Supermarket Stocks: Winners and Losers

In much the same fashion as investors are becoming more selective about the stocks they buy lately, consumers are becoming much more selective as well. They are being very careful about not just what they buy but where they buy it. This is true pretty across the board and has even filtered down to where they spend their weekly grocery money.

Safeway NYSE:SWYThe industry has become more and more competitive thanks to Walmart’s (WMT) presence in the market. When we look at the food retailers though the lenses of Portfolio Grader, we find that there are very clear winners and losers in the industry right now.

The clear winners in the supermarket contest are the larger, old line grocers that have the economies of scale to compete with Walmart. These stores also have large acceptance among consumers and are the clear choice of the shoppers who prefer not to go to Walmart or Target (TGT) for groceries. Kroger (KR) has been steady if not spectacular in terms of earnings sales growth. The stock was upgraded to a “B” two weeks ago, and is a “buy” at the current price.

Safeway (SWY) is also holding on to its shopper base. The company has 1406 stores across the United Sates and has been holding its own in a difficult sector. The company is exiting the crowded Chicago market and recently sold its Canadian operations and used the cash to pay down its debt load. SWY is a consistent cash flow generator and its solid fundamentals earn the stock a “B” rating in Portfolio Grader. The stock remains a “buy” at the current price.

The losers in this market right now are those who have tried to hold themselves out as higher end and compete with Whole Foods (WFM) and other high end food retailers. The Fresh Market (TFM) has tried to break into that market and has found it very tough going so far. As the marketplace becomes more competitive, analysts have been lowering their estimates for the company for both this year and 2015. This type of deterioration in the company’s fundamentals was noted by Portfolio Grader, and two weeks ago the stock was downgraded to an “F.” The shares are a “strong sell” at the current price.

Village Super Markets (VLGEA) has also tried to position itself as a premium grocer offering specialty departments such as home meal replacement, on-site bakery, and expanded delicatessen. Village features prepared food, natural and organic food, ethnic and international food, seafood sections, as well as pharmacies and salad bars. The company has struggled, and earnings have fallen by more than 35% over the past year. Portfolio Grader noticed the poor fundamentals and downgraded the stock to an “F” back in December. The stock remains a “strong sell” at current levels.

Consumers have become much more careful about where they spend their money as well as what they buy. Investors need to be at least as selective about which consumer stocks they add to their portfolio.

Louis Navellier is the editor of Blue Chip Growth.

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