Some of the best opportunities for investors come by sticking to the basics and investing in what you know. When investors try and get too fancy and find lesser-known stocks, it will more often than not only lead to trouble.
Oftentimes, the best opportunities are right under our noses in stocks that have long-term track records of success and may experience temporary headwinds, which depress the stock price temporarily.
Finding a stock that will be around for the long term and buying it at its 52-week low is a great way to set yourself up for the future, because even if the stock doesn’t reach a new high all that soon, if you buy it undervalued and with a decent margin of safety, you can hold it forever, knowing it will pay off one day.
One of the best opportunities of a great long-term stock trading for well below its fair value is Andrew Peller (TSX: ADW.A).
Andrew Peller is an owner and operator of wineries across Canada. The company has built a number of well-known brands, growing its operations organically and through numerous acquisitions.
The growth strategy has paid off, and Andrew Peller has been increasing its market share in Canada, now estimating to have more than a quarter of market share for total volume of the Canadian English wine market.
Andrew Peller’s own namesake brand Peller Estates leads the market share for the company as the top-selling brand in the Canadian English wine market.
Going forward, Andrew Peller has looked to some new growth avenues, developing other types of alcoholic drinks, such as ciders and liquors.
Both its No Boats on Sunday cider and its PJs liquor are positive additions to its product lineup, and through its network of retail stores, the company has a platform to promote its new products and drive their popularity.
The stores also help the company to realize better margins on its products, especially for its wines that would be considered the cheaper option for consumers, which is always important, but even more so as we approach an inevitable recession in Canada.
These lower-cost wines help Andrew Peller to operate in numerous segments of the market and protect it from a major decrease in consumer spending, if its higher-end consumers want to save some money and pick out a cheaper option.
Looking at its financials, it’s evident that it’s already dealing with a slowdown in sales, as the first two quarters of its fiscal 2020 have shown flat sales from the same two quarters in fiscal 2019.
Its margins remain strong though, as the company has reported a 19% adjusted earnings before interest, taxes, and amortization (EBITA) margin so far in fiscal 2020 compared to the first two quarters of fiscal 2019, where its adjusted EBITA margin was 18%.
It also managed to increase its dividend again this year by 4.8%, which is promising but not surprising, considering Andrew Peller has a lengthy history of dividend increases in each of the last seven years and has paid a dividend since 1979.
Today, the dividend yields roughly 1.8% at a highly sustainable payout ratio of less than 50%.
The stock can’t get much cheaper than this, and because it’s such a well-run company, it’s the ideal stock to buy today.
