Despite macro uncertainties, the grocery industry benefits from inelastic demand for its products and services, which keeps it afloat. So, quality grocery stocks Ingles Markets, Incorporated (IMKTA), Walmart Inc. (WMT), and Natural Grocers by Vitamin Cottage, Inc. (NGVC) could be profitable additions to your portfolio now.
Before discussing the fundamentals of these stocks in detail, let’s see what’s driving the prospects of the grocery retail industry.
Retail sales in the US rose 0.6% month-over-month in August 2023. Strong consumer spending and a rebound in economic activity can be linked to the increase in retail sales. Sales in sectors such as electronics, home improvement, and online shopping drove the expansion.
During the coming holiday season, which runs from November 1 to December 24, retail sales in the United States, excluding automobiles, are predicted to rise 3.7% year-on-year.
This expected growth, as Mastercard reported, shows American customers' long-term resilience. This positive outlook shows their belief in the economy and desire to assist businesses during this crucial time.
The global food and grocery retail market is expected to increase at a CAGR of 4.1% to $16.30 trillion by 2028, driven by rising disposable incomes and changing customer preferences.
In light of these encouraging trends, let’s look at the fundamentals of the three best A-rated Grocery/Big Box Retailers stocks, beginning with number 3.
Stock #3: Ingles Markets, Incorporated (IMKTA)
IMKTA operates a chain of supermarkets that offers food products, including grocery, meat and dairy products, produce, frozen foods, and other perishables, and non-food products, which including fuel centers, pharmacies, and health and beauty care products, general merchandise, and private label items.
IMKTA’s trailing-12-month EV/Sales of 0.30x is 82.7% lower than the industry average of 1.74x. Its trailing-12-month Price/Sales of 0.25x is 78.1% lower than the industry average of 1.13x.
IMKTA’s trailing-12-month ROCE of 17.59% is 56% higher than the 11.28% industry average, while its trailing-12-month ROTA of 9.49% is 120.8% higher than the industry average of 4.30%.
For the third quarter that ended on June 24, 2023, IMKTA’s total liabilities came in at $999.83 million for the period that ended June 24, 2023, compared to $1.04 billion for the period that ended September 24, 2022. Also, its total assets came in at $2.41 billion, compared to $2.30 billion for the same period.
IMKTA’s shares have gained marginally intraday to close the last trading session at $75.11.
IMKTA’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
IMKTA also has an A grade for Value and a B for Stability and Quality. It is ranked #8 out of 39 stocks in the A-rated Grocery/Big Box Retailers industry. Click here for the additional POWR Ratings for Growth, Sentiment and Momentum for IMKTA.
Stock #2: Walmart Inc. (WMT)
WMT offers an assortment of merchandise and services at everyday low prices in both retail stores and through e-commerce websites. The company operates through three segments: Walmart U.S.; Walmart International; and Sam’s Club.
WMT’s forward EV/Sales of 0.78x is 54.9% lower than the industry average of 1.73x. Its forward Price/Sales of 0.69x is 39.1% lower than the industry average of 1.13x.
WMT’s trailing-12-month ROTC of 10.60% is 63.7% higher than the industry average of 6.48%. Its trailing-12-month asset turnover ratio of 2.51x is 176.2% higher than the industry average of 0.91x.
WMT’s total revenues for the second quarter of fiscal 2024 that ended July 31, 2023, increased 5.7% year-over-year to $161.63 billion, while its operating income rose 6.7% year-over-year to $7.32 billion. Moreover, the company’s attributable net income and EPS amounted to $7.89 billion and $2.92, up 53.3% and 55.3% from the prior-year quarter, respectively.
The consensus revenue estimate of $638.95 billion for the year ending January 2024 represents a 5.5% increase year-over-year. Its EPS is expected to grow at 3% year-over-year to $6.48 for the same period. It surpassed EPS estimates in all four trailing quarters. Over the past year the stock has gained 22.7% to close the last trading session at $163.91.
It’s no surprise that WMT has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
It is ranked #3 in the same industry. It has an A grade for Stability and a B grade for Growth and Quality. To see additional WMT’s ratings for Value, Sentiment, and Momentum, click here.
Stock #1: Natural Grocers by Vitamin Cottage, Inc. (NGVC)
NGVC is a specialty retailer of natural and organic groceries, body care products, and dietary supplements. It runs 164 stores in 21 states, a bulk food repackaging facility, and a distribution center. The company also provides science-based nutrition education programs.
NGVC’s forward non-GAAP P/E of 16x is 12.1% lower than the industry average of 18.21x. Its forward EV/EBITDA of 10.65x is 7.3% lower than the industry average of 11.49x.
NGVC’s trailing-12-month ROCE of 12.10% is 7.4% higher than the industry average of 11.28%. Its trailing-12-month asset turnover ratio of 1.70x is 86.5% higher than the industry average of 0.91x.
During the fiscal third quarter that ended on June 30, 2023, NVGC’s net sales increased 5.8% year-over-year to $281.79 million. Its operating income rose 60.8% from the prior-year quarter to $9.08 million. The company’s adjusted net income came in at $7.07 million and $0.31 per share, representing a 79.8% and 82.4% increase year-over-year.
Analysts expect NGVC’s EPS to increase 1.2% year-over-year to $0.82 for the year ending September, 2024. Over the past year, the stock has gained 40.1% to close the last trading session at $12.96.
NGVC’s POWR Ratings reflect strong prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It has an A grade for Growth, Stability and Sentiment and a B grade for Value, and Quality. It is ranked first in the same industry.
Beyond what is stated above, we’ve also rated NGVC for Momentum. Get all NGVC ratings here.
43 Year Investment Pro Shares Top Picks
Steve Reitmeister is best known for his timely market outlooks & unique trading plans to stay on the right side of the market action. Click below to get his latest insights…
Steve Reitmeister’s Trading Plan & Top Picks >
WMT shares were trading at $163.09 per share on Thursday afternoon, down $0.82 (-0.50%). Year-to-date, WMT has gained 16.34%, versus a 14.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
Top 3 Grocery Stock Gainers of the Month StockNews.com
