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The Loblaws store located on St. Clair Ave.West in Toronto is shown on Wednesday, Feb. 18, 2009. (NATHAN DENETTE/NATHAN DENETTE/The Canadian Press)
The Loblaws store located on St. Clair Ave.West in Toronto is shown on Wednesday, Feb. 18, 2009. (NATHAN DENETTE/NATHAN DENETTE/The Canadian Press)

Schizas' Mailbag

Loblaw Companies wilting from intense competition Add to ...

Hello Lou,

I’m curious to know what you think about Loblaw. I bought it at $42, knowing that the stores were doing huge store upgrades across Canada believing that they were going to have a large public interest and have seen the stock plummet to $32. Is there any hope for this one?

Pat

Hey Pat,

Thanks for the assignment. This will be the first time I have posted on the prospects for Loblaw Companies Ltd. and from the research that I have conducted and an analysis of the charts it is difficult to find a silver lining to this dark cloud.

More related to this story

The main thrust of the story for this company is a case of seeing its business consumed by intense competition. When Wal-Mart Canada expanded the footprint of its super center store model in 2006 it went right at the throat of existing grocery retailers. The ten-year chart for L indicates that the all-time high of $76.34 for the stock came on April 29, 2005 before the battle with the beast from Bentonville began.

Wal-Mart Canada checks the price of over 140,000 items sold by its rivals every single week in an effort to offer their customers lower prices. That puts a lot of pressure on the other grocery retailers.

If that wasn’t enough vicious competition, 2013 is expected to see Target make a big splash in Canada as they convert the Zellers leases they acquired from the Hudson Bay Company in 2011. All these factors have turned a cozy profitable business into a relentless struggle for the once dominant chain.

A review of the charts will provide further details on how best to proceed with your investment.

The three-year chart tells the tale of woe that started in 2010 as the stock began the long decline from $43.00. The downtrend line is solidly in place and all attempts to break above resistance have failed time and time again.

The six-month chart illustrates the failure to break above the 200-day moving average on multiple occasions. Overall this is a weak story accompanied by a less than robust technical profile.

I would strongly suggest that you consider preserving your capital. I don’t think the management team at L is up to the challenge of what is waiting for them when Target comes into the market and as Wal-Mart continues to eat their lunch.

Make it a profitable day and happy capitalism!



Have your own question for Lou? Send it in to lschizas@globeandmail.com.

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