I own a lot of defensive stocks in our portfolios currently – Walmart (WMT), Procter & Gamble (PG), Campbell Soup (CPB) – but my biggest position in this group is the country’s leading grocer Kroger (KR).
Why? Because KR is in the sweet spot for the current macro environment. It sells groceries to middle America. In a stagflationary environment many Americans will cut back on discretionary items and they may even trade down on necessities but no matter what they will buy groceries. In addition KR trades at a discounted valuation to most other defensive stocks. There are no guarantees in this business but KR is the closest thing to one.
KR reported 2Q22 earnings this morning and – as usual – they were stellar. Identical Store Sales (excluding fuel) were +5.8%. EPS increased to 90 cents from 80 cents a year ago. KR raised full year guidance to ID sales of 4.0%-4.5% and EPS of $3.95-$4.05. At a current price of $51 that’s a 13x P/E on current year earnings. KR also recently raised its quarterly dividend to 26 cents which works out to about 2% annually.
When people ask me to recommend a stock hoping I’m going to say Apple (AAPL) or Google (GOOG/GOOGL) I tend to disappoint them when I recommend Kroger (KR). But they are unlikely to be disappointed if they buy the stock.