The 3 biggest supermarkets in Australia as listed on the ASX are:
Metcash Ltd (MTS.AX)
Coles Group (COL.AX)
Woolworths Group (WOW.AX)
MTS.AX owns brands including IGA, Foodlands, Friendly Grocer and Lucky 7 and Mitre 10, Home Timber and Hardware. Coles Group owns the Coles supermarkets, Coles Online, Liquorland, First Choice Liquor Market and Vintage Cellars among other businesses. Woolworths includes the Woolworths stores, Big W, Countdown (New Zealand), BWS, Dan Murphy’s, Langton’s, ALH Group and Cellarmasters. Between COL.AX, MTS.AX and WOW.AX, a fair proportion of the supermarkets in Australia are accounted for. With exposure to just these 3 stocks alone, you too can get exposure to the supermarkets should you chose. The key is to understand if adding supermarket stocks is a good idea. Rather than leave things to gut feel and chance, let’s be guided by VectorVest.
In VectorVest, if you head over to Viewers and click on Stock Viewer, you can lookup given ticker codes. For this exercise, per the top of your screen, there is an Find Symbol(s) box. I am going to simply enter the following: COL.AX, MTS.AX, WOW.AX and then press enter. And with that you now have the key supermarket retailers in Australia. As of 28th August, all these stocks have a Buy Rating. Recall, to get a Buy Rating: VST > 1.00, RT > 1.00, Stock Price > Stop, Price diverging away from the Stop price. Often it is the last rule, that being the price diverging away from the stop line that confused one as to why a stock is given a Hold rating and not a Buy rating. A stock can have a VST and RT score above 1.00, but if that price is not diverging away from the Stop price we calculate each day, then the stock will not meet all the rules of a Buy Rating.
MTS.AX is undervalued, but COL.AX and WOW.AX have a premium currently being paid for the stocks. Let’s have a look now to see how well sales are performing in the current environment for these three stocks. To check this out, graph your given stocks, then click on Add Parameter and then from there, hover your mouse over: Sales/Market Capital and then click on Sales – (Yearly Sales -($Millions). This will then enable you to check out the sales for each company. As of 1st September, the standout is WOW.AX which has seen sales increase 6% since the start of the year. This may not seem like much, but when you look at the sales figure, it is currently 63,675 Million…that being $63,675,000,000 up from $59,984,000,000 at the start of the year (I will show you in the video at the end how to check in on the Sales values). That is an increase of $3,691,000,000 since the start of the year. As noted in previous essays, sales on their own will not drive profit…unless you are making a margin on each sale. In this case, WOW.AX currently makes 3.05% Net Profit Margin per sale on average (which I will show you how to add into your graph per the video at the end of the Essay).
If you take $3,691,000,000 and multiply it by 3.05%, you get $112,575,500. A few less zeroes in that number…but that is an extra 100 million in profit thanks to the uplift in sales. However, Net Profit Margin has been declining (I will show you how to add in Net Profit Margin to your graph in the video coming up). Although there are more sales, the overall level of profit per sale has been falling. Looks like WOW.AX has been benefiting from more sales, but at a lower margin. As for MTS.AX, this stock has falling sales and falling Net Profit Margin.
What about COL.AX? COL.AX paints a different story! Sales have been increasing and Net Profit Margin has been increasing. Why not have the best of both worlds? Per the video below, we cover all of this. In addition, there is a twist! I am going to add in 2 additional stocks that will lift the portfolio significantly. Therein lies the key message of today’s essay. Sometimes all that is required is simply one or two stocks to be removed and one or two stocks to be added in…the differences in performance can be significant.
I will not spoil the surprise in terms of what is taken out and added into this portfolio… check out the video to see what takes place!
Please CLICK HERE to see the video for this Essay.
One final note, there is brilliant upcoming options course for those of you who are interested in finding out more about options…here is your chance to learn about options. The course is entitled: The Options JumpStarter. For more details or to register, CLICK HERE.