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StockPointer® US and ADR Model Portfolio Transactions – June 2020

We have rebalanced the Stockpointer® US and ADR model portfolios which are effective now. Here are the details for the US portfolio :

Ins:

  1. United Therapeutics Corporation (UTHR) – Market Trend. Increase in the Healthcare sector as seen in the Top 100 index, therefore, increasing our position in the portfolio.
  2. AT&T Inc. (T) – Market Trend. Increase in the Telecommucations sector.
  3. Federated Investors (FHI) – Intra-sectoral transaction. In the top of its sector.


Outs:

  1. Constellation Brands, Inc. Class A (STZ) – Both a Market Trend and an intra-sectoral transaction. Decrease in the consumer staples sector as seen in the Top 100 index, therefore, decreasing our position in the portfolio. The company’s EPI also fell below 1.
  2. Employers Holdings, Inc. (EIG) – Both a market trend and an intra-sectoral transaction. Decrease in the Financial sector and no longer in the top of its sector.
  3. South State Corp (SSB) – Intra-sectoral transaction. No longer in the top of its sector. This company was in our portfolio following the merger with CenterState Bank Corportation (CSFL).

 

Here are the details for the ADR portfolio:

Ins:

  1. Swedish Orphan Biovitrum AB (BIOVF) – Market Trend. Increase in the Healthcare sector as seen in the Top 100 index, therefore, increasing our position in the portfolio.
  2. Globe Telecom Inc. (GTMEF) – Market Trend. Increase in the Telecommucations sector.
  3. Ford Otomotiv San (FOVSY) – Intra-sectoral transaction. In the top of its sector.
  4. Daito Trust Construction (DITTF) – Intra-sectoral transaction. In the top of its sector.
  5. Wipro Technologies (WIT) – Intra-sectoral transaction. In the top of its sector.
  6. China Resources Cement (CARCY) – Intra-sectoral transaction. In the top of its sector.

 

Outs:

  1.  Trane Technologies (TT) – Market Trend. Decrease in the industrial sector as seen in the Top 100 index, therefore, decreasing our position in the portfolio.
  2. Fomento Económico Mexicano (FMX) – Market Trend. Decrease in the Industrial sector.
  3. Megacable Holdings (MHSDF) – Intra-sectoral transaction. No longer in the top of its sector.
  4. DBS Group Holdings (DBSDF) Intra-sectoral transaction. No longer in the top of its sector.
  5. Garmin (GRMN) – We decided to exclude this stock because it is not an ADR and we think this is a good timing to do it.
  6. LyondellBasell (LYB) – We decided to exclude this stock because it is not an ADR and we think this is a good timing to do it.

StockPointer® US and ADR Model Portfolio Transactions – April 2020

We have rebalanced the Stockpointer® US and ADR model portfolios which are effective now. Here are the details for the US portfolio :

Ins:

  1. American Express (AXP)– Market Trend. Increase in the Financial sector as seen in the Top 100 index, therefore, increasing our position in the portfolio.
  2. LyondellBasell (LYB)– Market Trend. Increase in the Material sector
  3. Starbucks (SBUX)– Intra-sectoral transaction. In the top of its sector.
  4. Home Depot (HD) – Intra-sectoral transaction. In the top of its sector.
  5. Cabot Oil & Gas (COG) – Intra-sectoral transaction. In the top of its sector.
    6. Centerstate Bank Corp (CSFL) – Intra-sectoral transaction. In the top of its sector.
    7. TransDigm Group (TDG) – Intra-sectoral transaction. In the top of its sector.
    8. Newmont Mining (NEM) – Intra-sectoral transaction. In the top of its sector.


