Ever since the middle of September, even though it may not feel like it, the TSX Index has been trading in a flat range. Markets are essentially digesting this year’s big gains. Van Arbor has had a nice feast on material, energy, and cyclical companies for most of the year, but as of late we have been repositioning into companies with better current risk/reward prospects.

More recently we have been snacking on food stocks (pardon the pun) as well as high yielding telecom & utility stocks. These have been doing great relative to the market and should benefit from earnings momentum and developing macro trends. See the charts below to get an idea of why this is a stock picker’s market.

So with markets digesting, that begs the question: when is the next big meal? As opposed to business which is about creating opportunities; investing is all about spotting the best opportunities before everyone else. Usually 90% of a good trade is planning, while 10% is executing it.
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Loblaw’s reported very positive earnings this morning, helping solidify our thesis in the company. Below is our analysis on the company, which also translates to other companies that we own in the grocery industry.

Our key thesis on Loblaw’s can be summarized as follows:

- The company is trading at two decade low valuations and is one of the better bargains in the today’s market (see chart 1 and 2).
- The extremely low valuation is attributed to multiple years of negative news regarding operations and the industry; thus, like any value stock with low expectations, it does not take much to lift the price of the stock (see chart 3).
- A good example of a comparable company is Safeway, which we have been building a stake in lately for our World Fund. Another turnaround story which seems to have put in a multi year bottom and has begun to see some gains (see chart 4).
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