We recently compiled a list of the 14 Best FMCG Stocks To Buy Now. In this article, we are going to take a look at where The Kroger Co. (NYSE:KR) stands against the other FMCG stocks.
If you walk into a modern pantry, you’re almost guaranteed to find it well-stocked with everyday essentials like toilet paper, soap and toothpaste, beverages, and food. This reflects a simple reality: most consumers prefer to keep these items in ample supply. While consumers will always demand these products, they are not entirely indifferent to price increases during inflation. Instead, they might look to save money by buying in bulk or shopping at big-box stores. Regardless, they will continue to prioritize purchasing these necessities.
Known as fast-moving consumer goods (FMCG) or consumer packaged goods (CPG), these high-demand products are valued for their affordability and rapid turnover. They are considered “fast-moving” because they quickly sell off store shelves due to their regular use by consumers. Although investors typically look towards bonds and cash to manage risk, FMCG stocks offer a defensive alternative that can provide both growth and income. While these stocks may not generate spectacular growth opportunities and can lose value as interest rates rise, they generally decline less than other sectors during recessions. In fact, certain industries, such as food, tobacco, and alcohol, may even experience increased demand during economic downturns. As one of the world’s largest industries, the global FMCG sector has seen steady growth over the past decade, driven by the trend of experiential retailing, where shopping is viewed as a social activity. The global FMCG market is projected to reach $18,939.4 billion by 2031, with a compound annual growth rate (CAGR) of 5.1% from 2022 to 2031.
Following low deal volume and value in 2020, the consumer goods landscape saw a significant shift in M&A activity. In 2021, as sizable assets in the sector became scarce and prohibitively expensive, companies strategically moved toward a higher-volume, lower-deal-value approach. According to McKinsey, this trend peaked in 2021 with around 470 consumer goods deals globally. The distribution of M&A activity varied across subsectors regarding volume and value. Food remained the largest category by deal volume, accounting for about 40%, while beverages and durables together made up an additional 30%. On the other hand, in terms of deal value, personal care led the pack with 38%, primarily driven by large spin-offs of pharmaceutical companies’ consumer businesses. A notable example includes Johnson & Johnson’s $42 billion spin-off of Kenvue last year.
As of late May, several major retailers have reported their Q1 2024 earnings, offering valuable insights into the current state of the U.S. consumer’s sentiments. With consumer spending accounting for approximately 70% of the U.S. economy, shifts in spending patterns significantly impact growth and employment. Walmart, for example, observed changes in customer behavior, with CFO John Rainey noting in the company’s Q1 earnings call:
“Many consumer pocketbooks are still stretched, and we see the effect of that in our business mix as they’re spending more of their paychecks on non-discretionary categories and less on general merchandise. This merchandise mix remains a headwind to margins, but it’s consistent with our expectations.”
This indicates that consumers are prioritizing essential groceries over discretionary items like televisions. Walmart’s earnings suggest that while overall consumer spending remains steady, those with less disposable income are struggling and continue to seek value in their purchases. In any case, despite inflation and challenging market conditions, people still need to eat and buy essentials, making FMCG stocks more resilient compared to other sectors in the stock market.
Our Methodology
After a comprehensive analysis of FMCG stocks listed on NYSE and NASDAQ using ETFs and internet rankings, we have curated a selection of the 14 top FMCG stocks to buy now according to hedge fuds.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 best hedge funds. Our quarterly newsletter’s strategy picks 14 small and large-caps every quarter and it has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A customer buying an item at a checkout counter in a grocery store.
The Kroger Co. (NYSE:KR)
Number of Hedge Fund Holders: 46
The Kroger Co. (NYSE:KR), commonly known as Kroger, is a prominent American retail corporation operating a vast network of supermarkets and multi-department stores across 35 states, totaling over 2,700 locations. This extensive footprint secures its status as one of the world’s leading food retailers.
Jefferies reaffirmed its Hold rating on The Kroger Co. (NYSE:KR) with an unchanged price target of $53.00. This decision precedes the supermarket chain’s upcoming first-quarter earnings report on June 20th. Analysts are closely monitoring consumer behavior trends amid economic pressures, particularly their potential impact on Kroger’s performance. Observations indicate a stabilization in demand, driven by consumer preferences for value, including a focus on lower price points, shifts between shopping channels, and a tendency to opt for more economical choices. Similar patterns seen in the broader retail and manufacturing sectors suggest these dynamics are influencing Kroger as well.
Meanwhile, The Kroger Co. (NYSE:KR) continues to make strategic strides to strengthen its market position. The company has issued an earnings per share guidance of $4.40 for 2024 at the midpoint, with potential to exceed $5 by 2025, contingent upon factors like EBIT growth resumption and effective share repurchase execution. Revenue projections indicate a steady path, targeting $150.039 billion for 2024.
In the first quarter of 2024, Warren Buffett’s Berkshire Hathaway held 50 million shares of The Kroger Co. (NYSE:KR), with a total value exceeding $2.85 billion, representing 0.86% of the firm’s portfolio.
In its fourth quarter 2023 investor letter, Oakmark Global Fund stated the following regarding The Kroger Co. (NYSE:KR):
“The Kroger Co. (NYSE:KR) (U.S.) is the second-largest grocery retailer in America, behind only Walmart. Although the grocery industry is highly competitive, Kroger’s scale advantages allow it to offer a more compelling value proposition than smaller peers and earn higher returns on capital. In recent years, the market has assigned Kroger a lower multiple due to concerns that e-commerce would disrupt traditional brick-and-mortar grocery businesses. However, we believe Kroger’s performance through the pandemic highlighted that its store footprint, distribution infrastructure, technology investments and strong brand all position the company well for a world with higher online grocery adoption. The stock trades for just 10x our estimate of next year’s EPS, which we believe is attractive given Kroger’s competitive positioning and earnings growth outlook. The pending merger with Albertsons could accelerate the company’s earnings growth and produce additional scale advantages. If the merger is not approved, the company will have the capacity to return over 25% of its market cap to shareholders.”
Overall KR ranks 9th on our list of the best FMCG stocks to buy. You can visit 14 Best FMCG Stocks To Buy Now to see the other FMCG stocks that are on hedge funds’ radar. While we acknowledge the potential of KR as an investment, our conviction lies in the belief that under the radar 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 KR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
