Five Grocery Chain Stocks to Purchase for Income and Inflation Protection

By: ,

Five grocery chain stocks to purchase for income and protection against inflation and recession offer paths to hedge economic perils in pursuit of potentially potent profits.

Those five grocery chain stocks to purchase feature a fund that seeks to buy shares in the best public grocery store chains and four of the industry’s strongest dividend-paying competitors that provide essential food to people. These five grocery chain stocks to purchase offer inflation protection, since the companies can pass along rising costs to their customers as long as rival retailers do likewise.

Investors intrigued by the five grocery chain stocks to purchase can pick up shares at reduced prices after U.S. equities recently faced their worst week since 2020. However, the five grocery chain stocks to purchase showed pent-up investor interest in the past week as they moved up along with the NASDAQ, S&P 500 and the Dow Jones Industrial Average.

----ADVERTISEMENT----

Click here for a free two-week trial of Stock Rover.

Risk Affects Five Grocery Chain Stocks to Purchase for Income and for Hedging Against Inflation

Each of the five investments to purchase are affected by rising costs for shipping, fuel and labor. However, all of them are well-positioned to sidestep the crisis caused in large part by Russia’s President Vladimir Putin blockading grain shipments from Ukraine, China’s continuing COVID-19 lockdowns to enforce its zero tolerance of COVID-19 cases and last week’s inflation-fighting central bank rate hikes of .75% in the United States and .25% in the United Kingdom.

A strategy to diversify away from individual grocery chain stocks is to purchase shares in a consumer staples sector exchange-traded fund (ETF). Stocks in that sector typically do well when the economy weakens.

“They also tend to be able to pass through price increases in inflationary times, because they sell essential goods and services,” said Bob Carlson, a pension fund chairman who heads the Retirement Watch investment newsletter. “An ETF will include more than the grocery store chains. It also will include manufacturers who produce many of the goods sold in the stores.”

----ADVERTISEMENT----

Bob Carlson, who leads Retirement Watch, meets with Paul Dykewicz.

ETF Featured With Five Grocery Chain Stocks to Purchase for Income and for Ducking Inflation

A “good ETF” that takes advantage of the grocery chain opportunity is Consumer Staples Select Sector SPDR (XLP), Carlson said. The ETF’s top holdings include Costco Warehouse Corporation (NASDAQ: COST), encompassing 9.41% of the fund, and WalMart (NYSE: WMT), accounting for 3.89% of the holdings. The fund also owns Kroger (NYSE: KR) and Walgreens Boots Alliance (NASDAQ: WBA).
XLP owns 32 stocks and has 70% of the fund in the 10 largest positions. Other top holdings are Procter & Gamble (NYSE: PG), Coca-Cola (NYSE: KO) and PepsiCo (NASDAQ: PEP). The fund also offers a dividend yield of 2.5%.

The ETF has spiked 4.19% in the past week, after falling 0.26% in the last month, 2.61% in the past three months and 6.24% so far this year.

Chart courtesy of www.stockcharts.com

Putin’s Policies Jeopardize Food Supply and Availability

Russia’s President Vladimir Putin, who triggered sanctions on his country and himself by sending troops into Ukraine in violation of international law, is insisting that other nations cease their restrictions on his country’s goods before he allows grain exports to resume. Russia’s invasion of Ukraine, called a “special military operation” by Putin, has shelled hospitals, schools, residential areas, churches, nuclear power plants, oil refineries, a theater used as a shelter and even a train transporting food for World Central Kitchen, amid reports of potential war crimes by his soldiers who have been accused of raping, torturing, kidnapping and executing Ukrainian civilians.

Russia’s move to choke off a significant part of the world’s food supply stems from its continuing attack and blockade of Ukraine, potentially spurring the spread of a famine beyond 140 million undernourished people in needy nations. U.N. Secretary-General Antonio Guterres warned Friday, June 24, that the world faces a “catastrophe” due to the growing global food shortage.

The world is at the crossroads of an “unprecedented global hunger crisis” affecting hundreds of millions of people in 2022 and even more people next year, Guterres said. The five grocery chain stocks to purchase mainly serve developed nations that can afford to pay for food, unlike many people in the developing world who are especially vulnerable to Russia’s blockades.

Target Rates Highly Among the Five Grocery Chain Stocks to Purchase

One of the best grocery retailers is Minneapolis-based Target Corp. (NYSE: TGT), said Michelle Connell, a former portfolio manager who heads Dallas-based Portia Capital Management. Target has a place in a long-term portfolio for a number of reasons, she added.

