On the surface, Albertsons Companies (NYSE:ACI) appears an excellent investment for multiple reasons. First and foremost, the surrounding factors of the novel coronavirus pandemic easily support the raw, fundamental case for ACI stock; namely, people will divert all their funds to necessities like food, water and toilet paper.
Additionally, you have a potential discounted opportunity. Before Albertsons went public, management wanted to price its shares between $18 and $20. Instead, the initial public offering price was $16. Not only that, ACI stock has had a relatively muted introductory phase. As of this writing, shares have failed to close at or above the IPO price.
While that’s a positive for those with a bullish assessment of the grocery giant, it also provides evidence for the opposition. Mainly, competition is a worry. Not only do you have direct competitors like Kroger (NYSE:KR), big-box retailers like Target (NYSE:TGT) and Walmart (NYSE:WMT) have been pushing into the grocery space over the last several years.
With their discretionary sales taking a hit due to the pandemic, it’s reasonable to expect big-box retailers to further market themselves as a one-stop shop for customers.
Still, I’m intrigued with ACI stock from both a nearer-term and longer-term perspective. In a market environment where certain investments can lose their bullish sentiment in a flash, names like Albertsons provide much-needed stability. Here are three other reasons why shares of this grocer could be a buy.
ACI Stock Should Benefit from Massive Demand
From the look of things, the grocer is happy with the overall IPO process. As well, the company is eager to strengthen its brands’ footprint and possibly expand more. According to Albertsons CEO Vivek Sankaran:
“Right now, we’re focused are creating more value through the assets that we have and we have a great set of assets … We have plenty of headroom there. But we’re always eyes open. When the right opportunities come by, we will do it.”
Whatever ways it wants to maximize its potential, now is a great time to do it. To no one’s surprise, grocery demand is through the roof.
Through the first half of this year, grocery sales have reached nearly $381 billion, according to the U.S. Census Bureau. If we were to take 2019’s total grocery sales of $683.2 billion, divide it in half and apply it to the present 2020 figure, we’ll get a forecast sales tally of $722.4 billion. That would represent a year-over-year growth rate of 5.72%.
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To put this into perspective, that is the highest YOY growth rate since the Census Bureau began keeping track of grocery sales in 1992. It’s also notably higher than the 5.07% growth rate seen in 2011. Whereas the 2011 rate was a comparison against lowly sales resulting from the Great Recession, the forecast 2020 sales bump is a comparison against an economically strong 2019.
With new daily coronavirus cases on the rise, it’s possible that grocery demand could jump even higher. Obviously, this would be great news for ACI stock.
You Can’t Skimp on Eating
Throughout this pandemic, Americans have had to make tough financial choices. Naturally, the first items off the household budget were discretionary services families could do without.
In addition, a worrying number of Americans skipped their rent payments. According to a CNBC report, vacancies in Manhattan reached record levels. Specifically, “More than 10,000 apartments were listed for rent in Manhattan in June, an increase of 85% over last year.”
Like most of you, I’m playing the world’s smallest violin as I write these words. But forget about Manhattan for a second because that’s not the point. If you’re seeing desperation in the Big Apple, you’re definitely seeing it in other, less privileged cities across America.
However, one retail category that families will not skimp out on — because they can’t — is food. We don’t need cars because we can always buy another one later on. Heck, we can stretch out housing payments, especially in these unprecedented times. But food and water? Sorry, but if you don’t buy these things and buy them often, you’re dead. There’s no tomorrow for you.
Certainly, I understand what I’m saying is glaringly cynical. But if you want a surefire reason to be bullish on ACI stock, this is it.
Solid Bet on the New, New Normal
Right now, so many investments are flying off the new normal narrative. But perhaps few people are discussing the new, new normal.
What do I mean by that? At some point, this pandemic that seemingly has no end will end. When we get there, I’m not 100% sure what will come of hot coronavirus stocks, such as vaccination makers. But I have more confidence with an investment like ACI stock.
First, the pandemic has inadvertently brought many grocers to the 21st century. Prior the health crisis, it’s likely that most shoppers just drove up to their local Albertsons (or whichever grocery brand) and shopped. Today, the raging pandemic makes this a bit more challenging.
Albertsons, however, enjoys an organic opportunity to market its alternative delivery and payment services. Better yet, not all such services are built equally. As I mentioned in my personal account of using Kroger’s contactless service, it stinks. Plus, Kroger has failed to make things right with me.
And if you’re an executive from Kroger reading this, just know that where you fail, your competitor (Albertsons, in this case) can potentially fill that gap.
Second, once the pandemic is over — and really over, not over in a Trumpian way — I highly doubt that Americans will just jump back into their old routines. Frankly, I don’t think they can afford to. If we’re lucky, 2021 and possibly a few years afterward will be a time of rebuilding.
That’s not the greatest news for discretionary retailers. It is, however, a good reason to consider ACI stock.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.
