Most Investors Shouldn’t Own Hudson’s Bay Co.

If there’s one thing I’ve learned covering stocks for a living, it’s that a watched pot never boils.

Hudson’s Bay Co. (TSX:HBC), in my estimation, is the proverbial pot when it comes to TSX stocks. Quarter after quarter, the company delivers disappointing results, and yet investors continue to hope for real progress on the retail front.

The thing is, even though it’s hired itself a top-notch retail executive as CEO, the market is going to continue to severely discount the value of its overall business, because the retail operations continue to lose market share and money.

Even if Helena Foulkes can perform a retail miracle and stop the bleeding at Lord & Taylor, HBC Off-Price, and Galeria Kaufhof, it’s going to take several quarters, perhaps years, to accomplish.

And then there’s the whole real estate gambit.

If I had a dollar for every time the $30 number is thrown out by analysts and writers, including me, I’d be a wealthy man. Until the entire real estate portfolio is sold, we have no idea how much it is worth. 

This is why I believe most investors shouldn’t own HBC stock.

It’s not because the fundamentals suck, which they do; it’s the fact the average retail investor doesn’t have the patience or the stomach to watch HBC stock bounce between $8 and $12.

Only the most patient of investors should own HBC, because there is going to be a lot of disappointment over the next couple of years — history tends to repeat itself — occasionally broken up by the briefest of good news. It’s too darn unpredictable.

Patient investors only’s Joey Frenette recently discussed HBC’s march to retail oblivion. He is not optimistic regardless of who is in the CEO chair.

“Although Foulkes has an impressive track record, I don’t think the retail business of Hudson’s Bay will ever be anything more than a shell of its former self,” Frenette wrote April 2. “The disruption caused by digital retailers has caused a profound amount of damage, and this is just the beginning.”

He goes on to suggest its online business is bush league, while the company’s customer service is mediocre at best. I would agree on both counts; they are not the hallmarks of a thriving retail business.

Why own HBC stock?

At the end of the day, I’m cautiously optimistic that Richard Baker, HBC’s executive chairman, will do what’s necessary to fix the parts of its business that are ailing.

Saks grew same-store sales in the fourth quarter by 2.1%, the banner’s third consecutive quarter of positive comps, while Hudson’s Bay delivered its 30th straight quarter of higher same-store sales, suggesting good things will come to those who wait.

But like I said, you’ve got to have the patience of Job to own its stock — something most investors are severely lacking.

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Fool contributor Will Ashworth has no position in any stocks mentioned.

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