Like many sectors, pricing power is important and these three companies are proving their worth
One area where consumers most notice the effects of inflation is in the price they pay at the grocery store. However, while consumers can cut their grocery budgets or change their brand loyalty, they still need groceries.
That’s why grocery stocks are among the best defensive stocks investors can buy during a bear market. And here is your playbook. First and foremost, quality matters. This is a time when large regional and national chains look better than small niche works. And most importantly, investors should look for companies that have pricing power.
Grocery stores face higher entry costs and have to walk the tightrope to pass these costs on to consumers. The best companies in its class are better prepared to do so. They may cost a little more per share, but over time these shares are likely to generate some capital growth. And the three shares in this article offer a growing dividend.
Costco (NASDAQ: COST) it is proving to be one of the best defensive actions for investors. One thing that differentiates Costco from other grocery stores is its membership model. The company is proving that customers are staying with their subscription to Costco even though the company continues to increase its membership fee.
Costco also offers its customers gas benefits. This serves as an additional catalyst for inflation because consumers looking to save money on gasoline will buy from Costco and are more likely to double down on some grocery purchases.
COST shares have surpassed earnings in their last five quarters since their May 2022 earnings report. The warehouse chain has also generated 24% earnings growth over the next twelve months. And Costco offers a solid dividend that pays $ 3.60 per share annually. While some analysts have lowered their stock price targets from the company’s earnings, the consensus target gives the shares 15% more than their current level.
Next on this list are grocery stocks Kroger (NYSE: KR). It is a regional grocery chain that benefits from an investment in digital technology. The grocery chain is also seeing the strength of its private label brands that help the company mitigate the effects of rising costs. In fact, in the company’s most recent fiscal year, these brands accounted for approximately 20% of sales.
Kroger has delivered 10 consecutive quarters in which it has exceeded analysts ’earnings per share (EPS) expectations. And the company has achieved a 14% profit growth in the next twelve months.
KR shares currently hold a consensus rating of Hold, but since its earnings report in June, the shares have not been downgraded and in some cases see their price targets increase.
General stores in Casey
Another regional grocery chain that looks strong as a recession-proof grocery store General stores in Casey (NASDAQ: CASY). The company’s $ 1.40 dividend payment isn’t impressive in itself, but if seen as part of a larger story it becomes an intriguing feature.
First, the company’s payout ratio in July 2022 is only 15.8%. This gives the stocks a long way to go to increase their dividend. And growing the dividend is something the company is known for. He has one year left to become a member of the Dividend Aristocrat club having increased his dividend in each of the last 24 years.
The company is committed to expanding its national footprint as it acquires existing convenience stores. Casey’s is also making an investment in the digital part of its business, which is likely to be a growth catalyst.
CASY shares have seen year-over-year growth of 8% in earnings per share and have exceeded estimates in 7 of their last 8 quarters. Analysts give shares a 25% increase over their level in July 2022.
Costco Wholesale is part of the Entrepreneurs Index, which tracks some of the largest publicly traded companies founded and managed by entrepreneurs.