In this article, we will take a look at the 10 Best Grocery Stocks to Invest in Now.
Food prices, along with energy prices, tend to be historically volatile, which is why they are excluded from the core Consumer Price Index (CPI) reading published by the U.S. Bureau of Labor Statistics each month. Thus, when the CPI rose by a seasonally adjusted 0.2% in September, resulting in an annual inflation rate of 2.4%, it didn’t provide much insight into grocery price trends specifically. Annual food inflation climbed to 2.3% in September, up from 2.1% the previous month, marking the largest rise since August 2022. This increase follows a shift in wholesale food prices, which stopped declining early in the year and began to rise again, according to the Food and Agriculture Organization’s (FAO) Food Price Index.
While analysts and supermarket executives point to supply chain disruptions and rising labor costs as the main causes of food inflation, many point out that they often overlook accusations that corporate greed has led to unprecedented revenue levels that unjustifiably exceed profit margins. However, others disagree with this sentiment. One such person is Arun Sundaram, an analyst at CFRA, who states that growth in the grocery sector is driven by strong consumer demand rather than corporate greed:
“While food prices have risen by about 30% since 2019, costs have also increased substantially during this period. Therefore, the key metric to focus on is gross margins, which have remained stable relative to pre-pandemic levels. Moreover, the producer price index has tracked closely with the consumer price index, indicating that the price hikes on the shelves are cost-justified price increases.”
See also: 7 Best Delivery Stocks To Invest In Now.
Given the surge in prices for essential food items and the record-high revenues for retailers, it’s no surprise that stocks in this sector are not only performing well but, in some cases, outperforming the overall market. Additionally, although grocery stocks aren’t immune to recessions, they have shown notable resilience, largely due to consumers’ consistent need to shop for essentials, making grocery stores a frequent destination even during tough economic times.
Grand View Research reports that the global food and grocery retail market was valued at $11.93 trillion in 2023 and is projected to grow at a 3.2% compound annual growth rate (CAGR) from 2024 to 2030. Packaged foods lead the grocery market by product type, holding the largest market share due to their convenience and broad selection. In that same vein, while traditional in-person shopping remains the consumer preference, the online grocery sector is rapidly expanding. Valued at $50.28 billion in 2022, the sector is expected to reach $57.81 billion by 2030, growing at a CAGR of 26.8%.
In any case, people buy groceries consistently, regardless of economic conditions, and their purchasing levels remain fairly stable in both prosperous and challenging times. This makes the grocery industry, a segment of the broader consumer staples (also known as consumer defensive) sector, relatively resistant to disruption. These ‘defensive’ stocks compensate for modest growth with low price volatility, steady profits, reliable dividends, and a strong defensive position. That said, Morgan Stanley equity strategist Michael J. Wilson believes such stocks have rallied recently, making them pricier relative to their earnings. While defensive stocks often perform well following Federal Reserve rate cuts—which could be favorable after the aggressive half-point rate reduction in September—Wilson states that they also tend to lag initially:
“Historically, defensives see fairly persistent outperformance 3-12 months following the Fed’s first cut, but can see initial, modest underperformance in the 1 month following the initial rate reduction.
Recently, investors have shown heightened interest in defensive sectors, particularly within consumer staples, outpacing other areas like real estate and financials. Commenting on this trend, Bank of America strategists noted in a September report:
“The US consumer is reacting to the softer labor market, exhausted pandemic savings, and high interest rates. Signs of this reaction are visible across many angles, including the degree of outperformance in staples versus discretionary stocks.”
Morgan Stanley’s Chief U.S. Equity Strategist, Mike Wilson, also remarked:
“Lately, the market has skewed much more defensively as it has worried more about growth and less about high inflation or rates. Since the spring, the relative performance of defensives over cyclicals has been the strongest since the last recession ended.”
