TFSA Investors: This 1 Stock Will Make You Rich

Empire Company Limited (TSX:EMP.A) is the mastermind behind the Sobeys grocery chain. You should invest today.

| More on:
IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT

Image source: Getty Images

You would be  hard-pressed to find a Canadian that has not set foot in an Empire (TSX:EMP.A) owned store.

The conglomerate is the owner of Sobeys, Safeway, Farm Boy, FreshCo and Foodland, to name a few.

It’s the underdog in the grocery industry with companies such as Loblaws and Metro overshadowing the company. This doesn’t come as a surprise after Loblaws’ purchase of Shoppers Drug Mart for $12.4 billion and Metro’s purchase of Jean-Coutu for $4.5 billion.

To date, Empire’s market capitalization if $9.7 billion, which makes it less than Metro’s $14.5 billion market capitalization and Loblaws’ $26 billion market capitalization.

As an investor, I believe this is a competitive advantage, as Empire is able to let the big players dominate the market and fill the voids. This strategy has been successful based on the company’s portfolio and its net income.

Portfolio of companies

As mentioned above, the company is the owner of Sobeys, Farm Boy and Safeway. Let’s look at these brands individually.

Sobeys appeals to families. On its website it proudly displays its mantra, “We are a family nurturing families,” which the company describes as its collective passion and mission. The store layout is very welcoming and provides customers with a relaxed shopping atmosphere.

Farm Boy specializes in the farm-to-table concept. It works closely with local farmers to provide its customers the freshest produce. Its competitive advantage comes from featuring products grown in Ontario, which appeal to its demographic as the company operates exclusively in this province.

Safeway was formerly a division of the American company Safeway before being sold to Sobeys in 2013. Its competitive advantage is name recognition as the company is very popular south of the border.

Similar to the Wal-Mart effect, Safeway’s American roots helped it wedge itself in the mind and hearts of Canadians.

Increasing net income

After a poor fiscal 2016 whereby Empire lost $2.1 billion, it has since recovered and reported net income of $159 million in fiscal 2017, $160 million in fiscal 2018 and $387 million in fiscal 2019.

Given Safeway’s extensive operations in Western Canada, there’s a strong indication that net income will continue to grow as Alberta’s economic situation improves.

Based on its first quarter fiscal 2020 results, the company is reporting $131 million in net income, which suggests annualized net income of $524 million. Given that grocery shopping is not significantly cyclical, it’s fair to assume the company will post a net income gain for its fourth straight year.

Bottom line

I recently wrote an article whereby I said the best thing about investing in Metro was that it could learn from Loblaws’ mistakes, as it’s the second biggest grocery conglomerate by market capitalization.

I want to further this statement by saying an investment in Empire is just as good, if not better than Metro, as it can observe the strategies implemented by Metro and Loblaws and fill a v0id that the two biggest grocery conglomerates overlook.

Overall, Empire is a solid investment.

If you liked this article, click the link below for exclusive insight.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Chen Liu has no position in any of the stocks mentioned.

More on Investing

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Growth Stocks I’m Buying in April

These three growth stocks are up in the last year, and that is likely to continue on as we keep…

Read more »

clock time
Tech Stocks

Long-Term Investing: 3 Top Canadian Stocks You Can Buy for Under $20 a Share

These three under-$20 stocks offer excellent buying opportunities for long-term investors.

Read more »

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »