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Better Buy: Loblaw Stock or Metro?

Supermarket aisle with empty green shopping cart
Image source: Getty Images

Written by Demetris Afxentiou at The Motley Fool Canada

Some of the best stocks to buy are those which we interact with on a daily basis. These everyday stocks provide a necessary service that translates into a defensive moat that is worth considering. One such example is grocery stocks. Here’s a look at which of the two grocery titans is a better buy for your portfolio.

The case for Loblaw

Loblaw (TSX:L) is the largest grocer in Canada, and the company has used that dominance to its advantage in this volatile market. As prices increase, consumers will trade down to lower-cost, higher-value options.

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Loblaw operates a dizzying array of brands across the country, including some value-focused and bulk-oriented brands. In other words, that trade-down effect merely shifts Loblaw’s revenue stream to another grocery food brand in the family.

Loblaw also operates the largest pharmacy network in the country through its Shoppers brand and operates a financial arm, clothing line, and even wireless products. In short, the company is a well-diversified behemoth with approximately 2,400 locations across Canada.

Turning to results, in the most recent quarter Loblaw earned $529 million, or $1.62 per common diluted share. This represents a $215 million, or 28.9% drop over the prior period, but that dip is attributed to a favourable court ruling in that prior year.

Revenue for the period hit $14 billion, reflecting a $1.2 billion increase, or 9.8% over the prior year. Retail segment sales for the period witnessed a 9.7% bump to $13.6 billion, while e-commerce sales also rose 8.3% in the period.

Prospective investors should also note that Loblaw offers a quarterly dividend. That dividend boasts a 1.35% yield. That’s not the highest-paying yield, but it is stable, and the company has provided upticks to that dividend on an annual cadence for over a decade.

As of the time of writing, Loblaw trades at a price-to-earnings (P/E) of 20.81 and is up over 18% over the trailing 12-month period.

The case for Metro

Metro (TSX:MRU) may be the smaller of the better buy duo being compared, but that factor alone shouldn’t be a deciding factor. Metro’s network comprises nearly 1,000 stores focused primarily in Quebec and Ontario.

That network is augmented by Metro’s Jean Coutu pharmacy network, which overlays an additional 645 stores. Like Loblaw, Metro benefits from cross-selling of merchandise between its stores, and Metro boasts a variety of brands for its products.

Turning to results, Metro reported income of $231.1 million, or $0.97 per diluted share, in the most recent quarter. This works out to an 11.3% increase over the same period last year.

That generous increase trickled over to Metro’s dividend as well. The company announced a 10% increase to its quarterly payout, bringing its yield to 1.70%. That annual bump isn’t anything new; Metro has provided a generous annual uptick to investors for nearly three decades without fail.

Metro’s stock price hasn’t surged like Loblaw’s in the past year, but it has outperformed the market. Over the trailing 12-month period, the stock has risen over 6% and, as of the time of writing, the P/E on the stock is 19.57.

The grocery wars will continue, but which is the better buy right now?

Both Loblaw and Metro make a compelling investment case for investors. Loblaw is the bigger of the two and has branched out to other verticals such as clothing and financial services, whereas Metro has stayed pure to its grocer/pharmacy network.

Similarly, both offer a respectable (and stable) quarterly dividend, which is a good thing during times of market volatility. Metro’s lower cost of entry, higher yield, and established history of dividend hikes give it a slight edge over its larger peer.

In my opinion, Metro is the better buy right now. Metro is a great long-term pick to buy as part of any well-diversified portfolio.

The post Better Buy: Loblaw Stock or Metro? appeared first on The Motley Fool Canada.

Should You Invest $1,000 In Loblaw Companies?

Before you consider Loblaw Companies, you'll want to hear this.

Our market-beating analyst team just revealed what they believe are the 5 best stocks for investors to buy in February 2023... and Loblaw Companies wasn't on the list.

The online investing service they've run for nearly a decade, Motley Fool Stock Advisor Canada, is beating the TSX by 22 percentage points. And right now, they think there are 5 stocks that are better buys.

See the 5 Stocks * Returns as of 2/17/23

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Fool contributor Demetris Afxentiou has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

2023