The retail sector is making a solid rebound as inflation has steadily declined over the past year. Consumers who spent cautiously last year are finally shelling out freely as commodity prices continue to cool and personal income remains higher.
The Fed’s aggressive interest rate hikes compelled people to spend mostly on necessities while cutting down on discretionary items. Thus, grocery sales are seeing a steady rise. Groceries belong to the consumer staples sector, and investing in such stocks is a safe bet during times of economic uncertainty.
Grocery Sales Grow
Sales at grocery stores jumped 0.8% to $73.72 billion in July from $73.15 billion in June, according to the Census Bureau. This came as retail sales rose a solid 0.7% last month. Groceries are daily-use items and consumers, despite high prices, have continued to spend on the necessities.
This has also been helping the retail sector, which has been reeling under inflationary pressures.
The Fed has increased interest rates by 525 basis points since March 2022, making buying and borrowing expensive. However, the interest rate-hike campaign is finally bearing fruit and inflation has now more than halved after peaking at a 40-year-high of 9.1% in June 2022.
The Fed paused its interest rate hikes for the first time in June after 10 consecutive hikes and resumed it in July. However, cooling inflation has also raised hopes that the Federal Reserve might soon end its interest rate hike campaign.
The consumer price index (CPI) increased 3.2% in July after rising 3% in June. However, it came in below analysts’ expectations of a rise of 3.3%. Moreover, the jump in July was modest and prices have increased for the first time in more than a year.
Economists also believe that the grocery market is poised to grow as prices cool further. According to Coresight Research’s latest Market Navigator: U.S. Grocery Retailing report, grocery sales are projected to jump 5.6% to $1.5 trillion in 2023.
Although this year’s growth will be slower compared to the 9.2% rise in 2022, the market is expected to expand at a steady pace.
The report also suggests that inflation is expected to have a lesser impact in 2023, primarily due to the already cooling food-at-home prices.
Moreover, markets priced in an 84.5% chance that the Fed will keep interest rates unchanged at a range of 5.25-5.5% on Sep 20, according to the CME FedWatch Tool.
This bodes well for the grocery segment as lower borrowing costs will help investors spend more freely.
Our Choices
Given this situation, it would be wise to invest in these four food and grocery stocks. Each of the stocks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Lifeway Foods, Inc. LWAY produces Kefir, a drinkable product similar to, but distinct from yogurt, in several flavors sold under the name Lifeway’s Kefir. LWAY also provides European-style soft cheeses, cream and related items. Lifeway Foods offers ProBugs, a range of kefir products tailored for children, along with drinkable yogurt, freshly churned butter, and sour cream.
Lifeway Foods’expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current-year earnings has improved 76.5% over the past 60 days. LWAY presently sports a Zacks Rank #1.
J&J Snack Foods Corp. JJSF is an American manufacturer, marketer and distributor of branded niche snack foods and frozen beverages for the food service and retail supermarket industries. Manufactured and distributed nationwide, JJSF’s principal products include SUPERPRETZEL, BAVARIAN BAKERY and other soft pretzels, ICEE and SLUSH PUPPIE frozen beverages, LUIGI’S, MINUTE MAID frozen juice bars and ices, WHOLE FRUIT sorbet and frozen fruit bars.
J&J Snack Foods’ expected earnings growth rate for the current year is 62.3%. The Zacks Consensus Estimate for current-year earnings has improved 16.4% over the past 60 days. JJSF currently carries a Zacks Rank #1.
Ingredion Incorporated INGR is an ingredients solutions provider specializing in nature-based sweeteners, starches and nutrition ingredients. INGR serves diverse sectors in food, beverage, brewing, pharmaceuticals and other industries.
Ingredion Incorporated’s expected earnings growth rate for the current year is 23.9%. The Zacks Consensus Estimate for the current-year earnings has improved 1.4% over the past 60 days. INGR presently carries a Zacks Rank #2.
Post Holdings, Inc. POST is a consumer-packaged goods holding company involved in the production of center-of-the-store, refrigerated, foodservice, food ingredient and convenient nutrition product categories. POST also engages in the private brand food category.
Post Holdings’ expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current-year earnings has improved 18.3% over the past 60 days. POST presently sports a Zacks Rank #1.
Lifeway Foods, Inc. (LWAY): Free Stock Analysis Report
Ingredion Incorporated (INGR): Free Stock Analysis Report
J & J Snack Foods Corp. (JJSF): Free Stock Analysis Report
Post Holdings, Inc. (POST): Free Stock Analysis Report
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