The past few years for grocery stocks have not been kind to investors. Many of the companies that are in this industry have fallen on hard times. And their bleak outlooks on future earnings don’t help them get back in favor of investors.
But with so many grocery stocks struggling, there have to be some stocks in this sector worth investing in, right? There are. Unfortunately the list is fairly short. I’ll walk you through 2 grocery stocks to put on your radar or consider buying now. I will also highlight one popular grocer to avoid for the foreseeable future as they have hit some troubling times.
2 Grocery Stocks To Buy
#1. Sprouts Farmers Market (NASDAQ: SFM)
Sprouts Farmers Market is not a household name. When it comes to investing, this can be a good thing since many investors are oblivious to it. Sadly this is not entirely the case with Sprouts. Many investors have jumped on this stock already, realizing how good of a company it is. But fear not, there is still time for you to jump in too and enjoy the ride.
For 2017, earnings per share for the company are expected to increase by 3.4% and analysts expect the stock to increase in value by 25% for the year.
And while buy outs should not be the only reason to buy a stock, there are rumors of Sprouts being bought by Albertsons.
#2. Kroger (NYSE: KR)
If you just glance at the earnings of Kroger, you might think that this grocery stock isn’t worth a second look. But you would be wrong. While in the short term Kroger faces some challenges, it has a lot going for it.
Even as earnings have fallen, same store sales have held up. In fact, they remained positive for 52 consecutive quarters until this most recent quarter. In addition to this, Kroger is growing its online side of the business, allowing people to grocery shop from home. They are also growing their private label foods to compete with lower priced alternatives.
Still the company has to face up to the growing community of discount grocers. Since the recession in 2008, discount grocery stores have seen tremendous sales growth and as a result, are adding new locations. This leads more customers to flow away from stores like Kroger’s and to these low priced competitors.
But even with the added competition, Kroger is a stock to buy. They are the best positioned grocer out there to stand up against lower priced competitors. To help offset the potential decline, they are focusing on more lower priced organic foods, hoping to entice shoppers from more expensive grocers like Whole Foods.
While it won’t be smooth sailing in the near term for Kroger, the stock should hold up well.
Grocery Stock To Avoid
#1. Whole Foods (NASDAQ: WFM)
As an organic grocery store, Whole Foods was all the rage. In many cases, they were the only game in town when it came to healthy, organic foods. But then other grocers started to take pages from Whole Foods playbook. Sadly for Whole Foods, the other grocery stores are playing a better game.
The other stores are offering the same products for much less, undercutting Whole Foods. As a result, the stock has tumbled, along with earnings. Comparable same store sales have been declining since 2015.
The major problem is how Whole Foods runs its business. Most other grocery stores work on a national network whereas Whole Foods works on a regional network. This allows them to offer popular local items. While this is great for shoppers, it is also a negative. By not having a cohesive network means it costs more to run the business.
So until Whole Foods can figure this out, the stock is not one to buy. That is unless of course you have time and just want to buy in now and patiently wait, hoping for a successful turnaround.
In all, grocery stocks are not a fun place to be as an investor. But if you can weed your way through the bad options out there, you can find a few diamonds in the rough. And when you do, make sure you hold on for the ride they are going to offer you.
This author has no positions in any stock mentioned and does not plan to open any positions in any stocks mentioned for at least 72 hours after publication of this article.