Our Methodology
For this list, we reviewed reports and financial media compilations and identified companies in the grocery industry. From this selection, we chose 10 companies that were the most popular among elite hedge funds, as of Q2 2024. The stocks are sorted in ascending order based on the number of hedge funds with stakes in each.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small-cap and large-cap stocks every quarter and has delivered a 275% return since May 2014, beating its benchmark by 150 percentage points (see more details here).
10. BBB Foods Inc. (NYSE:TBBB)
Number of Hedge Fund Holders: 13
BBB Foods Inc. (NYSE:TBBB) operates a grocery store chain across Mexico through its subsidiaries, offering a range of branded, private label, and spot products. Targeting low-to-middle-income households, the company also sells through online channels
On September 9, Jefferies initiated coverage on BBB Foods Inc. (NYSE:TBBB) with a Hold rating and a price target of $33. Jefferies identified the grocery company as a key growth player in the Latin American retail market, highlighting its ambitious expansion strategy, which has increased its store count by over 20%. The firm noted strong same-store sales (SSS) growth, despite margins currently lagging behind competitors, with expectations that margins will improve as the company scales and its existing locations mature. Jefferies stated that BBB Foods’ valuation reflects its growth prospects.
In its Q2 report, BBB Foods Inc. (NYSE:TBBB) posted revenue of Ps. 13,574 million, a 27.5% increase year-over-year, driven by both established and new stores. The company expanded its reach with 121 new store openings, totaling 2,503 locations nationwide. EBITDA also rose by 43.2% year-over-year to Ps. 689 million, while net profit saw a significant increase to Ps. 331 million from Ps. 71 million in Q2 2023.
9. BJ’s Wholesale Club Holdings (NYSE:BJ)
Number of Hedge Fund Holders: 34
BJ’s Wholesale Club Holdings (NYSE:BJ), a members-only warehouse chain, offers a wide range of goods across grocery, general merchandise, and specialty services, with around 245 clubs and 180 gas locations in 20 states.
In Q2 of fiscal year 2024, BJ’s Wholesale Club Holdings (NYSE:BJ) reported strong results, highlighted by increased membership fees, growth in market share, and a sharp rise in digital sales. Net sales reached $5.1 billion, up 4.8% from the previous year, while comparable club sales grew 3.1% year-over-year. Digital sales showed robust growth, with a 22% increase in digitally enabled comparable sales. As part of its expansion plan, BJ’s plans to open 11 new clubs within the next six months.
On October 14, Loop Capital maintained a Hold rating on BJ’s, projecting a possible membership fee hike in the near future, following Costco’s recent increase and discussions with BJ’s management. Recent severe weather affected operations at some clubs, but stock-up buying in response to the storms likely offset part of the impact.
TimesSquare Capital U.S. Small Cap Growth Strategy stated the following regarding BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) in its first quarter 2024 investor letter:
“Our preferences in the Consumer-oriented sectors lean toward value-oriented or specialty retailers, franchise models, or premium brands. BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) operates membership warehouse clubs. Its shares gained 14% after it reported better-than-expected comparable sales growth, in-line revenues, and earnings for its fiscal fourth quarter. Highlights of the quarter were increased membership and customer traffic.”
8. Sprouts Farmers Market Inc. (NASDAQ:SFM)
Number of Hedge Fund Holders: 35
Sprouts Farmers Market Inc. (NASDAQ:SFM), based in Arizona, operates a supermarket chain specializing in a diverse selection of gluten-free, natural, and organic foods. Emphasizing quality, freshness, and affordability, the company offers a wide selection of produce, bulk foods, meat, seafood, and prepared foods.
For the third quarter, Sprouts Farmers Market Inc. (NASDAQ:SFM) reported earnings per share of $0.91, up 39% year-over-year, surpassing the consensus estimate of $0.77. Revenue reached $1.946 billion, marking a 14% increase from the previous year and beating forecasts by $70 million. The company’s comparable store sales also grew 8.4%, well above the expected 4.5%, highlighting the growing appeal of Sprouts’ unique market strategy.
