Image source: Getty Images
Value investors seeking safety and stability from any potential uptick in volatility should give the top grocery plays a look. Indeed, their performance has varied greatly in recent years, with some of the consumer staple plays faring better amid high inflation.
As inflation dies down and price cuts (along with rate cuts) become something for consumers to look forward to, I think the following grocery plays are well-positioned to take a bit of market share away from their more premier rivals.
You see, consumers tend to come for relative savings during inflationary times. And they’ll probably be sticking around for the abundant price cuts when disinflation (falling inflation) or even slight deflation (negative inflation) is the name of the game. Indeed, it’s far too early in the game to even think about deflation.
However, with past rate hikes already working their magic, perhaps it’s not too far-fetched to think that the price cuts and value menus in the restaurant industry will spill over into the grocery scene. After all, some U.S.-based grocers could pose a competitive threat to the domestic ones, with the likes of Walmart (NYSE:WMT) offering good value with their low-cost goods, private labels, and enhanced e-commerce and grocery delivery platforms.
Sure, Walmart may be the driving force behind lower prices at your favourite grocer. However, I think the following Canadian grocery plays can retain consumers as they offer deals of their own, not just to draw in crowds but to keep them for the long haul.
In this piece, we’ll check out two great grocers to stash in your cart if you fear the “soft landing” could be a lot bumpier as inflation and rates weigh on consumers.
First up, we have the American grocery giant Walmart, which skyrocketed more than 64% in the past two years. That’s not the type of performance you’d come to expect from an old-fashioned retailer with a heavy grocery focus. Either way, consumers can’t get enough of the low everyday prices. And many Canadians seem to have taken their business to the American chain as complaints about high prices at their local grocers hog the headlines.
Indeed, Walmart’s prices are tough to compete against. That’s a major reason the US$547 billion behemoth has taken market share in recent inflation-hit quarters. I think the share-taking is just starting, as Walmart slashes prices at the grocery aisle and just about everywhere else.
Add Walmart Delivery Pass into the equation, which allows unlimited free grocery deliveries from a Walmart Supercentre (the grocery-focused Walmart stores), and the stock looks like a momentum hero to stick with going into the summer. At 29.2 times trailing price to earnings (P/E), the stock looks quite pricey. But I think it’s a worthy addition to a safe portfolio.
Loblaw (TSX:L) is another surprising grocery top performer after surging 37% in the past two years. Though trailing Walmart, I view Loblaw as having superb private labels (President’s Choice and No Name) that can keep Canadian shoppers coming back, even if prices aren’t on the floor. At 23.7 times trailing P/E, shares are far cheaper than WMT right here.
The 1.3% dividend yield is a fine addition as well. In addition to the great grocery stores, you’re also getting Shoppers Drug Mart, a stellar retailer that can punch well above its weight in retail. All considered, L stock is a market bargain for safe-haven seekers. Perhaps the biggest attraction to L stock is the rock-bottom 0.14 beta, which entails far less market risk versus other stocks.