Outs:

  1. Bristol-Myers Squibb Co. (BMY)– Market Trend. Decrease in the Healthcare sector as seen in the Top 100 index, therefore, decreasing our position in the portfolio.
  2. DTE Energy (DTE)– Market Trend. Decrease in the Utilities sector
  3. Six Flags (SIX)– Intra-sectoral transaction. The company was in potential financial distress.
  4. H&R Block (HRB) – Intra-sectoral transaction. No longer in the top of its sector.
  5. GeoPark Ltd. (GPRK) – Intra-sectoral transaction. No longer in the top of its sector.
  6. Medical Properties Trust Inc. (MPW) – Intra-sectoral transaction. No longer in the top of its sector.
  7. Alaska Air Group Inc. (ALK) – Intra-sectoral transaction. No longer in the top of its sector.
  8. Westlake Chemical Corporation (WLK) – Intra-sectoral transaction. No longer in the top of its sector.

 

Here are the details for the ADR portfolio :

 

Ins:

  1. Anhui Conch Cement(AHCHF)– Market Trend. Increase in the Materials sector as seen in the Top 100 index, therefore, increasing our position in the portfolio.
  2. DBS Group Holdings (DBSDF)– Market Trend. Increase in the Financial sector
  3. Telenet Group Holding (TLGHY)– Intra-sectoral transaction. In the top of its sector.
  4. Husqvarna AB (HUSQF) – Intra-sectoral transaction. In the top of its sector.
  5. Neste OYJ (NTOIF) – Intra-sectoral transaction. In the top of its sector.
  6. Ping An Insurance (Group) Co. Of China (PIAIF) – Intra-sectoral transaction. In the top of its sector.
  7. Ashtead Group (ASHTF) – Intra-sectoral transaction. In the top of its sector.
  8. Shionogi & Co (SGIOF) – Intra-sectoral transaction. In the top of its sector.
  9. Nexon (NEXOF) – Intra-sectoral transaction. In the top of its sector.


Outs:

  1. Brookfield Infrastructure Partners L.P. (BIP)– Market Trend. Decrease in the Utilities sector as seen in the Top 100 index, therefore, decreasing our position in the portfolio.
  2. Brookfield Infrastructure Corporation (BIPC)– Market Trend. Decrease in the Utilities sector. This company was in our portfolio following a unit split equivalence from Brookfield Infrastructure Partners L.P (BIP).
  3. Enersis (Enel Américas) (ENIA)– Market Trend. Decrease in the Utilities sector
  4. Arcos Dorados Holdings (ARCO) – Intra-sectoral transaction. No longer in the top of its sector.
  5. Michael Kors (Capri Holdings) (CPRI) – Intra-sectoral transaction. No longer in the top of its sector.
  6. Transportadora (TGS) – Intra-sectoral transaction. No longer in the top of its sector.
  7. Bank of N.T Butterfield & Son Limited (NTB) – Intra-sectoral transaction. No longer in the top of its sector.
  8. Banco Santander Brasil (BSBR) – Intra-sectoral transaction. No longer in the top of its sector.
  9. Taro Pharmaceuticals (TARO) – Intra-sectoral transaction. No longer in the top of its sector.
  10. NXPI Semicondutors N.V (NXPI) – Intra-sectoral transaction. No longer in the top of its sector.

StockPointer® US and ADR Equities Model Portfolio Transactions – September 2019

StockPointer® US and ADR Equities Model Portfolio Transactions – September 2019

We have rebalanced the Nasdaq Inovestor Global Index based on our US and ADR Model Portfolios, which will be effective on September 20th after market close. Here are the details for the US Model Portfolio:

Ins:

1. Bristol-Myers Squibb Co. (BMY) – Market Trend. Increase in the Healthcare sector as seen in the Top 100 index, therefore, increasing our position in the portfolio.

2. Lamb Weston Holdings Inc. (LW) – Intra-sectoral transaction.

3. Progressive Corp (Ohio) (PGR) – Intra-sectoral transaction.

Outs:

1. Sally Beauty Holdings Inc. (SBH)– Market Trend. Decrease in the Consumer Discretionary sector as seen in the Top 100 index, therefore, decreasing our position in the portfolio.

