In terms of investing in bonds: Although norte shopping there is a risk, the trend of lowering debt

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Catch a ride on the American Cart
I asked a lot recently about ideas for investing in shares. The fact that the market is hot and alongside the recommendation of investment houses to increase the share component of the portfolio are doing the work and push the public to increase the exposure channel. The basic answer I give is to operate through funds or indices. I believe that at the beginning of the rising trend in the market, norte shopping and even killed, there is a relatively low importance to select specific stocks. The main thing at this point is the timing of the acquisition and the choice of direction. Only the top-end, when the market is already fully pricing should start thinking creatively.
At such a great importance to select specific stocks, and unfortunately, it also signals that the market has reached record levels and is due for repair. A similar situation, I felt, was created recently in the bond market. Haunting returns, even at the cost of investing in bonds rated below or bonds that are not rated, signaling that prices had had enough and exercise approaches. norte shopping
Area captured in the most solid, but the actual price levels whereby shares are traded which indicates that he is in a serious crisis, is the area of food chains (supermarkets) in the United States. These networks were supposed to show resilience even in times of crisis or economic slowdown, this time unwilling seized.
The explanation for this is that in 2007 there were food chains in the process norte shopping of aggressive growth through leveraged buyouts and the establishment of networks Premium consumers. Crisis landed on the markets a year later took some of them with balance sheets loaded with very high leverage and bloated administrative staffs.
Harm the ability of American consumers to continue to consume at an exceptional rate, and discount chains transition required the networks to pass painful process of reducing costs and lowering leverage. And a situation norte shopping where the stock prices of many food chains are trading at historically low. Let us consider two examples. One. Safeway company's stock (NYSE: SWY)
Network share price moves in the $ 22, reflecting a company value of $ 8 billion. By Safeway and consensus forecasts analysts speak of the annual profit EPS of 1.5 dollars, there's a catch. However, the interesting story lurking here lies the major capital investments made by the Company, and its strong capital structure (rated BBB) that allows a significant portion of the cash flow from operations to become free.
The company norte shopping generates about $ 2 billion in cash flow from operations, of which $ 900 million allocated for capital investment (opening new stores and remodeling existing). Thus, she remained free cash flow of about a billion dollars used for the distribution of dividends totaling 12 cents per share per quarter (reflecting norte shopping an annual yield of 2.2%) and used an aggressive buyback of shares.
In the past 12 months the company acquired own shares totaling $ 800 million, and last month the Board approved an additional norte shopping facility for purchase totaling billion. In addition, the company recently issued ten-year bonds, which divides the 3.95% coupon in order to refinance old bonds bearing a coupon of 6.5%. This move demonstrates how low interest rate environment in the United States favors norte shopping the strongest companies.
In the same breath should be noted that other competitors such as Kroger and Delhaize, are strong companies that can be relevant for the investor who wants to dissolve the bag. Also, investment in this sector do not expect a smooth ride. Two. Bonds company Supervalu (NYSE: SVU)
Albertsons acquisition was made towards the end of "The Age of Renaissance 'of the industry. The transaction was financed, as is customary in those days, using a lot of debt. Heavy debt load, plus injury time in the crisis, left the Company and its affiliates in relation to competitors norte shopping far behind when time began to take down the worst results in the sector (based on the same store) and losing market share to competitors.
In those days, when the company acquired the operations of Albertsons in more than $ 10 billion (including debt), was the share price of the first $ 30 and rose to $ 47, and now, after the disappointment with the results, fell to a low of $ 7.5 (a value of 1.6 billion only).
A few days ago released Supervalu third quarter report, who taught that the decline in profits continues: Same store sales decreased by 4.9%, gross profit decreased by 0.9% to 21.5%, operating income was cut from 3.3% to 2.2% (weaker towards Israel) and adjusted income fell to $ 50 million per quarter. annual forecast download over the range of 1:25 to 1:35 per share.
However, despite the ongoing norte shopping decline in operating results (and impact the bottom line deletions) Company's cash flow is not so bad. The company produces a cash flow from operations of $ 1.3 billion (on an annual basis), assigned to lower debt, capital expenditures norte shopping and dividends. Year to date the debt was reduced by approximately $ 700 million, and the forecast is to reach $ 850 million norte shopping this year.
The company has two Kovbntim under credit agreements: a debt coverage ratio not to exceed 4.25 (the ratio today is 3.5) and interest coverage ratio that will drop from 2.2 (now 2.6). That is, the company is better norte shopping in both conditions, and is expected to improve them with debt reduction.
In terms of investing in bonds: Although norte shopping there is a risk, the trend of lowering debt, strong cash flow and inhalation of Supervalu achieve investment grade in the coming years investment support (low volume) bonds of the company. May 2016 bond bearing a coupon of 8%, rated B + and traded at a yield ranging from 8.5% to 9.5