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3 Reasons to Buy SUPERVALU

In order for investors to make an educated decision about their portfolio, they need to understand both the bear and bull case for their holdings. Today, analyst Austin Smith looks at the bull case for one of his own holdings: SUPERVALU (NYSE: SVU  ) . The the top of his list for reasons to consider buying the company today: its multiples. This company is incredibly cheap and priced like it's marching toward the grave. Admittedly, many investors believe that's where it will end up given the huge short interest around this stock, but Austin disagrees. The second reason Austin likes this company is because many macro trends play well into the company's position -- notably its emphasis on the lower-end grocery market. Consumers are increasingly putting their dollars on private label food items because of their more appealing value proposition, an area that SUPERVALU has room to grow into. The third reason Austin likes this company is that the key turnaround drivers necessary for it to catipult higher seem to be in place and are being executed on.

Of course there is a fourth reason as well -- SUPERVALU's huge dividend. Turnaround can take time, and in this case you can sit on a nearly 7% yield while you wait. Then again, the future remains uncertain for this company, and dividends require patience and a long-term view.

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Austin Smith owns shares of SUPERVALU. The Motley Fool owns shares of SUPERVALU. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (5) | Recommend This Article (7)

Comments from our Foolish Readers

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  • Report this Comment On July 06, 2012, at 12:40 PM, djlresearch wrote:

    They you go buy it Austin. Then in about a couple of years from now, when the company has a few more years of -7% SSS, the dividend is long history, more stores closed, more layoff, and probably a BK, you can tell me all out those "multiples". Keep in mind those "muitiples" are based on current numbers not the ones two years from how, which is what serious investors go by.

  • Report this Comment On July 06, 2012, at 2:11 PM, harrisob22 wrote:

    If you go to the SVU website and look at the FY12 annual report, you will see that SSS was -2.8%, down from -7% the year before. Pre-funding price reductions will cause SSS to be around -1% in FY13. This will put SVU in the position to reach positive SSS in FY14, and the top line will start growing again. If anything gets in the way of this trend, the stock will falter. But as the only grocer supplying stores in all 48 states of the continental U.S. (some 4200 stores), all that really has to happen is people have to keep eating for SVU to keep marching along. Nothing exciting, but a good dividend in a stable industry.

  • Report this Comment On July 06, 2012, at 2:50 PM, Starfirenv wrote:

    Already in at $4.30 a couple weeks ago.

    Up on a 175pt down day.

    +17.2% unrealized. Let's play some more and you can keep pitching!

  • Report this Comment On July 07, 2012, at 9:15 PM, neamakri wrote:

    I have owned some SVU in the past. I have looked at it recently. A lot of the numbers look good, EXCEPT price/book 50:1.

    That puts the Graham safety at about -66%. So I will pass, thank you.

  • Report this Comment On July 09, 2012, at 12:12 PM, PEStudent wrote:

    I'm sorry, but this article seems poorly researched and confused about reasons to buy.

    First, a company "priced like it's marching toward the grave" is NOT a reason to buy.

    An explanation of how it will turn the direction of the march around is a reason to buy and already that's the Second reason in this article, yet nothing specific other than "room to grow" into selling low-margin products is given.

    The article's Third reason, that the turnaround keys needed are already in place doesn't show up in revenues where there are year-to-year quarterly drops for three years (12 quarters!) in a row. And the last two quarters are the worst loss eps quarters in those past three years.

    Finally, the claim you've got the 7% dividend to live with while things get turned around is questionable: the annual dividend was $0.69 in 2009, $0.61 in 2010, $0.35 in 2011 to now. Yet the cash flow and eps have been negative the last 2 plus years. That dividend is almost sure to drop.

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