2. Kroger Co. (KR) – Not in the top performers of its sector.

3. Blackstone Group Inc. (BX) – Not in the top performers of its sector.

Here are the details for the International Model Portfolio:

Ins:

1. Brookfield Infrastructure Partners L.P. (BIP) – Market Trend. Increase in the Utilities sector as seen in the Top 100 index, therefore, increasing our position in the portfolio.

Outs:

1. Unilever PLC (UL) – Market Trend. Decrease in the Consumer Staples sector as seen in the Top 100 index, therefore, decreasing our position in the portfolio.

StockPointer® US and ADR Equities Model Portfolio Transactions – June 2019

We have rebalanced the Nasdaq Inovestor Global Index based on our US and ADR Model Portfolios, which will be effective on June 21st after market close. Here are the details for the US Model Portfolio:

Ins:

  1. Employers HOLDINGS INC (EIG) – Market Trend. Increase in Financials sector as seen in the Top 100 index therefore increasing our position in the portfolio.
  2. ABBVIE INC (ABBV) – Market Trend. Increase in Healthcare sector as seen in the Top 100 index therefore increasing our position in the portfolio.
  3. EVERCORE INC (EVR) – Intra Sectorial transaction.
  4. CREDIT ACCEPTANCE CORPORATION (CACC) – Intra Sectorial transaction.
  5. PRICE T ROWE GROUPs (TROW) – Intra Sectorial transaction.
  6. TRANSDIGM GROUP INC (TDG) – Intra Sectorial transaction.
  7. GEOPARK LTD (GPRK) – Intra Sectorial transaction.

Outs:

  1. MICRON TECHNOLOGY INC (MU) – Market Trend. Decrease in IT sector as seen in the Top 100 index therefore decreasing our position in the portfolio.
  2. VECTOR GROUP LTD (VGR) – Market Trend. Decrease in Consumer Staples sector as seen in the Top 100 index therefore decreasing our position in the portfolio.
  3. VALERO ENERGY CORPORATION (VLO) – EPI. EPI fell below 1.
  4. CIGNA CORPORATION (CI) – SP Score. No longer within SP score range and not in the top 20 of its sector.
  5. PRINCIPAL FINANCIAL GROUP (PFG) – SP Score. No longer within SP score range and not in the top 20 of its sector.
  6. ALLSTATE CORPORATE (ALL) – SP Score. No longer within SP score range and not in the top 20 of its sector.
  7. THE CHEMOURS COMPANY LLC (CC) – SP Score. No longer within SP score range and not in the top 20 of its sector.

 

Here are the details for the International Model Portfolio:

Ins:

  1. BANCO SANTANDER MEXICO SA (BSMX) – Market Trend. Increase in Financials sector as seen in the Top 100 index therefore increasing our position in the portfolio.
  2. JAZZ PHARMACEUTICALS PLC (JAZZ) – Market Trend. Increase in Healthcare sector as seen in the Top 100 index therefore increasing our position in the portfolio.

Outs:

  1. TAIWAN SEMICONDUCTOR MANUFACTURING (TSM) – Market Trend. Decrease in IT sector as seen in the Top 100 index therefore decreasing our position in the portfolio.
  2. NIELSEN HOLDINGS PLC (NLSN) – Market Trend. Decrease in Consumer Discretionary sector as seen in the Top 100 index therefore decreasing our position in the portfolio.

