The Kroger Co. (KR), Wal-Mart Stores, Inc. (WMT): How to Play the Grocery Business After Recent Gains

Let’s take a quick look at them for comparative purposes. Most people are aware that Wal-Mart Stores, Inc. (NYSE:WMT)  is the largest retailer in the world with annual sales of over half a trillion (yes, trillion) dollars. In addition to a 2.5% dividend yield, Wal-Mart Stores, Inc. (NYSE:WMT)  trades for 15.2 times last year’s earnings, which are projected to grow at a consensus of 8.6% annually for the next few years. What a lot of investors don’t realize is that Wal-Mart has become the number one grocer in the U.S. with about $180 billion in annual grocery sales, or about 35% of the entire market. Whole Foods Market, Inc.(NASDAQ:WFM) is the largest chain of natural and organic foods in the U.S. with about 340 stores in 37 states. What Whole Food lacks in safety and yield it makes up for with growth. The company has grown its revenue drastically over the past decade and is projected to do the same going forward. Although Whole Foods Market, Inc.(NASDAQ:WFM) trades at a lofty valuation of about 37 times TTM earnings, the consensus calls for 18% earnings growth going forward. Also worth mentioning is that Whole Foods Market, Inc.(NASDAQ:WFM)  has arguably the most attractive balance sheet out of the three with over $1.2 billion in cash and no long-term debt.

Buy, sell, or hold?

If you want stability and dependable income, buy Wal-Mart. For those with a bit more risk tolerance, Kroger or Whole Foods Market, Inc.(NASDAQ:WFM) may be the better and more exciting way to go. Having said that, right now I think Kroger may be a bit expensive after the recent gains, and shares would need to pull back a bit before I would become a buyer again. If you are a current Kroger shareholder, after the kind of gain you’ve gotten in the past year, it may be wise to take at least some of your profits. After all, a 60% gain in one year is not too shabby…

Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Whole Foods Market. The Motley Fool owns shares of Whole Foods Market. Matthew is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article How to Play the Grocery Business After Recent Gains originally appeared on Fool.com is written by Matthew Frankel.

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