Tags: Grocery | Stocks | Buy | Rebound

Grocery Stocks to Buy for the Rebound

Monday, 11 Apr 2011 11:09 AM

Grocery store chains are fighting hard for profits these days. Inflation is eating up margins but high unemployment has kept a lid on spending. Bill Simon, CEO of Wal-mart’s (WMT) U.S. operations, warns that even the discount behemoth cannot hold prices down for much longer.

Yet there's reason for retailers to be happy. The economy is finally turning around, and consumers are spending a little bit more.

The National Retail Federation (NRF) is forecasting retail sales to grow 4 percent in 2011 from 2010, with figures excluding automobiles, gas stations, and restaurant sales. The group sees spending over the Easter holiday up 11 percent vs. last year.

“Due to such a late holiday, Easter promotions will last all spring long,” says NRF President and CEO Matthew Shay. “Though lingering concerns over food and energy prices may keep shoppers from splurging, retailers are expecting consumers to stock up on apparel, home décor and of course food and candy, a good sign leading into the much busier and important months to come.”

If Shay is right, it might be time to consider grocery store stocks, some of which are dramatically beaten down on recession fears.

SuperValu (SVU), headquartered in Eden Prairie, Minnesota, is the country's third-largest supermarket chain, with about 2,370 stores. Annual sales run approximately $38 billion.

The company is working on cutting its debts, which could its improve its financial health and ultimately, its credit rating, says Moody's. The stock, which pay a 9 cent dividend, slid from a 52-week high of $17.47 all the way down to nearly $7 a share before bouncing off a bottom.

Safeway (SWY), a $41 billion company, has exceeded analyst’s recent sales forecasts. It faces some tough competition from Wal-Mart and other superstores entering the grocery business, but it also recently pumped up CEO Steven Burd’s pay by 5 percent. That’s not a sign of a board that expects bad news ahead, and it suggests that the 12 cent dividend is relatively safe, too.

Wal-Mart, meanwhile, just approved an annual dividend increase, rising 21 percent to $1.46 per share from the $1.21 per share paid during fiscal year 2011. Wal-Mart is the world’s largest retailer with $405 billion in sales for the fiscal year ending Jan. 31, 2010

"The strength of our earnings performance for fiscal 2011 and Wal-Mart's strong financial position allow us to again increase our dividend payout to shareholders," says Mike Duke, the company's global president and chief executive officer.

"We continue to generate ample free cash flow to fund store growth across all our markets, make strategic acquisitions and deliver returns to shareholders through dividends and share repurchase. In fact, for fiscal 2011, we returned a record $19.2 billion to shareholders through dividends and share repurchase,” Duke said.

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Grocery store chains are fighting hard for profits these days. Inflation is eating up margins but high unemployment has kept a lid on spending. Bill Simon, CEO of Wal-mart s (WMT) U.S. operations, warns that even the discount behemoth cannot hold prices down for much...
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2011-09-11
 

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