StockPointer® US and ADR Equities Model Portfolio Transactions – March 2019

We have rebalanced the Nasdaq Inovestor Global Index based on our US and ADR Model Portfolios, which will be effective on March 22nd after market close. Here are the details for the US Model Portfolio:

Ins:

  1. THOR INDUSTRIES (THO) – Market Trend. Increase in Consumer Discretionary sector as seen in the Top 100 index therefore increasing our position in the portfolio.
  2. MICRON TECHNOLOGY INC (MU) – Market Trend. Increase in IT sector as seen in the Top 100 index therefore increasing our position in the portfolio.
  3. THE CHEMOURS COMPANY LLC (CC) –  Intra Sectorial transaction.
  4. WALGREENS BOOTS ALLIANCE INC (WBA) – Intra Sectorial transaction.
  5. SALLY BEAUTY HOLDINGS INC (SBH) –  Intra Sectorial transaction.
  6. BLOCK(H & R) INC (HRB) – Intra Sectorial transaction.

Outs:

  1. UNITEDHEALTH GROUP INC (UNH) – Market Trend. Decrease in Financials sector as seen in the Top 100 index therefore decreasing our position in the portfolio.
  2. US BANCORP (USB) – Market Trend. Decrease in Financials sector as seen in the Top 100 index therefore decreasing our position in the portfolio.
  3. LOCKHEED MARTIN CORP (LMT) –  SP Score. No longer within SP score range and not in the top 20 of its sector.
  4. SMUCKER(J.M.)CO (SJM) – SP Score. No longer within SP score range and not in the top 20 of its sector.
  5. PENSKE AUTOMOTIVE GROUP INC (PAG) –  SP Score. No longer within SP score range and not in the top 20 of its sector.
  6. AUTOZONE INC (AZO) –  SP Score. No longer within SP score range and not in the top 20 of its sector.

 

Here are the details for the International Model Portfolio:

Ins:

  1. ARCOS DORADOS HOLDINGS INC (ARCO) – Market Trend. Increase in Consumer Discretionary sector as seen in the Top 100 index therefore increasing our position in the portfolio.
  2. NXP SEMICONDUCTORS N V (NXPI) – Market Trend. Increase in IT sector as seen in the Top 100 index therefore increasing our position in the portfolio.
  3. CIMPRESS N.V (CMPR) – Intra Sectorial transaction.

Outs:

  1. BANCO DE CHILE SPON ADS REP 200 ORD SHS (BCH) – Market Trend. Decrease in Financials sector as seen in the Top 100 index therefore decreasing our position in the portfolio.
  2. ASSURED GUARANTY LTD (AGO) – Market Trend. Decrease in Financials sector as seen in the Top 100 index therefore decreasing our position in the portfolio.
  3. TE CONNECTIVITY LTD (TEL) – EPI. EPI fell below 1.

StockPointer® US and ADR Equities Model Portfolio Transactions – December 2018

We have rebalanced the Nasdaq Inovestor Global Index based on our US and ADR Model Portfolios, which will be effective on December 21st after market close. Here are the details for the US Model Portfolio:

Ins:

  1. Six Flags Entertainment Corporation (SIX) – Market Trend. Increase in Consumer Discretionary sector as seen in the Top 100 index therefore increasing our position in the portfolio.
  2. Blackstone Group L.P. (BX) – Market Trend. Increase in Finance sector as seen in the Top 100 index therefore increasing our position in the portfolio.
  3. Skyworks Solutions, Inc. (SWKS) –  Intra Sectorial transaction. WDS fell sharply in performance and is replaced by Skyworks Solution.
  4. Penske Automotive Group, Inc. (PAG) – Intra Sectorial transaction. Penske replacing CBRL as CBRL in no longer within SP score range and not in the top 20 of its sector.

Outs:

  1. Eastman Chemical Company (EMN) – Market Trend. Decrease in Materials sector as seen in the Top 100 index therefore decreasing our position in the portfolio.
  2. Clorox Company (CLX) – Market Trend. Decrease in Materials sector as seen in the Top 100 index therefore decreasing our position in the portfolio.
  3. Western Digital Corporation (WDC) –  SP Score. The company’s score fell sharply well below minimum level.
  4. Cracker Barrel Old Country Store, Inc.(CBRL) – SP Score. The company’s performance was stable, however many companies rose to better performance during the same period.

