In this article, we will be looking at the 5 best grocery stocks to buy. To read our analysis of the grocery shopping segment and take a look at some other stocks in this space, check out the 11 Best Grocery Stocks to Buy.
5. Target Corporation (NYSE:TGT)
Number of Hedge Fund Holders: 46
Target Corporation (NYSE:TGT) is a Minnesota-based operator of department stores across the U.S.
Target Corporation (NYSE:TGT) ranks as the seventh-biggest retailer in the U.S. and a leading player in the grocery segment, with food and beverage sales representing one-fifth of the company’s top line. On August 18, Michael Baker at DA Davidson increased the price target on Target Corporation (NYSE:TGT) from $185 to $203 while maintaining a ‘Buy’ rating.
During its latest earnings call, Target Corporation (NYSE:TGT) revealed that it has made major progress in addressing the problem of excess inventory, which hampered the company’s bottom-line margins in Q2 2022. Baker anticipates Target Corporation (NYSE:TGT) to be in a strong position by Q4 and to boost its margins back to historical levels. Furthermore, Target Corporation’s (NYSE:TGT) share price is expected to increase as the multiples for the retail sector improve with a change in investor sentiment.
Ensemble Capital shared its stance on Target Corporation (NYSE:TGT) in its Q2 2022 investor letter. Here’s what the firm said:
“Speaking on their earnings call, Target’s CEO Brian Cornell said that spending on items such as kitchen appliances, TVs and outdoor furniture – products that consumers splurged on while stuck at home – has declined sharply. While they had expected there to be a shift from spending on goods to services as America exited pandemic lifestyles, they didn’t anticipate the speed and magnitude of the shift. On the other hand, they saw luggage sales grow by an astounding 50%, along with robust growth in “going out” categories such as sunscreen, beauty products, and even toys as families return to hosting large birthday parties for their children. So, despite Target seeing increasing foot traffic and higher spending overall, they got caught with the wrong inventory relative to what customers wanted to buy. What this means for investors is that it is incorrect to say that the consumer is weak, despite weakness in some consumer facing companies. Rather what people are spending money on is changing rapidly, which is good or bad for a given company based on what they sell. Importantly, with demand shifting from items that were in short supply, there is good reason to think that inflation in these categories will moderate. Indeed, Target stated that their plan was to put their excess inventory on sale, something that consumers haven’t seen a lot of over the past two years. But as demand for COVID era goods moderates, demand for activities such as travel has surged, driving up inflation in airline tickets and hotel rooms. This illustrates the way that the shock waves from the pandemic have scrambled the typical economic cycle such that even at a time when all signs point to the biggest summer travel season in history, investors are worried that we are headed into, or are already in, a recession.”
4. The Kroger Co. (NYSE:KR)
Number of Hedge Fund Holders: 49
The Kroger Co. (NYSE:KR) is a Cincinnati, Ohio-based operator of supermarkets and multi-department stores. The operator of the biggest supermarket retailer offers online grocery pickup from over 2,250 stores and on-demand delivery from 2,500 stores.
According to data compiled by Insider Monkey, Warren Buffett’s Berkshire Hathaway is the biggest hedge fund shareholder of The Kroger Co. (NYSE:KR), with a stake worth over $2.48 billion. The Oracle of Omaha is one of the biggest supporters of value investing, which dives down into the financials of an organization as compared to the chatter in the broader market. As of Q2 2022, The Kroger Co. (NYSE:KR) was held by 49 hedge funds.
The Kroger Co. (NYSE:KR) was also one of the top ten U.S. stocks selected by Bank of America for Q3 2022. The expectation that food prices will remain high and that consumers will continue to pay more for groceries is a possible catalyst for Kroger Co. (NYSE:KR). Despite the broader market turbulence, Kroger Co. (NYSE:KR) stock has gained nearly 6.9% since the start of 2022, as opposed to the 14.9% decline experienced by the S&P 500 Index during the same period.
3. Dollar General Corporation (NYSE:DG)
Number of Hedge Fund Holders: 51
Dollar General Corporation (NYSE:DG) is a Goodlettsville, Tennessee-based operator of a variety of stores across the U.S.
