Moneyball, Metro and the slow, steady theory of investing

I enjoyed watching baseball’s World Series last month. It was a soothing relief from the relentless assault of the US election campaign.

The series reminded me of a Toronto Blue Jays game I took in during the last week of the season. The Jays were long since out of the playoffs which meant that many of the players were call ups from the minors. Next year’s hopefuls being given a chance to show their stuff.

It also reminded me of the film Moneyball which in many ways is a metaphor for investing. The movie was about the 2002 Oakland Athletics and their miracle year. It tells the story of how Oakland built a winning team on a limited budget.  

The manager signed undervalued and overlooked talent using a sophisticated mathematical model. The model combined several players in the same position and looked at their collective output and defensive capabilities. Individually they were so-so, but together they were far better than higher paid sluggers.  

In investing terms, the metaphor is that while it is much more fun to swing for the fences with in-the-limelight stocks like a Tesla or Nvidia, a steady stream of singles can pay off handsomely. Slow, consistent growth and growing dividends from less exciting companies can be as good long-term bets.

For sure, nothing beats a home run for excitement. But whether or not Tesla (NDQ:TSLA) is a home run depends on when you bought it. A $10,000 investment at its 2010 IPO price of US $17 was worth about US $1.38 million by the end of July, according to US News and World Report. Pretty good.

 But most investors didn’t buy the stock as an IPO because it was too risky. They gradually became more confident and dipped in. That momentum pushed up the price. As the price rose there was more media commentary and more buyers piled in. It became a Fear Of Missing Out (FOMO) moment divorced from Tesla’s performance.

 The shares peaked in 2021 at $409.97 at an astonishing p/e ratio of 668. It’s been downhill ever since. If you had bought at the peak, your investment has lost 21% of its value at the recent price of $321.

 On the other hand, if you bought shares of slow growth, low margin grocer Metro Inc. (TSX:MRU) in 2010 at $13.94 a share, you would also have done pretty well. At the current price of $86.48 that’s a 520% return, not including dividends. Tesla doesn’t pay a dividend.

For conservative investors slow and steady wins the race. The companies they own are winners year after year because they sell things we need, have a proven business model and pay dividends that tend to grow.  

Oakland stuck to its plan even when things did not go well initially. That’s how successful investors approach their portfolios. They tune out the news of the day with its short term, reactive focus, have a plan and stick to it.

Here’s a closer look at Metro.

 Metro Inc. (TSX: MRU)

Background: Metro is Canada’s third largest grocer with annual sales of $21 billion. About 70% of its stores in Quebec with the remaining 23% in Ontario. Its banners include Metro, Super C, and Food Basics. It owns drugstores under the Jean Coutu, Metro Pharmacy, and Food Basics Pharmacy banners. About 80% of its pharmacies are in Quebec.

Performance: The shares are up 26% year-to-date.

Discussion:  On October 24,  Metro launched its Moi Rewards program in Ontario, following successful roll outs last year in Quebec and New Brunswick. Moi is tied into an RBC credit card and takes aim at Loblaw’s highly successful PC Optimum program.

Loyalty and rewards plans are valuable tools for companies. They encourage customers to come back and give insight into their buying habits which allows for targeted promotions. Metro has been very effective with its exclusive partnership with UK-based Dunnhumby, a data analytics company.

CEO Eric La Fleche said in a recent conference call the program has 2.5 million members and members spend on average 50% more than non-members. There is also significant cross over to its pharmacy banners. PC Optimum has more than 16 million members.

Metro has also invested more than $1 billion in automated frozen distribution centers in Terrebonne, Que. and the Toronto suburb of Etobicoke. It is helping cut costs by streamlining distribution.

The startup costs helped cut third quarter earnings by 14.6 per cent to $296.2 million in its latest reporting period.   

In January Metro announced a 10.7% increase in its quarterly dividend. The new $1.34 annual rate ($0.335 quarterly) is yielding 1.56%. Metro has increased its dividend for the last 24 years.

Metro’s launch of MOI, its use of data analytics to target promotions, plus investments in improving efficiency all point to a positive outlook. Its history of dividend increases is a sign of its financial strength.

This article appeared in a recent issue of the Income Investor.  For information on how to reprint this article please view this page.