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Woolworths Limited, Coca-Cola Amatil Ltd and EBOS Group Ltd: Should you buy?

Retail companies are often criticised for being fickle or prone to error. After all, people don’t buy thick sweaters in hot winters or rear projection TVs when an LCD is clearly a better alternative.

That holds true until you can find a retailer with a competitive advantage. Take, for example, Woolworths Limited (ASX: WOW) and Coles – owned by Wesfarmers Ltd (ASX: WES). They have sophisticated supply chains, a massive network of stores, pricing power and excellent profitability. Even in the worst recessions, I can all but guarantee Australians will still buy their bread and milk at Coles or Woolies.

Thus, if you can pick up shares in well-run retailers on the cheap, there’s a good chance you’ll do well for yourself.

Woolworths Limited (ASX: WOW)

Lately shares in Woolies have been hit hard, falling 4.6% since the beginning of the month. The shares weren’t cheap to begin with and despite the latest fall, they still don’t appear to be great value. At today’s market price, shares change hands on a price-book ratio of 4.25, PEG ratio of 5.6 and a 4.1% fully franked dividend. Indeed, I put fair value around $31 per share, but I want to pay a price much lower than that to justify an investment. In my opinion, at or below $25.00 per share, would be a good point to enter the stock.

EBOS Group Ltd. (ASX: EBO)

EBOS is probably a name many Australians haven’t heard before. However, it’s a $1.2 billion New Zealand pharmaceutical retailer which occupies leading positions across a number of industry sub groups. It has made approximately 20 acquisitions in the past 12 years and achieved a total shareholder return (dividends plus capital gains) of 19% per year, over the past decade. In 2013, EBOS acquired Symbion for $1.1 billion and has stated the integration of the business has been largely successful. Interestingly, the acquisition provided a foothold in the pet care market, where the group will continue to grow in years ahead.

Indeed, in coming years, analysts are forecasting strong earnings per share growth. I’m cautiously optimistic about the company’s future, but I’m not a buyer today. Other than the lack of liquidity in the Australian-listed shares, I’d like to see how the company fares in the coming 24 months before committing to a purchase.

Coca-Cola Amatil Ltd (ASX: CCL)

CCA isn’t your stereotypical retailer but it plays in the same league as the supermarkets, selling products ranging from Coca-Cola and Jim Beam to canned fruit. Recently, CCA’s share price has suffered as the aforementioned supermarket duopoly squeezed its margins and rival Schweppes sought to increase competition. However with an operational review now complete and a fresh injection of capital from parent, The Coca-Cola Company, CCA shares are looking cheap.

A better stock idea than Coca-Cola Amatil

At today’s prices I think Coca-Cola Amatil is a great long-term buy and I’m keeping Woolworths firmly on my watchlist, waiting for a better buying opportunity.

However there’s 1 more ASX stock which I think is a better buy than Coca-Cola Amatil…

The Motley Fool's top analyst Scott Phillips recently identified this cheap but growing ASX technology company and declared it, “The Motley Fool’s Top Stock for 2015”.

Simply click here to grab your copy of his brand new report.

Motley Fool Contributor Owen Raszkiewicz is long June 2016 $5.41 warrants in Coca-Cola Amatil. 

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