Coronavirus-Led Grocery Demand Here to Stay: 4 Stocks to Buy

Elva Mankin

The COVID-19 outbreak brought about a major shift in consumer’s shopping pattern and behavior. People are purchasing more of essential items and avoiding any extravagant spending. This has led to a spurt in demand for toilet paper, disinfectants, masks, gloves, packaged water, medicines and related food staples. Well this change in consumer behavior is here to stay, as people are preferring to work from home, dining at home and maintaining social distancing.

Product innovation, prudent pricing strategy and strategic investments in developing new business model is the need of the hour. It comes as no surprise that the companies have been stepping up omni-channel capabilities and adopting ways to enhance delivery and payment systems, in particular, to expand in the booming online grocery space. To this end, companies’ same-day and last-mile delivery services, and buy online and pick-up in store facilities bode well. In fact, the companies’ initiatives to expand delivery options have been a boon amid the pandemic, helping them cater to soaring demand arising from stay at-home trends.

To make consumers’ lives easier Target TGT is adding 750 fresh and frozen grocery items to its in-store order pickup and curbside drive up online services. Incidentally, Walmart WMT unveiled Express Delivery, a service which delivers orders to customers’ door in less than two hours, during first-quarter fiscal 2021. Going by the media reports, the retail behemoth is all set to launch a subscription-based service — comprising same-day delivery of groceries — called Walmart+.

As per Brick Meets Click/Mercatus report, U.S. online grocery sales rose 9% month over month to $7.2 billion in June. Notably, the number of customers turning to online grocery pickup or delivery reached 45.6 million in June, reflecting an increase of 6% from 43 million in May. The survey also suggests that order frequency for active households jumped to 1.9 orders in June from 1.7 orders in May.

Although lockdowns are being lifted and businesses are resuming, the persistent rise in the number of coronavirus cases has fueled fears of a second wave of COVID-19. And with no vaccine yet, there is a lot of uncertainty surrounding the duration and severity of the virus. Amid such concerns, investing in grocery stocks is a tempting option at the moment. Grocery stocks have always been safe bets, and the pandemic just highlighted the fact that how secure these stocks can be during extreme market volatility.

All said, here we have shortlisted four stocks on the basis of a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B.

4 Prominent Picks

Investors can count on SpartanNash Company SPTN, which distributes and retails grocery products. The company has a trailing four-quarter positive earnings surprise of 17.1%, on average. The stock has a Zacks Rank #1 and a VGM Score of A. Moreover, the Zacks Consensus Estimate for its current financial year earnings suggests an improvement of 82.7% from the year-ago period. Notably, the stock has surged 44.4% so far in the year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company’s consolidated net sales rose 12.4% during first-quarter 2020, representing the 16th successive quarter of increase. The result surpassed management’s expectations as the company gained from increased sales across all segments from the coronavirus-led demand, and strong growth from existing customers in the Food Distribution segment. Management stated that the company’s sturdy e-commerce platform, data insights and understanding of consumer preferences, and systems and infrastructure positions it well for future success.

You may invest in Sprouts Farmers Market, Inc. SFM, which has a Zacks Rank #1 and a VGM Score of A. The provider of fresh, natural, and organic food products has a trailing four-quarter positive earnings surprise of 37.2%, on average. It has a long-term earnings growth rate of 9.2%. Moreover, the Zacks Consensus Estimate for its current financial year earnings indicates growth of 35.2% from the year-ago period. The stock has displayed a bullish run on the bourses gaining 25.9% year to date.

Sprouts Farmers’ first-quarter 2020 results benefited from spike in demand during the latter part of the quarter as Americans stockpiled essential items in the wake of coronavirus outbreak. The company’s focus on product innovation, emphasis on e-commerce, expansion of private label assortment and enhancement of technology bode well. It has launched Sprouts.com website and mobile app to help customers experience hassle-free shopping. Moreover, the company has partnered with Instacart to offer same-day delivery to customers. The home delivery business is now available in most of the company’s stores.

Dollar General Corporation DG, which provides packaged food and perishables such as milk, eggs, bread, refrigerated and frozen food, is also worth betting on. It has a Zacks Rank #1 and a VGM Score of A. The company has a trailing four-quarter positive earnings surprise of 16.9%, on average. It has a long-term earnings growth rate of 12.3%. Moreover, the Zacks Consensus Estimate for its current financial year earnings indicates an improvement of 31.4% from the year-ago period. The stock has appreciated 20.7% year to date.

Change in consumer behavior owing to the coronavirus pandemic had a favorable impact on the company’s first-quarter fiscal 2020 performance. The company has been expanding cooler facilities to enhance the sale of perishable items and rolling out DG digital coupon program and DG Go app. Management introduced two transformational strategic initiatives — DG Fresh, designed to enable self-distribution of fresh and frozen products, and Fast Track, an in-store labor productivity and customer convenience initiative. By the end of fiscal 2020, the company plans to operate up to ten DG Fresh distribution facilities, which will serve roughly 12,000 stores.

We also suggest investing in The Kroger Co. KR, which has a long-term earnings growth rate of 5.5%. This grocery retailer has a trailing four-quarter positive earnings surprise of 4%, on average. The stock has a Zacks Rank #1 and a VGM Score of A. Moreover, the Zacks Consensus Estimate for its current financial year earnings suggests growth of 29.1% from the year-ago period. The stock has advanced 15.4% so far in the year.

Driven primarily by coronavirus-led demand, Kroger registered a sharp rise in sales across both brick-&-mortar stores and digital channels during first-quarter fiscal 2020. Understanding the need of the hour, the company offered a no-contact delivery option, low-contact pickup service and ship-to-home orders. It also continued to expand contactless payment solutions like Kroger Pay. The company has been making prudent investments to bolster omni-channel operations, improve supply chain and increase manpower to ensure swift customer service amid such challenging times.

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