The Kroger Co. (KR), Whole Foods Market, Inc. (WFM): Should This Stock Be in Your Shopping Cart?

Safeway Inc. (NYSE:SWY) is the second-largest grocery store chain in the United States. It recently divested its Canadian operations, which will free up approximately $4 billion. Half of this money will be used to pay off debt, and the other half will be used to return capital to shareholders.

Safeway Inc. (NYSE:SWY) currently yields an impressive 3.3%. Its efficiency is similar to Kroger’s with a profit margin of 1.4%, but Safeway Inc. (NYSE:SWY) is cutting costs and looking to become leaner while Kroger is expanding. This might be a necessary move for Safeway Inc. (NYSE:SWY), and it could lead to improved earnings, but Kroger offers better top-line growth potential.

Whole Foods Market, Inc. (NASDAQ:WFM) might be in the same space, but it’s a completely different kind of company, targeting health-conscious consumers and offering a luxury shopping experience. Whole Foods Market, Inc. (NASDAQ:WFM) only owns 349 stores throughout the United States, Canada, and the United Kingdom, but this leaves a lot of room for growth. If the economy holds its own, then growth risks would be relatively low.

Whole Foods Market, Inc. (NASDAQ:WFM) has consistently improved revenue and earnings on an annual basis, it sports a profit margin of 4.1% (higher than peers), and it has demonstrated superb debt management.

Whole Foods Market, Inc. (NASDAQ:WFM) only yields 0.8%, but this is more of a growth play. There is one major threat here -- the economy sours and consumers cut down on their purchases of high-priced organic foods.

Conclusion

If you’re going to invest in the space and you’re looking for high risk/high reward, Whole Foods Market, Inc. (NASDAQ:WFM) should be considered. Growth potential is strong, but economic conditions may play a role going forward.

If you’re looking for market-share domination, geographic diversification, and resiliency, consider Kroger.

The article Should This Stock Be in Your Shopping Cart? originally appeared on Fool.com and is written by Dan Moskowitz.

Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Whole Foods Market (NASDAQ:WFM). The Motley Fool owns shares of Whole Foods Market. Dan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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