Supermarket Stocks Falling but They Will Bounce Back

Includes: KR, SVU, SWY
by: Mark Krieger

The way Mr. Market hammered supermarket stocks yesterday, it seemed like the act of eating was ready to be rendered obsolete, but I seriously doubt one of the top three human pleasures is on its way out! Yesterday’s stock market carnage slammed the DJIA by 5.5%, yet low beta, defensive, safe haven equities in the grocery sector didn’t fare much better. In fact, SVU acted much worst, hemorrhaging a massive 12.2%, while reaching a 23 year low. Rounding out the dubious list was SWY surrendering 4.6% and KR losing 3.7%!

SVU: The stock’s precipitous drop now enables investors to receive a 5.2% dividend yield, while garnering a tiny multiple of only 5.4 times 2012 earnings estimates of $1.25. The shares are now 20% lower than they were when the Dow briefly navigated the 6600 area in March of 2009-go figure! You have to go back 23 years to find the shares as low as today’s “back up the truck” levels.

SWY: Despite an analyst upgrade by Standpoint Research, SWY still managed to enter “freefall” status and breached another 52 week low. The shares now sell at only 10.4 times 2012 earnings estimates of $1.72 and offer an annual dividend of 58 cents, amounting to a generous 3.2% yield. SWY now stands only 3% higher than its 2009 lows.

KR: The best performing stock out of bunch, is still 15% higher than its 52 week low. It sells at 11 times 2012 earnings estimates of $1.97 and carries a 1.8% dividend yield. It is the only Grocery operator in the group still experiencing healthy same store sales growth.

Bottom Line: Calling the bottom on this basket of stocks is way too hard, being akin to trying to catch a falling knife. Sooner rather than later they will bounce back, and with vengeance, so have a stop buy order in place at about 5% higher than current prices; that way, you will only be buying when the momentum is up, as it is well worth spending more to get the trend on your side.

Disclosure: I am long SWY, KR, SWY.