How to Play Supervalu: Buy Its Bonds

I first wrote about SuperValue (SVU) at the end of 2008, here, after picking up some shares at $12.46. Fifteen days later I sold those shares at a profit of 43.5%. By the end of the day this Thursday, SVU shares were once again trading within pennies of the price I paid for them in December. Attractive? Perhaps. Certainly cheap. Much less expensive (valuation wise) than any of the competitors - Kroger (KR), Safeway (SWY), Costco (COST) and Walmart (WMT).

But, and this is a big but, SVU's management team just hasn't been able to get it right. They screwed up on their acquisition of Albertson's and they have had trouble positioning themselves to compete effectively in today's troubled economic environment. Yes, they can cut costs, lower margins and feature generics, but keeping loyal and satisfied customers coming back week after week takes much more than that. For that you need to create an attractive, lasting and consistent presence and I am not so sure that SVU, as a corporation, can do that any time soon. Without such a corporate-wide sustainable competitive advantage, Supervalu may simply be forced to compete with Walmart on price and location.