(B)(N) L Loblaw Companies Limited

Drama. The stock price for Loblaw Companies Limited popped today and is up by more than 15% to the current $39 or so. As much as we love the grocery story, and appreciate its brilliant efforts, someone ought to have told investors at large who still have money “Do not shop on an empty stomach” (Reuters, December 6, 2012, Loblaw to spin real estate into REIT, stock soars). Indeed, some “shareholder value” was “unlocked” today, about $1.6 billion, but what about tomorrow and the day after and so forth? And, of course, those who sold or took profits at $39 or more today, are no longer shareholders. The new guys will have to “carry the bag”, so to speak.

We haven’t been able to buy or hold the stock of Loblaw Companies in a Perpetual Bond™ for over a year because – and for no other reason – the ambient stock prices have been trading below the price of risk or the Risk Price (SF) which has remained firmly at $37 despite investor hopes (please see Exhibit 1 below, the solid Black Line which is a step-function). We could join the chorus and buy it now (Red Line over Black Line) but not without enforcing a stop/loss due to volatility which is worth about minus ($3) per share or a bought put at $39 to protect the price. For example, the January put at $38 is available for $0.80 per share today and the cost could be partially offset by selling an opportunistic call at $40 for $0.50 at the present time (for more information, please see our Post, The Wall Street Put, August 2012) which would buy us a month at $0.30 per share to find out more about what we’ve bought and not lose our lunch.

Exhibit 1: (B)(N) L Loblaw Companies Limited – Risk Price

Loblaw Companies Limited operates as a food retailer and a provider of drugstore, general merchandise and financial products and services.

(Please Click on the Chart to make it larger if required.)

According to the press release, the company said that it plans to spin off its real estate assets that are estimated to be worth more than C$7 billion ($7.05 billion) into a “real estate investment trust” REIT and will sell units of the trust through an initial public offering (IPO) anticipated for mid-2013 subject to market conditions and regulatory approval and to use the “profits” to pay down debt, buy back shares, and create a long-term source of capital to invest in its grocery business and expand it.

Postscript

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Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.