- Loblaws, Canada's largest grocery chain, is controlled by the Weston family and it has shown consistent growth and market dominance.
- Outside investors have been rewarded with returns that are three times that of the TSX over the past ten years.
- However, it will hard for it to continue to grow faster than the Canadian market as a whole.
- While its valuation is reasonable by international standards, it does not appear to have a sufficient minority discount.
- Loblaws should be a core holding for anyone seeking exposure to Canada, but with its equity at an all time high, it is a Hold, and not a Buy.
Canada is the tenth largest economy in the world, and of those ten economies, its Per Capita GDP ranks second, marginally in front of Germany. With a Market Cap of USD 3.26 trillion as at the end of 2023, the Toronto Stock Exchange is also considered to be the tenth largest in the world, only marginally behind the London Stock Exchange, which had a Market Cap of USD 3.55 Trillion at that time. However, Canadian investors looking for a diversified portfolio have always faced the issue of concentration risk, as have international investors who have also wished to invest in Canada. In 2000, Northern Telecom was one of the most valuable tech companies in the world, and it represented 35 percent of the TSX's market cap. Ten years later, it no longer existed. During the first decade of this century, Blackberry invented the smart 'phone and could have bought and sold Apple every day of the week, twice on Sundays. Now it's a shadow of its former self. Shopify's 2,300% return since its listing in 2015 is spectacular, but its current market cap of USD 67 billion is only 40 percent of its peak in 2021. And for decades, Canada's five largest banks, with a virtual oligopoly, delivered outsized profits and returns for investors. In the Credit Crunch, they remained profitable, and the Canadian banking system was one of the only ones in the world that didn't require a government bailout. Although Canadian banks continue to perform well operationally, and punch above their weight globally, as investments, they have badly lagged the overall market for the last ten years. Through all of these ups and downs, there have been two constants. Canada's population has grown faster than those of most advanced economies, especially in recent years when there has been a surge, and, Canadians have to eat....
Loblaw: Canadians Will Always Have To Eat