Following the Q3 report, CFRA raised its price target for Sprouts Farmers Market Inc. (NASDAQ:SFM) to $136 from $109, maintaining a Hold rating. Despite the positive results mentioned above, the company faced pressures on SG&A expenses due to heightened investments, increased incentive compensation, and higher e-commerce fees. Looking ahead, CFRA anticipates another strong growth year in 2025, with comparable sales expected to exceed 4% and EPS growth potentially surpassing 20%, assuming current investments will conclude by then.
FPA Queens Road Small Cap Value Fund stated the following regarding Sprouts Farmers Market, Inc. (NASDAQ:SFM) in its Q2 2024 investor letter:
“Sprouts Farmers Market, Inc. (NASDAQ:SFM) is a natural grocer with great merchandising and best-in-class gross margins.19 The company has attractive returns on capital, great new store economics, and they are accelerating their unit growth from 12 stores a year to 35 stores in 2024 on a base of roughly 400 stores. Over the past year, the stock has performed well after reporting strong operating results and from a low initial valuation. The stock price jumped when the company reported 2023Q4 results and gave strong 2024 guidance on February 22, 2024. We have maintained our position and allowed it to appreciate. Although SFM’s share price has increased faster than bottom line results, we believe SFM still trades in the “range of reasonableness” for a high-quality, non- cyclical franchise that can reinvest capital at attractive rates of return.”
7. Casey’s General Stores, Inc. (NASDAQ:CASY)
Number of Hedge Fund Holders: 36
Casey’s General Stores, Inc. (NASDAQ:CASY) operates over 2,500 convenience stores across 17 states in the Midwestern and Southern U.S., making it the third-largest convenience store chain in the country.
Evercore ISI recently raised its price target for Casey’s General Stores, Inc. (NASDAQ:CASY) from $435 to $440 while maintaining an Outperform rating. This update follows insights from Casey’s Investor Day, where the firm gained clarity on the company’s strategy to achieve an 8-10% EBITDA growth target. The company is also exploring small to mid-sized mergers and acquisitions, which could lead to 4% unit growth. These acquisitions are viewed favorably, with purchase prices between 6-9 times EBITDA, compared to Casey’s own multiple of 12 times. The acquisition of CEFCO in September in particular is expected to add $90 million in EBITDA, plus synergies, over the next few months, further supporting growth into 2025.
In the first quarter of fiscal 2025, Casey’s reported strong financials, with diluted earnings per share rising 7% to $4.83 and net income growing 6% to $180 million, while EBITDA improved by 9% to $346 million. Moreover, the company’s in-store sales increased by 2.3%, and fuel same-store gallons sold grew slightly by 0.7%.
ClearBridge SMID Cap Growth Strategy stated the following regarding Casey’s General Stores, Inc. (NASDAQ:CASY) in its Q2 2024 investor letter:
“Stock selection in the consumer staples sector also proved beneficial, primarily driven by our holdings in Casey’s General Stores, Inc. (NASDAQ:CASY) and BJ’s Wholesale Club (BJ). An operator of gas stations and convenience stores, Casey’s is now reaping the rewards of its aggressive reinvestment in its stores over the past decade, building its private label brand and broadening its product offerings. This has not only helped boost same-store sales but also encouraged repeat traffic, allowing the company to buck broader industry trends toward contraction in gas volumes and margins. Finally, the company’s strategy of choosing locations in smaller and more remote markets has afforded it stronger pricing power.”
6. Dollar Tree, Inc. (NASDAQ:DLTR)
Number of Hedge Fund Holders: 38
Dollar Tree, Inc. (NASDAQ:DLTR) is a U.S.-based retail chain known for offering a wide range of products at various price points. The company’s offerings include consumables like food, health, and household items, as well as seasonal goods. With 24 distribution centers, Dollar Tree primarily serves budget-conscious shoppers.