Here are the details for the International Model Portfolio:

Ins:

  1. Nielsen Holdings PLC (NLSN) – Market Trend. Increase in Consumer Discretionary sector as seen in the Top 100 index therefore increasing our position in the portfolio. There are talks to take the company private.
  2. Lazard Ltd Class A (LAZ) – Market Trend. Increase in Finance sector as seen in the Top 100 index therefore increasing our position in the portfolio.
  3. BBVA Banco Frances SA Sponsored ADR (BFR) – Market Trend. Increase in Finance sector as seen in the Top 100 index therefore increasing our position in the portfolio.

Outs:

  1. Ternium S.A. Sponsored ADR (TX) – Market Trend. Decrease in the Materials sector as seen in the Top 100 index.
  2. Industrias Bachoco SAB de CV Sponsored ADR Class B (IBA) – Market Trend. Decrease in Consumer Staples sector as seen in the Top 100 index.
  3. Allergan PLC (AGN) – Market Trend. Decrease in Healthcare sector as seen in the Top 100 index.

US-Large Portfolio Transactions – September 3rd 2018

We have rebalanced the Nasdaq Inovestor Global Index (Link on Nasdaq) based on our US and International Model Portfolios, which will be effective on Septemeber 21st after market close. Here are the transaction details:

Buys:

 

1) Hormel Foods Corporation (HRL) – Market Trend. Increase in the consumer staples sector as seen in the Top 100 index therefore we increased our position in the portfolio.

2) Allstate Corporation (ALL) – Market Trend. Increase in the Financials sector as seen in the Top 100 index therefore we increased our position in the portfolio.

3) Eastman Chemical Company (EMN) – Market Trend. Increase in the Materials sector as seen in the Top 100 index, we increased our position in the portfolio.

 Sells:

1) Sherwin-Williams Company (SHW) – Market Trend. Decrease in the industrials sector as seen in the Top 100 index.

2) Pinnacle West Capital Corporation (PNW) – Market Trend.  We decreased the number of holdings in utilities sector following index allocation.

3) Apple Inc. (AAPL) – Market Trend. Decrease in the Information Technology sector as seen in the Top 100 index.

You can find the transactions on Inovestor For Advisors, under the section Model Portfolios – StockPointer US.

 

The Inovestor Team

US-Large Portfolio Transactions – June 2018

Buys:

 

1) Verizon Communications (VZ) – SPScore. We purchased VZ to replace TMUS in the telecommunications sector.

2) J.M. Smucker (SJM) – Market Trend. Increase in the consumer staples sector as seen in the Top 100 index therefore we increased our position in the portfolio.

3) Western Digital (WDC) – Market Trend. Increase in the information technology sector as seen in the Top 100 index, we increased our position in the portfolio.

4) DTE Energy (DTE) – Market Trend. Increase in the utilities sector. We added a position in the portfolio.

5) Westlake Chemical (WLK) – Unique case. We replaced LYB with WLK because we cannot keep LYB both in the US and ADR portfolio.

 Sells:

1) T-Mobile US (TMUS) – SPscore. We sold TMUS because according to our fundamental data, VZ is a better stock to own in the portfolio.

2) Darden Restaurants (DRI) – Market Trend.  We decreased the number of holdings in the consumer discretionary sector following index allocation.

3) TJX Companies (TJX)– Market Trend. Reduction in the discretionary sector. We decreased our positions in the portfolio.

4) Spectra Energy Partners (SEP) – Market Trend. Decreased exposure in the energy sector. We reduced our positions in the portfolio.

5) LyondellBasell Industries (LYB) – Unique case. We replaced LYB with WLK because we cannot keep LYB both in the US and ADR portfolio.

You can find the transactions on Inovestor For Advisors, under the section Model Portfolios – StockPointer US.

