Grocery chains deliver market gains
TORONTO — Bread and milk are topping investor shopping lists as grocers from Loblaw Cos. to Metro Inc. vault Canadian consumer-staple stocks to the top of the market for the first time since 2008.
The shift into companies selling essential goods comes as slowing economic growth in China and Europe send commodity prices tumbling and energy and materials shares to the bottom of the pack in the benchmark S&P/TSX Composite Index.
“Investors are looking for a little more value and a little less cyclicality,” Craig Fehr, Canadian market strategist at Edward Jones, said from St. Louis, Mo.
“All the pieces are still in place for the outperformance of equities, but there will be more rotations in the near term.”
Investors are cashing in after the S&P/TSX rallied 15 per cent this year to an all-time high, selling positions in the oil and gold producers that propelled the Canadian market to the second-best performance in the developed world behind Denmark. The benchmark equity gauge dropped 1.2 per cent in the third quarter, snapping four straight quarterly gains and now stands seventh against its global peers.
It was down 1.1 per cent to 14,645.17 at 10:41 a.m. in Toronto, the lowest since June amid a U.S. equities sell-off.
“People are gravitating towards more stable” investments including retailers such as Loblaw and Alimentation Couche-Tard Inc., said John Kim, a fund manager at Toronto-based Aston Hill Financial Inc.
The S&P/TSX Consumer Staples Index jumped 12 per cent in the third quarter, the biggest advance since 2010, and the first time it has led the benchmark’s 10 main groups on a year-to-date basis since 2008.
Brampton, Ont.- based Loblaw surged 18 per cent in the quarter, Quebec-based gas and convenience store operator Couche-Tard gained 23 per cent in the quarter and Metro, also based in Quebec, advanced 14 per cent.
Same-store sales growth is improving as grocers such as Loblaw and Empire Co., which operates the Sobeys chain, find cost savings after acquisitions and offer higher-margin items, said James Telfser, a fund manager at Aventine Management Group Inc.
Telfser’s firm manages about $80 million, including shares of Stellarton, N.S.-based Empire and Clearwater Seafoods Inc.
“They’ve finally strung a couple good quarters in same-store sales growth, which is a signal for me to get back in,” Telfser said.
Empire, which acquired the Canadian operations of Safeway Inc. for $5.8 billion in November, said adjusted first-quarter earnings before interest, taxes, depreciation and amortization jumped 48 per cent compared with last year primarily due to food retailing and the impact of Safeway operations and synergies.
The industrials group came in second in the third quarter with Canadian Pacific Railway Ltd. and Canadian National Railway Co. rallying at least 15 per cent each as they benefit from shipping oil by rail and the U.S. economic recovery.
By contrast, energy stocks slumped 7.3 per cent in the third quarter, the most since the second quarter of 2012, and gold producers plunged 17 per cent in the same period.
Easing tensions in the Middle East, a rising U.S. dollar and increasing concern about the economic health of Europe and China have sent commodities prices plunging in the past three months. Crude in New York dropped 13 per cent in the latest quarter, the most since the second quarter of June 2012, while gold fell 8.4 per cent.