Loop Capital recently maintained its Hold rating for Dollar Tree, Inc. (NASDAQ:DLTR), keeping a price target of $65. After conducting a pricing study of Dollar Tree Plus items—priced above $1.25—the firm found that Dollar Tree, Inc. (NASDAQ:DLTR) products are, on average, 16.7% cheaper than those at competing retailers, with the total basket price being 19.4% lower. Although the pricing gap has narrowed since June, the comparison wasn’t perfectly aligned due to changes in competing retailers, but Dollar Tree Plus remains competitively priced, a bright spot for the company amid challenging fundamentals.
To address rising competition, Dollar Tree, Inc. (NASDAQ:DLTR) reassessed its strategy, leading to the closure of around 970 underperforming Family Dollar stores by the end of 2023. However, Family Dollar saw an uptick in discretionary spending during Q2, and payroll savings are expected soon. For Q3, the company projects net sales between $7.4 billion and $7.6 billion, with adjusted earnings per share (EPS) between $1.05 and $1.15.
5. The Kroger Co. (NYSE:KR)
Number of Hedge Fund Holders: 46
The Kroger Co. (NYSE:KR), commonly known as Kroger, is a major American retail corporation, operating more than 2,700 supermarkets and multi-department stores across 35 states, making it one of the world’s largest food retailers.
The Kroger Co. (NYSE:KR) has reported modest growth in its second-quarter earnings for 2024, with a 1.2% increase in identical sales excluding fuel, an 11% rise in digital sales, and a 17% growth in delivery solutions, although adjusted earnings per share fell by 3% to $0.93. Moreover, the company has successfully completed the sale of its specialty pharmacy business to Elevance Health, a move that is not anticipated to impact its financial guidance for 2024. The Kroger Co. (NYSE:KR) has also enhanced its Boost by Kroger Plus membership program by including Disney streaming services as a new benefit.
Following its second-quarter performance, BMO Capital reiterated a positive outlook on The Kroger Co. (NYSE:KR) in September, maintaining an Outperform rating and a price target of $60. The firm believes that Kroger’s positive trends have continued into the third quarter, despite challenges such as consumer trade-down behavior and financial pressures on cost-conscious shoppers.
4. Target Corporation (NYSE:TGT)
Number of Hedge Fund Holders: 52
Target Corporation (NYSE:TGT), based in Minneapolis, Minnesota, is a leading American retailer known for its discount department stores and hypermarkets. The company offers a wide range of products, including clothing, electronics, home goods, and groceries, and is renowned for its accessible locations and competitive pricing.
On October 22, Jefferies reaffirmed a Buy rating and set a price target of $195 on Target Corporation (NYSE:TGT), following Target’s announcement of additional price cuts across 2,000 items. These reductions, covering both discretionary goods and essentials under national and private label brands, bring the year-to-date total of price cuts to 10,000. The strategy is aimed at driving customer traffic and boosting sales as the holiday season nears, a tactic historically linked to an uptick in customer visits and online shopping activity.
In Q2, Target Corporation (NYSE:TGT) posted strong results, with comparable sales rising 2%, earnings per share jumping 42% to $2.57, and revenue growing 2.75% in fiscal Q2 2025, thanks to increased foot traffic. Additionally, the retailer declared a quarterly dividend of $1.12 per share and completed a $750 million notes sale through an agreement with multiple banks.
Carillon Eagle Growth & Income Fund stated the following regarding Target Corporation (NYSE:TGT) in its Q2 2024 investor letter:
“Target Corporation’s (NYSE:TGT) sales continue to feel the consumer softness in discretionary goods. In addition, while margins are recovering, they are not up to expectations. Encouragingly, sales are sequentially increasing and comparable sales are expected to get easier as Target enters the back half of the year.”