 

The Inovestor Team

Taiwan Semiconductor (TSM)

In this week’s content analysis, we’ll be discussing Taiwan Semiconductor (NYSE: TSM) Download . The company is the largest dedicated chip producer (with around 54.5% of market share ) with a market value of $194B , in front of its main competitors such as Intel (INTC) and NVIDIA (NVDA). Its high-quality technology products allow the firm to generate solid operating margins of around 40%. The company is most commonly known for the fabrication of the Apple “A Chip” which can be found on all iPhone devices. Taiwan Semiconductor is currently manufacturing the A11 Chip, the newest model, for the iPhone 8, iPhone 8 Plus and iPhone X. The company also holds within its client roster (around 450 in total) some of the world’s most powerful semiconductor companies such as Qualcomm Inc., Nvidia Corp., Media Tek Inc., among others. Given its high level of client diversification, TSM sets itself apart from its competitors.

Recently, the CEO and founder of the company Morris Chang announced his plans to retire from his position as CEO in Jun ’18. Long time Co-CEO of TSM, C.C. Wei, is now to become the sole CEO of the company. Such news could have caused slight uncertainty within the market, however, the stock price on the day the news release increased by 1.85%. This shows how confident are Investors and Clients about the management’s capacity to remain on the strong growth path it’s been for the last couple of years. TSM’s stock has gained 22.3% YTD and has more than doubled in price since Feb ‘14.

Now, taking a deeper insight into the fundamentals, we can see the Intrinsic Value (IV) of the company has presented a bullish tendency over the last 5 years and currently sits at $39.56. Over the last 12 months, TSM’s intrinsic value grew by 32.54%. The stock is currently trading at a slight premium, the P/IV ratio being at 1.02. Even though this multiple doesn’t seem very attractive, it could represent a nice opportunity given how quickly and regularly the intrinsic value has grown in the past.

The return on capital currently stands at 24.5%, which is high. Even more impressive is the fact that it has been extremely stable over the past 5 years, hovering between 23% and 28%. And, there is no sign of slowing down: since 2013, the invested capital has grown at an average rate of 15% per year, and last year’s growth was the highest, at 16.4%. These capital investments have paid off quickly: over the same period, the NOPAT has grown at an average rate of 18% per year, which is even higher than the invested capital growth itself.

Given this very high economic performance and stability, the current Future Growth Value (FGV) premium of 35% seems reasonable: The Current Operating Value (COV) increased by 34.96% in the last 12 months. Therefore, the current premium reflects expectations of the equivalent of +/- 1 year of growth at the same growth rate.

TSM’s total Economic Value Added (EVA) is currently at an all-time high, at $7.8B, and it has grown very linearly in the past 5 years with no large and sudden increase/decrease whatsoever.

From a pure accounting performance perspective, revenues and earnings growth for TSM have also remained strong during the last 5 years. Earnings have grown 82.3% since Jun ‘13 with a yearly average growth rate of 18.58%. On the other hand, revenues increased by 20% over the last 12 months, and the average revenue growth rate has been of 14% during the last 5 years. This was partly due to the high demand of mobile devices, more specifically the iPhone 7. During the 2016 Fiscal Year, Apple sold around 211.88 million devices  from which TSM received around $10 USD per device sold.  The current dividend yield is attractive at 2.95%, and the 5-year average dividend growth rate has been of 30% per year. As a bonus, the current P/E multiple is only of 17.5, way better than the average S&P500 P/E of 25.

In Summary:

– Taiwan Semiconductor is the leader in its industry.

– Analysts project a 11.8% earnings growth in the upcoming year.

– The dividend yield is currently of 2.95%, and the company should continue to increase the dividend in the coming years.

– TSM’s revenue growth and strength is somewhat correlated to the iPhone demand. The newest device release will set the tone for the company’s short-term revenue growth. Apple as a customer for TSM, represents around 10% – 12% of the total yearly sales for the company.

