Inflation might be an utter inconvenience for most industries, but there are some that thrive during these times, for instance, the grocery services industry. Certain companies in this industry, like Kroger (NYSE:KR) and BJ’s Wholesale Club Holdings (NYSE:BJ), have performed relatively well this year and can be great recession-proof stocks for the dreaded year of 2023 as well.
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Typically, grocery stores offer a wide range of essential and non-essential items of every price range under one roof, giving them the advantage of making the most sales when prices are high. The defensive characteristics of grocery store companies help them stay relatively stable through any economic condition.
Moreover, certain stocks in this industry can be considered recession-proof, as the public is more likely to buy cheaper food items to cook at home rather than eat out. That said, according to Grand View Research, the global food & grocery retail market size reached $11,324.4 billion in 2021 and is forecast to witness a CAGR of 3% between 2022 and 2030. Even though the percentage seems small, it is a significant growth rate, given the market size. This gives us all the more reason to look into this area for investment.
Here are the two attractive stocks that are approaching 2023 with a stronger position than many others.
Kroger (KR)
Grocery store chain Kroger operates more than 2,700 stores across 35 U.S. states. With discounted product options, the company is likely to keep its customers returning as prices rise.
Its impending $24.6 billion acquisition of food and drug retailer Albertsons (NYSE:ACI) will expand Kroger’s operations to almost 5,000 grocery stores, 4,000 pharmacies, and 2,000 gas stations.
Kroger CEO Rodney McMullen recently said that customers are changing their spending patterns but “so far, they’re changing on purchases other than food.” Needless to say, in the third quarter, Kroger experienced a spike in private-label brand sales, which are generally cheaper than national name brands.
Is KR Stock a Buy or Sell, According to Analysts?
Wall Street is cautious, with a Hold consensus rating based on four Buys, seven Holds, and one Sell. The average price target of $51.45 indicates 15.4% upside potential over the next 12 months.
Nonetheless, Kroger is back at its pre-pandemic valuation. The company’s trailing 12-month P/E multiple of around 14.4x is near its five-year average, despite its higher sales and steady growth. Thus, this can be a good time to scoop some shares before the possible 2023 recession hits and KR’s valuation potentially rises.
BJ’s Wholesale Club Holdings (BJ)
An operator of membership warehouse clubs, BJ’s continues to navigate through the challenges in the retail sector on the back of its strong customer value proposition and business model.
Loop Capital analyst Laura Champine recently maintained a Buy rating on the stock but lowered the price target to $85 from $95. Champine expects a reduced price/cost spread as “prices on merchandise are gradually catching up with costs.” Additionally, the analyst also believes that BJ’s increasingly attractive value proposition is likely to keep driving a steady annuitized income stream during inflationary times.
Is BJ Stock a Buy, According to Analysts?
Wall Street analysts, on average, expect BJ stock’s price to go up by 18.4% over the next year, reaching a price target of $78.64. Additionally, the stock has a Moderate Buy consensus rating on Wall Street, based on six Buys, five Holds, and one Sell.
Also, the stock is trading at 18.5 times its trailing 12-month earnings, a discount of about 11% from the median P/E ratio of the consumer staples sector. Thus, this can be a great opportunity to invest in BJ.
The Takeaway
The current macroeconomic environment is driving the preference for grocery stocks with lower-priced options, something which both Kroger and BJ’s offer. Additionally, attractive valuations and strong fundamentals make these two stocks worth considering to sail smoothly through 2023.
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