Shares of Montreal-based grocery firm Metro (TSX:MRU) have been faring quite well in the past year, now up a solid 17% year to date and close to 40% in the past year. Undoubtedly, the “boring” grocery play has been anything but amid its robust rally.
And while the stock may be starting to get just a bit pricey, at least compared to its historical valuation metrics, I think the quality defensive is well worth the slightly higher price of admission at just north of $105 per share.
Undoubtedly, Metro, which primarily operates in the provinces of Quebec and Ontario, isn’t the only grocery stock that has been firing on all cylinders of late. Indeed, the broad basket of grocery names has been on the ascent in recent years, seemingly undeterred by the threat of heftier food inflation and the impact of tariffs.
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A low-volatility performer worth the premium
Although you could do quite well by owning any one of the grocery plays or the broad basket, I think that shares of MRU stand out for their incredibly low beta, which is currently at 0.3.
Indeed, for those seeking a less volatile ride for the second half, MRU stock seems to be a name to pick up while it yields a relatively attractive (and growing) 1.4% dividend yield. At the time of writing, shares trade at 23.75 times trailing price to earnings (P/E), which is not cheap for Metro standards.
However, if you’re in the market for a steady consumer staple that can move higher under its own power (the lower beta entails Metro is less likely to follow in the footsteps of the TSX Index), I’d not be against buying the stock at above $100 per share.
Arguably, Metro still has the growth drivers in place to make higher highs going into year’s end. Recently, Metro’s top boss and CEO noted that the weakness in the Canadian dollar has been adding fuel to inflation.
The weak loonie has weighed
As the loonie gains a bit of ground again as the U.S. dollar looks to sink further (some pundits see the greenback falling by a high single-digit percentage point from here), I think Canadian consumers could be in for a bit of modest relief.
And if Trump’s tariffs go away in the back half of the year, either due to a friendly deal or perhaps some sort of blockage by the U.S. court, perhaps food inflation could have the chance to really cool off for a change.
Either way, Metro’s managers are doing a fantastic job of navigating the tariff environment. They’ve done their best to source more local products to help customers get a better deal for their dollar.
And though there’s no eating all of the tariff impact on imported goods, I think that the firm is better equipped than most other retailers to continue higher, regardless of what’s in store on the trade front for the next 18 months.
Is Metro stock the cheapest it could be?
Most definitely not. But if you’re a cautious investor looking for a resilient defensive dividend grower, I’d not sleep on the name. It’s a buy, in my books.
