The stock market has faced intense selling pressure lately due to concerns over continued geopolitical and macroeconomic issues. Investors have been concerned over aggressive interest rate hikes by the Federal Reserve to tame the multi-decade high inflation, supply disruptions arising out of the continuing Ukraine-Russia war, rising energy and commodity prices, and the possibility of a recession.
Many analysts believe that if the Fed raises interest rates too quickly and aggressively, it might push the economy into a recession. Grocery stocks are considered recession-resistant stocks, as they witness steady demand even during an economic contraction.
This is why today I’m going to analyze five prominent grocery stocks, Kroger Co. (KR), Tesco PLC (TSCDY), Sprouts Farmers Market, Inc. (SFM), Ingles Markets, Incorporated (IMKTA), and Albertsons Companies, Inc. (ACI). These stocks have declined lately, which means now is a great time for investors to consider adding them to their portfolios.
Grocery: A Recession-resistant Industry
During a recession, most industries struggle to stay afloat as they witness a fall in demand due to the change in consumer sentiment and a decline in consumer spending. Consumers usually cut down on their discretionary spending, due to which many industries take a hit.
Grocery stocks have been known to perform steadily in all economic cycles. Since groceries fall under the consumer staples category, the demand is almost inelastic. Due to their utility, consumers cannot remove groceries from their budgets. Moreover, the consistent demand enables companies in this space to pass on rising costs to consumers in an inflationary environment.
The grocery industry’s next growth phase will be led by on-demand delivery, new product offerings, the use of consumer data, and the increased adoption of automation to eliminate labor shortages. According to Insider Intelligence, U.S. digital grocery sales are expected to grow 20.5% to $147.51 billion this year.
5 Grocery Stocks to Buy on the Dip
Kroger Co. (KR)
KR is a food retailing company that owns and operates supermarkets, multi-department stores, and fulfillment centers. The company manufactures and processes some food for sale in its supermarkets. The company also owns store equipment, fixtures, leasehold improvements, and processing and food production equipment. It offers personalized orders online, pick-up at-the-store services, and home delivery services.
Analysts expect KR’s EPS for the quarter ending April 30, 2022, to increase 8.4% year-over-year to $1.29. Its revenue for fiscal 2023 is expected to increase 4% year-over-year to $143.38 billion. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 39.3% to close the last trading session at $52.88. It is currently trading 15.7% below its 52-week high of 62.78, which it hit on April 8, 2022.
In terms of the trailing-12-month asset turnover ratio, KR’s 2.82% is 240.2% higher than the industry average of 0.83%, respectively. Also, its trailing-12-month Return on Common Equity and Return on Total Capital of 17.23% and 7.73% are higher than the industry averages of 12.61% and 6.52%, respectively.
KR’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Growth and a B grade for Value, Sentiment, and Quality. It is ranked #5 out of 38 stocks in the A-rated Grocery/Big Box Retailers industry. Click here to see the other ratings of KR for Momentum and Stability.
Tesco PLC (TSCDY)
Headquartered in Welwyn Garden City, the United Kingdom, TSCDY is engaged in the business of Retailing and associated activities (Retail) and retail banking and insurance services. The company offers a range of personal banking products and services, including credit card receivables, current accounts, and personal loans.
For fiscal 2023, TSCDY’s EPS is expected to increase 3.7% year-over-year to $0.89. Its revenue for fiscal 2024 is expected to increase 1.9% year-over-year to $79.87 billion. Over the past year, the stock has gained 2.7% to close the last trading session at $9.84. It is currently trading 21% below its 52-week high of $12.47, which it hit on January 28, 2022.
In terms of the trailing-12-month asset turnover ratio, TSCDY’s 1.29% is 55.9% higher than the industry average of 0.83%, respectively.
TSCDY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has a B grade for Value and Stability. It is ranked #22 in the same industry. To see the other ratings of TSCDY for Growth, Momentum, Sentiment, and Quality, click here.
Sprouts Farmers Market, Inc. (SFM)
SFM offers fresh, natural, and organic food products. The company provides perishable product categories, including fresh produce, meat, seafood, deli, bakery, floral and dairy, and dairy alternatives; and non-perishable product categories, such as grocery, vitamins and supplements, bulk items, frozen foods, beer and wine, and natural health and body care.
Analysts expect SFM’s EPS and revenue for fiscal 2023 to increase 5.6% and 6.4% year-over-year to $2.26 and $6.74 billion, respectively. It surpassed consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 9.4% to close the last trading session at $27.22. It is currently trading 22.9% below its 52-week high of $35.34, which it hit on April 11, 2022.
In terms of trailing-12-month gross profit margin and levered FCF margin, SFM’s 36.42% and 6.02% are 5.1% and 60.9% higher than the industry averages of 34.63% and 3.74%, respectively. Also, its trailing-12-month ROA and asset turnover ratio of 8.32% and 2.09% are higher than the industry averages of 4.74% and 0.83%, respectively.
SFM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has an A grade for Quality. Again, it is ranked #13 in the same industry. Click here to see the other ratings of SFM for Growth, Value, Momentum, Stability, and Sentiment.
Ingles Markets, Incorporated (IMKTA)
IMKTA is a supermarket chain in the southeast United States. The company’s supermarkets offer customers a range of nationally advertised food products, including grocery, meat, and others. Non-food products include fuel centers, pharmacies, health/beauty/cosmetic products, general merchandise, and private label items.
Over the past year, the stock has gained 45.7% to close the last trading session at $92.15. It is currently trading 9.6% below its 52-week high of $101.98, which it hit on April 20, 2022.
In terms of the trailing-12-month asset turnover ratio, IMKTA’s 2.65% is 219.9% higher than the industry average of 0.83%. Also, its trailing-12-month ROCE and ROA of 28.32% and 13.11% are higher than the industry averages of 12.61% and 4.74%, respectively.
IMKTA’s POWR Ratings reflect solid prospects. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B grade for Growth, Value, and Stability. It is ranked #3 Grocery/Big Box Retailers. To see the other ratings of IMKTA for Momentum and Sentiment, click here.
Albertsons Companies, Inc. (ACI)
ACI is a food and drug retailer in the U.S. The company offers groceries, general merchandise, health and beauty care products, pharmacy, fuel, and other items and services. It operates under twenty banners, including Tom Thumb, Carrs, Jewel-Osco, Haggen, Market Street, Kings Food Markets, Vons, Albertsons, Randalls, Acme, Safeway, and Balducci’s Food lover's market.
Analysts expect ACI’s EPS for fiscal 2024 to increase 2.5% year-over-year to $2.89. Its revenue for the quarter ending May 31, 2022, is expected to increase 10.9% year-over-year to $22.70 billion. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 55.7% to close the last trading session at $30.96. It is currently trading 18.5% below its 52-week high of $37.99, which it hit on March 7, 2022.
In terms of the trailing-12-month asset turnover ratio, ACI’s 2.63% is 216.8% higher than the industry average of 0.83%, respectively. Also, its trailing-12-month ROCE and ROA of 59.05% and 5.76% are higher than the industry averages of 12.61% and 4.74%, respectively.
ACI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and a B grade for Value and Quality. It is ranked #2 in the same industry. Click here to see the other ratings of ACI for Momentum, Stability, and Sentiment.
KR shares were trading at $52.96 per share on Friday afternoon, up $0.08 (+0.15%). Year-to-date, KR has gained 18.00%, versus a -13.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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