Alpha stocks are the best of breed, consistently beating the reference S&P500 index. Companhia Brasileira De Distribuição (NYSE:CBD) can be considered the poster-child for the archetype alpha. CBD not only decisively achieves this standing, it also stomps the consumer staples sector performance. A look at its total return chart proves it deserves to be ranked among the alphas of the alphas.
(chart modified after schwab.com source)
When you find an alpha of this standing as a dominant foreign based business in one of the world's largest and growing economies and doing business in a strong and reliable national currency, you know it must be part of your portfolio. These attributes add diversity for region, sector, currency, political environment, and international exposure to improve almost any portfolio.
To call this company the Wal-Mart (NYSE:WMT) of Brazil is probably not fair. I live in Brazil and can't find a Wal-Mart here anywhere. WMT tried here and failed. CBD is the gorilla of retailing in Brazil. If you own WMT then you really should want CBD in your portfolio for here in Brazil.
Companhia Brasileira de Distribuição engages in the retail of food and non-food products to individual consumers through its chain of hypermarkets, supermarkets, specialized and department stores, and the Internet. The company sells non-perishable food products, beverages, fruits, vegetables, meat, bread, cold cuts, and dairy products; cleaning products, disposable products, and personal care products; non-food products, which include clothing items, baby items, shoes and accessories, household articles, books, magazines, CDs and DVDs, stationery, handcraft, toys, sports and camping gear, furniture, mattresses, pet products, and gardening products; and electronics, such as personal computers, software, computer accessories, and sound and image systems. It also provides medications and cosmetics at its drugstores; and non-food products at gas stations.
The company operates its stores principally under the Pão de Açúcar, Extra, Extra Eletro, Extra Perto, Extra Fácil, Assai, Ponto Frio, Casas Bahia, Casas Bahia.com, Extra.com, and Ponto Frio.Com trade names.
As of December 31, 2011, it operated 1,571 stores, 78 gas stations, and 154 drugstores in 19 Brazilian states and the Federal District. Companhia Brasileira de Distribuição was founded in 1948 and is headquartered in Sao Paulo, Brazil. It operates as a subsidiary of Wilkes Participações S.A.
The company was quick to turn around from the hard 2008 global economy and recovered even faster than the rest of Brazil's and the world's economy. It was completely back on track with solid performance and growth by early 2009. Share price growth remains strong, reflecting the growth of its operating and net income.
CBD data by YCharts
Earnings per share have skyrocketed from a respectable 10 year growth rate of 13.33% to a stellar 55.48% growth rate for the past 5 years. Likewise, revenue shows strong annual growth as seen in the chart below.
CBD EPS Diluted 10 Year Growth data by YCharts
Showing all the right fundamentals that prove its management is strong and knows its business, CBD also benefits from favorable demographic growth trends for Brazil. Brazil's own growth demographics add on as a multiplier for BOBS own growth. This further strengthens the case for a favorable outlook. The Rio Times reports a large and growing middle class with growing disposable incomes:
By Sarah de Sainte Croix, Senior Contributing Reporter
"RIO DE JANEIRO, BRAZIL - In 2011 Brazil's middle class was the biggest of all five of the country's 'official' classes, comprising 54 percent of the population. In the last year alone 2.7 million Brazilians moved up into the middle or 'C' class, according to a report entitled 'Observador Brasil 2012,' published by Cetelem BGN, part of the BNP Paribas group, in partnership with Ipsos Publics Affairs."
Brazil's population continues to grow at a healthy rate.
Population density also continues to rise, supporting more customers per existing store territory and greater store density.
When doing your due diligence on CBD as well as any other company, keep in mind the currency it operates in, the political and legal environment, and the trends of the host country's major trading partners in all these regards. Such factors can be very significant in understanding the risks and placing the performance trends and expectations into a prudent context. For example, Brazil in its not-so-distant past was a large debtor nation with rampant inflation. This is no longer true. Brazil is a net creditor nation now with a strong currency and has grown to be the 6th largest economy in the globe, surpassing Great Britain recently. However, it remains a strongly protectionist economy and has a highly bureaucratic business environment which can make doing business very difficult, especially changing rapidly in response to the economic environment (labor protection rules, and termination parachutes among many). These may be viewed as obstacles or a moat for an established company. You will have to decide for yourself.
In summary, I think Companhia Brasileira De Distribuição is a well documented alpha company in an alpha industry sector in an alpha country. It doesn't get much more AAA than this.