The semiconductor industry is evolving with new industries such as Artificial Intelligence, driverless cars and big data taking a lot of attention. TSM seeks to adapt and penetrate these new industries, given that the smartphone industry hasn’t presented any noteworthy innovations during the last couple of years. Even though smartphone sales continue growing, the growth rates are much smaller: a total of 1.5 billion smartphone devices were sold in 2016, which represents a 5% increase compared to 2015. The growth rate was of 14% in 2015 and 28% in 2014. It is clear that there is a slowdown, and the general consensus is that the smartphone industry has matured. It now seems to be that not only TSM, but the entire industry is focusing on “the next big thing”. We believe Taiwan Semiconductor is bound to benefit from the demand of chips related to AI, which require sophisticated computing. This is what TSM does best.

Blog post written by Diego Sanchez (intern), under supervision of Jean-Didier L.

Here is a more detailed comparative analysis of Taiwan Semiconductor and its peers, where for each indicator “1” = First relative position and “6” = Last relative position.

Kroger – September ’17 update

In today’s content analysis, we are revisiting Kroger (KR), which we analyzed a little over a year ago. Since the last article, Kroger’s stock price lost about 40% of its value. Much of the market’s reaction can be explained by the deal announced earlier this year between Amazon (AMZN) and Whole Foods Market (-30% since then). The biggest fear is that Amazon and Whole Foods will put a LOT of pressure on prices which could hurt Kroger’s margins and market share. Given Kroger’s proximity with its customers thanks to its 2,800 stores across the United States, we do not see Amazon and Whole Foods replace America’s second largest grocer anytime soon. And as far as pricing fears, a recent survey notes that the average prices in Whole Foods stores are still 50% higher than those in Kroger and Wal-Mart. (Link to the article)

Kroger’s Price/Intrinsic Value ratio (0.43) has never been so low in at least 5 years. Even when adjusting the forecasts in the intrinsic value calculator to project a very pessimistic scenario, we still have an IV hovering around $25, which represents a 25% upside potential. The NOPAT has slightly decreased on a trailing 12 months basis, but the analysts’ earnings growth forecasts are generally positive or neutral, so we can expect the NOPAT to stabilize or bounce back in the coming quarters. Some help could come from Kroger’s latest initiative, Kitchen 1883, which will open a first location later this year. Kitchen 1883 will be sit-down lunch, dinner and weekend brunch restaurants to attract customers on services and experiences. 

The Future Growth Value, currently of -18%, also tells us the company is trading at a discount, while the Current Operating Value is still increasing. Kroger’s P/E Ratio of 12.5 and P/BV Ratio of 1.6 are also very conservative compared to its peers.

Kroger’s long-term EVA trend is slightly positive, close to horizontal, which is very normal for a mature company within a defensive sector.  Dividend investors will appreciate the fact that the yield is currently at a 5-year high, around 2.5%, and the dividend growth rate is also very appealing. The average growth rate has been of 13% per year over the past 5 years, and there’s plenty of room for more increases; the payout ratio is only of 30%, and the free cash-flows are very strong. Share buybacks are also common with Kroger; the company bought back an average of 5% per year of its outstanding shares over the past 5 years. 

For value and dividend investors, Kroger could be an interesting investment opportunity at these levels. It’s market share of 9% is the second largest after Wal-Mart, and Amazon/Whole Foods still need to do a lot of work to steal Krogers’ customers. 

In summary: 

The second largest U.S. grocer is currently trading at low multiples and a forward p/e of 10.5.

The company’s fundamentals are strong and are not expected to collapse.

The 40% price drop over the past year is mainly due to the fear of Amazon and Whole Foods Market. We believe this could be an overreaction. 

The dividend yield is currently “high”, the company has been increasing its dividend and will probably continue to do so given its financial strength and free cash-flows.

Patience is required – the Amazophobia has proven difficult to overturn. 

Blog post written by Diego Sanchez (intern), under supervision of Jean-Didier L.