The company produces 20% of its revenue on groceries and has done “an amazing job” growing its online sales, Connell said. Target’s online sales specifically have risen to 19% from 9% of its total sales in the past few years, Connell continued.

Despite the stock price dropping after its latest financial report revealed short-term inventory oversupply, Target’s management expects its sales for 2022 to grow and its market share to increase, Connell counseled. Plus, Target is increasing its dividend by 20% this September, so its dividend yield should rise to 3.1% from its current 2.9% by year end, she added.

Michelle Connell, CEO, Portia Capital Management

Target’s excess inventory should be trimmed by the second half of 2022, especially after its “Deal Days,” July 11-13, Connell said.

“This will be TGT’s largest Deal Days in its four-year history,” Connell said. “This online sale takes on Amazon’s Prime Day, except you don’t need a membership.”

The stock jumped 3.88% on Tuesday, June 21, and looks comparatively inexpensive after a recent share price pullback that lowered the company’s current price-to-earnings (P/E) ratio to 12 from its long-term, historic valuation of 16. Connell pegged the estimated upside for TGT close to 30% from today’s price of $150.39 per share.

Chart courtesy of www.stockcharts.com

BofA Global Research cautioned Target’s risks include gross margin pressures from labor costs, investments and the rapid growth of the lower-margin e-commerce channel, as well as aggressive competition from Walmart and Amazon (NASDAQ: AMZN).

Five Grocery Chain Stocks to Purchase Feature Walmart

Walmart Inc., a superstore chain headquartered in Bentonville, Arkansas, has slumped since mid-May but now is showing some resiliency by rising 3.28% on Tuesday, June 21. Investors seeking to buy Walmart at a discount should take into account the stock has fallen 13.79% so far this year and 12.52% in the past three months.

Chart courtesy of www.stockcharts.com

“Walmart is one of the few stores that’s likely to benefit from rising inflation, as the store offers the best discounts of any major retailer,” said Jim Woods, leader of the Successful Investing and Intelligence Report newsletters, plus the High Velocity Options and Bullseye Stock Trader advisory services.

Woods told me he recommends Walmart in the Income Multipliers portfolio of his Intelligence Report newsletter due to its history of raising annual dividends and its five-year total return of more than 71%.

Paul Dykewicz talks to Jim Woods, head of the Successful Investing and Intelligence Report newsletters.

Walmart’s risks, according to BofA Global Research, are the ill effects of foreign exchange, pharmacy headwinds and questions about it continuing to gain incremental market share, despite its large size and a weakening global retailing environment.

Costco Captures Place Among Five Grocery Chain Stocks to Purchase

Costco Wholesale Corp., a membership-only, retail superstore chain headquartered in Issaquah, Washington, rallied 3.68% on Tuesday, June 21, and 1.97% on Friday, June 24. It could be close to bottoming and starting a slow climb, despite untamed inflation and recession risk. Costco’s share price rebounded 5.14% in the previous week and 10.64% in the prior month, after dropping 14.10% in the past three months and 16.03% so far in 2022.

A boost for Costco and other brick-and-mortar retailers, such as Target and Walmart, is that spending trends for physical retail stores have risen 4.7% since the same time last year, according to BoA Global Research. In contrast, online retail sales slipped 1.6% in the past year, even though they stayed strong on a three-year basis, including the COVID-19 lockdown period when government decrees limited in-person shopping to reduce exposure to the virus.

That brick-and-mortar retailer spending surge shows support for Costco, Target and Walmart sales trends due to their “dominant U.S. store footprints,” compared to Amazon, which has a comparatively small brick-and-mortar presence, even with its ownership of Whole Food stores, from both a sales and margin perspective, according to BoA.

Chart courtesy of www.stockcharts.com

Albertsons Earns Position Among Five Grocery Chain Stocks to Purchase

Albertsons Companies, Inc., an American grocery store chain founded and headquartered in Boise, Idaho, has more than 2,200 retail locations. The company is a BoA buy but faces further challenges than some of its bigger and better-known rivals in the grocery store chain business.

For example, Albertsons lacks general merchandise breadth, with an accompanying higher gross margin profile that warrants an enlarged valuation for big discounters such as Target and Walmart, BofA wrote in a research note. Albertsons also may benefit less from favorable demographic trends in the South, where it has lower penetration compared to Walmart, Target, Costco and Dollar General (NYSE: DG).

