Top Picks 2007: Yola Edwards sees grocery growth

Posted Dec 29th 2006 8:30AM by Steven Halpern
Filed under: Newsletters, ETF Investing

Each year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.

Sobey's (TSX:SBY), a grocery retailer and food distributor in Canada, is the top conservative buy for 2007 from Yola Edwards. The technical expert and editor of Yola's Charts notes, "The U.S. economy's measured expansion suggests that we are probably in late stage expansion.

"Although the popularity of organic and trendy, prepared, affluent specialty food stores have flourished as shoppers spend more on high-end merchandise, competition and a consumer spending slowdown could see a shift to more conventional supermarkets, such as Sobeys.

"The company operates or franchises stores in all ten provinces under retail banners that include Sobeys, IGA extra, IGA, Foodland, and Price Chopper. The stock stock sports a 13.2 price to earnings ratio (P/E), certainly more attractive then 30 plus P/Es of high-end grocery retailers, but trading at a discount to conventional supermarkets.

"Second quarter earnings indicated a 2.8% increase over the same quarter a year ago, with net earnings increasing to $0.73 or $47.2 million for the quarter on sales of $3.25 billion, a 2% increase over the same period last year. However, during the period the company implemented business systems initiatives; excluding these costs, earnings would have increased by 10.5%.

"The stock pays a $0.15 quarterly dividend, with shareholders of record on January 15, 2007 entitled to the next dividend payable on January 31, 2007. Though investors may view the results as rather ho-hum and the lack of visible robust growth as supportive of a discounted P/E, the stock's technical chart suggests otherwise."

To see Yola's favorite speculative idea for 2007, click here.