3. Albertsons Companies, Inc. (NYSE:ACI)
Number of Hedge Fund Holders: 59
Albertsons Companies, Inc. (NYSE:ACI) ranks among the largest food and drug retailers in the U.S., operating over 2,269 stores across 34 states under well-known brands such as Albertsons, Safeway, and Vons. This extensive network solidifies its position as a major player in the grocery market.
Research firm Melius recently upgraded Albertsons Companies, Inc. (NYSE:ACI) from Hold to Buy, with a price target of $24. The analyst noted multiple favorable outcomes for the company, highlighting strong valuation and management despite uncertainties around a proposed merger with Kroger. Though skeptical of the merger’s completion, Melius projected a potential 43% upside for shareholders if it proceeds, with a payout of $27.25 per share.
For Q2, Albertsons Companies, Inc. (NYSE:ACI) reported adjusted EPS of $0.51, beating estimates of $0.48, and revenue of $18.6 billion, surpassing the forecasted $18.47 billion and up 1.6% year-over-year. Identical sales grew 2.5% annually, led by robust pharmacy sales, while digital sales surged by 24%, reflecting Albertsons’ strong omnichannel growth. In addition, adjusted EBITDA reached $900.6 million, or 4.9% of net sales, compared to $976.9 million, or 5.3%, in the previous year.
2. Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Holders: 71
Costco Wholesale Corporation (NASDAQ:COST) operates a membership-only chain of warehouse club stores, offering bulk pricing on a wide range of products, including groceries, electronics, and household goods.
On October 17, Tigress Financial Partners reiterated its Buy rating for Costco Wholesale Corporation (NASDAQ:COST), raising the stock’s price target to $1,065. The firm cited Costco’s steady in-store traffic and growing e-commerce presence as key drivers of its positive outlook. Costco’s unique shopping experience and expanding footprint, both in the U.S. and internationally, are expected to sustain long-term shareholder value.
Costco’s financial performance remains strong, with Q4 2024 results showing a 9% increase in net income to $2.354 billion and a 1% rise in net sales to $78.2 billion. Comparable sales grew by 5.4% overall, including 5.3% in the U.S., 5.5% in Canada, and 5.7% in other international regions, while e-commerce sales surged by 18.9%, and September’s net sales rose by 9% to $24.62 billion.
Costco’s e-commerce segment in particular, has made significant strides. The retailer continues to grow its digital offerings, including partnerships with platforms like Uber, now available across 17 U.S. states and Canada, broadening its reach and customer convenience.
Parnassus Core Equity Fund stated the following regarding Costco Wholesale Corporation (NASDAQ:COST) in its Q2 2024 investor letter:
“Costco Wholesale Corporation (NASDAQ:COST) posted strong results for the third quarter of fiscal 2024, with a robust increase in net sales and strength in both U.S. and international markets. Bucking the trend of weakening demand for discretionary items that has pressured many other retailers, Costco reported growth in nonfood sales.”
1. Walmart Inc. (NYSE:WMT)
Number of Hedge Fund Holders: 95
Walmart Inc. (NYSE:WMT), headquartered in Bentonville, Arkansas, is a leading American retailer known for its extensive network of hypermarkets, discount stores, and grocery outlets nationwide.
TD Cowen reaffirmed its Buy rating on Walmart Inc. (NYSE:WMT) with a price target of $85 on October 15, highlighting the company’s advantages in membership technology, particularly through Sam’s Club. This outlook follows recent meetings with executives from Sam’s Club, WMT Luminate, and WMT Connect, underscoring Sam’s Club’s 13% contribution to Walmart’s revenue and 11% to its operating income, largely driven by its strong member-focused tech offerings.
The retailer’s strategic cost-cutting and operational improvements have helped sustain profit margins amid supply chain challenges, while international growth in markets like Mexico and India offers promising potential. Additionally, Walmart’s consistent dividend payments appeal to income-focused investors.
While we acknowledge the potential of WMT, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than WMT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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