Another drag on Albertsons is that it has nearly $5 billion in estimated off-balance sheet underfunding of multi-employer pension obligations, according to BofA. Other downside risks that Albertsons must navigate are its presence in a highly competitive retail food industry, a higher perishable mix that brings increased inflation exposure compared to its peers, e-commerce inroads at an earlier stage than for Walmart, its unionized workforce, competition from retail discounters and exposure to gas prices if shoppers opt to reduce driving.

Nonetheless, Albertsons jumped 5.85% on Tuesday, June 21. The stock soared 7.23% in the previous week and rose 0.24% in the past month. However, the share price slid 17.42% in the last three months and 1.95% so far this year.

Chart courtesy of www.stockcharts.com

Watch out for Volatility With Further Fed Interest Rate Hikes Ahead to Fight Inflation

Investors could face a rocky road to recovery with the Fed still needing to raise interest rates further to cool the economy and quell inflation that rose 8.6% in the past year, based on the latest Consumer Price Index reading. Plus, investors need to be cautious about diving back into equities until the “three-headed dragon” of rate hikes, upward wage pressures and rising commodity prices have been slain to bring inflation under control, said Bryan Perry, a high-income aficionado, a veteran of Wall Street firms and the editor of the Cash Machine investment newsletter.

The June 21 rally is a fresh bet that inflation has peaked with tough Fed jawboning, Perry wrote to his newsletter subscribers.

“However, the inflation rate shock of the past three months, coupled with the rally in the dollar, invites caution heading into the second-quarter earnings season, which will begin during the second week of July,” Perry cautioned. “I would also add that third-quarter guidance will likely be guarded and fairly opaque, as companies are citing highly fluid factors that will greatly influence year-end forecasting.”

Paul Dykewicz interviews Wall Street veteran Bryan Perry, who heads the Cash Machine newsletter.

Supply Chains Remain Vulnerable to China’s Lockdowns

A new Covid-19 outbreak in China is affecting the country’s technology hub of Shenzhen and spurring stepped-up testing, as well as a lockdown of certain neighborhoods. Meanwhile, the gambling mecca of Macau, an hour away by car, is facing cases of the virus for the first time this year.

Those new cases are accompanied by encouraging news from major metropolitan areas of Beijing and Shanghai that have used lockdowns to curb new cases. However, the U.S. ambassador to China criticized China’s “zero-COVID” tolerance policy on June 17 for potentially causing serious damage to the global economy and foreign business with the resumption of lockdowns. But China is seeking to contain outbreaks of COVID-19 with lockdowns, despite many other countries adopting policies to balance anti-coronavirus measures with exposure to the risk.

Disrupted supply chains for products such as rice, oil and natural gas are starting to normalize again in Shanghai, home to 25 million residents and the world’s largest port. China’s recent lockdowns have affected an estimated 373 million people, including roughly 40% of the country’s gross domestic product (GDP).

U.S. COVID Deaths Top 1.015 Million

U.S. COVID-19 deaths rose to 1,015,805, as of June 24, according to Johns Hopkins University. Cases in the United States climbed more than 450,000 in the past three days to reach 86,909,569 on that date. America holds the dubious distinction as the nation with the largest number of COVID-19 deaths and cases.

COVID-19 deaths worldwide totaled 6,327,659, up 5,683 during the past three days, as of June 24, according to Johns Hopkins. Worldwide COVID-19 cases have reached 542,763,865, up 2,228,211 million in the past three days.

Roughly 78.1% of the U.S. population, or 259,426,758, of America’s population, have been injected with at least one COVID-19 dose, according to the CDC. The United States also had amassed 222,123,223 fully vaccinated people, or 66.9% of the population, who had received at least one dose. Plus, 105.1 million obtained at least one COVID-19 booster vaccine.

The five grocery chain stocks to purchase offer investors a chance to dodge the worst of the fallout from inflation and rising interest rates, since food is essential and related price increases can be passed along by the retailers. With the highest inflation in 41 years, the appeal of such stocks is starting to gain investor interest but the road ahead could be rough with the Fed expected to raise rates again between .75% and .50% next month to limit price hikes that are needed amid rising federal deficits, sustained supply chain disruptions and Russia’s unrelenting attacks on Ukraine.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, Guru Focus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is great as a gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for multiple-book pricing.

X
Are YOU Ready for the Biden Disaster Plan?
"...It's worse than you think."
—Dr. Mark Skousen
X
Search Dividend Investor