Grocery stores are hardly an exciting business. The grocery game is notoriously low-margin thanks to frugal shoppers and high competition, the nature of a national distribution network for perishable foods can be maddening, and most grocery chains are regionally landlocked with little room for growth.
So what gives with Safeway (SWY) and its rip-roaring run?
Well, to start the year, roughly one-third of outstanding SWY stock was held by short sellers — that is, investors betting against the company. But rumblings about a potential buyout either for all or part of the company sent the bearish investors scurrying for the exits and boosted the stock. From January to April, SWY tacked on more than 60%.
Those rumors returned later in the year with talk of yet another buyout lifting shares more. As a result, after a sleepy summer, Safeway stock has jumped up about 25% in the last few months to give it one of the best returns in the entire S&P 500 year-to-date.
But there’s simply no way this can last. Either Safeway will be bought out or it won’t — and while there is a small chance of a premium above current pricing, it’s not enough to lock yourself into this investment considering the other opportunities out there.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not own a position in any of the stocks named here. Write him at email@example.com or follow him on Twitter via @JeffReevesIP.