When discussing its Q2 2022 results, Dollar General Corporation (NYSE:DG) revealed that the $1 price point was the most popular amongst its buyers. Following the release of the company’s strong Q2 results, Simeon Gutman at Morgan Stanley increased the price target on Dollar General Corporation (NYSE:DG) from $250 to $270 and maintained an ‘Overweight’ rating on the stock in a research note issued on August 26. The analyst picked Dollar General Store as his top pick in the Dollar store space. Furthermore, experts believe that the macroeconomic uncertainty has benefited Dollar General, as was reflected by the company’s 10.5% year-over-year increase in EPS. The company is working on protecting its solid margins and delivering strong results.
Here’s what LRT Capital Management said about Dollar General Corporation (NYSE:DG) in its Q3 2021 investor letter:
“Executive Summary
At LRT Capital Management we are continuously searching the market for great investment opportunities. Our favorite finds are companies with moats and growth opportunities that justify a higher price than what the stock is trading for. One of our holdings (approximately 1.5% of our long exposure) is Dollar General (DG), so today, we wanted to tell you a bit about this great company.
Company Overview
Dollar General is a discount retailer with the largest brick-and-mortar presence in the United States by store count. The company’s largest concentration of stores can be found in the southern, southwestern, midwestern, and eastern parts of the United States.10 Dollar General was founded in 1939 by J.L. Turner, who originally named the company “J.L. Turner and Son, Wholesale”. As the name suggests, the company began its life as a wholesaler, but quickly turned to a retailer of general store goods. By the early 1950s, the company had annual sales of $2 million per year,12 which is the equivalent of $22.95 million in 2021 dollars when adjusted for inflation.
The first Dollar General store opened on June 1st, 1955 in Springfield Kentucky. The simple concept was that no item in the store would cost more than one dollar. The company changed its name to Dollar General Corporation in 1968 when Dollar General became publicly traded. At the time of its initial public offering, the business generated more than $40 million in annual sales. The company’s common stock was publicly traded from 1968 until July 2007, when it was taken private by KKR. The company went public again in November 2009, under the ticker DG.
Today, Dollar General is an evolved, and phenomenal business with more room for growth. Annual sales reached a record $33.7 billion in fiscal year 2021 after consecutively growing the top line for many years. The company’s main products are every-day necessities and consumables purchased by lower income consumers on tight budgets…”
2. Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Holders: 64
Costco Wholesale Corporation (NASDAQ:COST) is an Issaquah, Washington-based membership-only big-box retailer.
On August 25, Hans Engel at Erste Group upgraded Costco Wholesale Corporation (NASDAQ:COST) stock from ‘Hold’ to ‘Buy’, with no specified target price. The analyst believes that the company is delivering solid sales growth and has improved its key profitability ratios in recent quarters. Following the July sales data, some experts highlighted the exceptional value proposition offered by Costco Wholesale Corporation (NASDAQ:COST), which is resulting in strong sales despite a difficult macroeconomic environment.
Of the 895 hedge funds in Insider Monkey’s database that filed 13Fs for the latest reporting period, Costco Wholesale Corporation (NASDAQ:COST) was held by 64 of them as of June 30.
1. Walmart Inc. (NYSE:WMT)
Number of Hedge Fund Holders: 67
Walmart Inc. (NYSE:WMT) is a Bentonville, Arkansas-based operator of discount department stores, grocery stores, and hypermarkets across the U.S. Bridgewater Associates raised its stake in Walmart Inc. (NYSE:WMT) by 17% during Q2 2022.
Walmart Inc. (NYSE:WMT) achieved double-digit growth in food sales across its store network in Q2, which prompted same-store sales to rise by 6.5% during the three-month period.
In a research note issued on August 18, Simeon Gutman at Morgan Stanley increased the price target on Walmart Inc. (NYSE:WMT) from $145 to $150 and maintained an ‘Overweight’ rating on the stock. The analyst anticipates the uncertainty related to the company’s margins to settle down during the second half of FY23 and the revenue momentum to regain pace in FY24. Experts are positive about Walmart Inc.’s (NYSE:WMT) ability to balance short-term returns with long-term investments in the current macroeconomic environment due to the company’s strong business fundamentals.
You can also take a peek at the Top 8 Stock Picks of Jeff Ubben’s Inclusive Capital and the 10 Best Value Stocks to Buy for the Next Decade.
