It's time to check-out at Empire Company.
The Stock: Empire Co. Ltd. (EMP.A-T) Recent price: $53
The Trend
The entry of U.S. retailers into the Canadian marketplace is exciting
news for consumers, but it also puts pressure on domestic retail stocks.
Target Corp.'s long-anticipated move north of the border has already
squeezed the share prices of Canadian Tire, down 7 per cent in
January, and Reitmans (Canada), which dropped 5 per cent last month.
Target stores won't open for a while, but investors know the
implications for the market share, profits and share prices of domestic
retailers.
Meanwhile,Wal-Mart Canada's plan to build more superstores has shaken
shareholders of Canadian food stores.
Loblaw Cos. Ltd. is feeling the tremors, as is Metro Inc., which has
seen its shares fall almost 10 per cent from their peak three months
ago. Investors should take note: The expiration date of last year's
grocery store bull trend has passed.
The Trade
Most of these Stock Trends columns focus on buying opportunities, but
some times it is possible to feature stocks that are pointing investors
to the exit. Empire Co., operator of Sobeys and other food retail
banners, was profiled as a "buy" here at the end of 2009 when it was in
the early stages of a new bullish trend. Its stock moved from the $46
level to eventually peak just a penny shy of $60 in late November.
However, since hitting its 52-week high Empire's stock has
underperformed the broader TSX market for all but one week. Since the
New Year, it has been in the Stock Trends Weak Bullish category,
indicating that trend-following shareholders should be ready for checkout.
The Upside
The immediate downside risk is a slip to the $50 level, a possible price
support level. But the relative weakness of food store stocks may well
persist for a longer period. Rotating to bullish trending sectors will
deliver better results.
The Downside
Although market timers like to celebrate their success, there are almost
always lost profits on the table. Those willing to risk waiting to sell
on strength might wait on a rally in the short-term, perhaps sending the
stock back above the $56 area, to regain some of the value lost since
November.
I am something of a momentum investor. I find Stock Trends useful as I can look at my portfolio as a “watch list” and quickly see where trends are declining in strength or reversing, so it is particularly useful as a tool in portfolio management regarding sales.
