BMO Capital Markets analyst Kelly Bania suggests investors shopping for bargains among grocery stocks should stick with the names that were highly rated for their underlying quality and value before the coronavirus crisis.
Her recommendations include Walmart (WMT), Costco Wholesale (COST), and Dollar General (DG), Barron’s explained.
In the two weeks ending on March 22, U.S. grocery sales surged 83% from the year-ago period, accelerating significantly from the 12% year-over-year growth in the prior week, Bania wrote in a Wednesday note.
Bania said investors should be selective when betting on grocer stocks.
“Although the unprecedented sales increases seem positive for the group, it also means the companies will have to beat those high bars next year, which will be almost impossible to achieve,” Barron’s explained.
“If the economy heads into a recession, weaker demand and mountains of stocked-up goods in consumers’ garage will serve a double-whammy for grocery retailers, dragging on their financial performance in the following quarters.”
Meanwhile, some experts look to China for hints about what America should expect.
The world's biggest economy won't be open for business by Easter, as U.S. President Donald Trump had hoped, but the second biggest economy may come close. How China fares offers a guide to other countries when their coronavirus lockdowns lift, Reuters explained.
Investors seem optimistic about China's recovery, with fund inflows hitting a 5-year peak late last month. But the risk of a second wave of infections is underscored by China reintroducing some curbs on movement. Any new outbreak would crush confidence and prolong lockdowns elsewhere too.
And the scale of recovery is an open question as global demand for goods languishes. With data coming out with a lag, investors will focus on indicators such as coal consumption (rising, but depressed), cargo handling (about 90% of pre-virus levels in Shanghai last week), gambling (collapsed) and box office takings (negligible). Next week may bring more clarity.
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