Shopping List: Milk, Eggs, Bread, Cheap Stocks
I have seen a ton of interesting articles about investing in distressed supermarkets lately. To give you an idea of how distressed some of the companies in this sector are, one doesn't have to look any further than The Great Atlantic and Pacific Tea Company, which filed for bankruptcy earlier this week. Anyone who is looking to procrastinate should look up the history of A&P. It's absolutely amazing how huge this company once was. In the 1930s the company had more than 16,000 stores nationwide. Compare that to the 395 that it has today. Wow.
Anyhow, a number of intelligent value investors have been poking around this segment lately. Below I will post links to a couple of interesting articles on investing in supermarkets, specifically in this case SuperValu (SVU).
I'm not comfortable enough with this idea to invest real money in it yet, but I am long SVU in CAPS. The authors make some good points.
The losses that SVU has been reporting are actually from goodwill writedowns from past acquisitions and that the company actually generates a ton of cash.
Of course, it has a ton of debt as well...$7.1 billion versus a market cap of $1.8 billion. In 2009 SVU hired a solid new CEO, a former top Wal-Mart exec, who has been using this strong cash flow to pay down the company's debt. He has paid off more than a billion dollars in debt in the past three quarters alone. The more debt he pays off, the more SVU is worth in both a dollar for dollar sense and in the sense that it is a less risky investment that theoretically would be provided with a higher multiple.
SuperValu: Leveraged Buy-Out For Retail Investors
SuperValu May Soon Have Its Day