This will be my final Seeking Alpha post as I begin work for a financial services/investment firm soon and am not permitted to continue writing articles as an employee. While this restriction is unfortunate, being a contributor here has been both a helpful and rewarding process.
My first article was on Whole Foods, and if it showed one thing it was that I had room for improvement, both as a writer and an investor. With respect to writing, I still needed to learn that a good analysis doesn't need a formal buy or sell recommendation. A good analysis provides facts and opinions in a way that helps the reader come to their own conclusion.
From an investing standpoint, I had to learn that a good investment is based on fundamentals of business prospects rather than hope from past performance. Whole Foods has an admirable brand and level of sales per square foot, but its key fundamental metrics (i.e. same-store sales) were declining. That doesn't mean it will never be a good investment or even appreciate considerably in value, but it does mean that I may be better off waiting for either a different company or another opportunity to invest in Whole Foods down the road. With that being said, I got lucky on my Whole Foods call. The activist investor and Amazon bid have brought the share price up above $40 per share, but same-store sales haven't yet turned positive. Tipranks may say I'm 1 for 1 on this one, but in my book I'm 0 for 1. The nice thing is that article was written in September of 2016, and I have learned since then from sometimes harsh, but very critical feedback on my articles.
Ironically, my portfolio today consists of mostly cash and a single stock: The Kroger Company (NYSE:KR). What's ironic is that at first, I didn't see anything too exciting about Kroger. It was your typical "boring" stock, and its brand and balance sheet didn't seem like anything special. But what Kroger has had is admirable business performance. For more than 50 straight quarters (or over 12 years), Kroger was able to increase its comparable same-store sales. That was and continues to be quite astonishing to me. And for that reason, I kept my eye on the company. As the stock became more beaten-down by grocery price deflation and fears of cut-throat competition, I watched closer. It wasn't until last week that I did what was once very unlikely: I invested in Kroger after a 2-day share price drop of more than 25%.
What I wasn't sure on (and still am not), is how fast Kroger will be able to grow in what appears to be a mature and competitive grocery industry. What I am more confident in, however, is that a company whose stores typically are first or second in terms of market share in the markets they operate in won't be disappearing anytime soon. That's why such a steep price drop for a copmany that has been around over 100 years and does over $100B in revenue annually seemed (and still seems) silly to me.
It's not unreasonable that Kroger's shares dropped after lowering its earnings guidance and news breaking that Amazon is making a big step into the industry. I'm referring to the degree of the drop that seems excessive. After all, it has been Kroger gaining market share from Whole Foods in recent years, not the other way around. And with respect to the technological prowess Amazon brings, Kroger hasn't been sitting on its hands. It has expanded ClickList (order online and in-store pickup), invested in improving store service, and even recently begun testing meal kits.
Yes, it did lower its earnings guidance for the current year. Even with that though, management forecasts an increase in comparable sales for the year and trades at approximately 11x updated earnings guidance. Kroger has a shareholder-friendly management, and while there are near-term threats to its business, I believe Kroger is as up to the challenge as any grocer.
My intentions on this investment are not to be picking the next Whole Foods or Amazon. But then again, the next big thing has more to do with luck than investing, in my opinion. Investing is about maximizing your odds of beating the average investment/investor, and I believe I have done that by buying shares of Kroger.
Thank you for following me. If you want to read what I consider good content on Seeking Alpha, then take a look at the authors I have followed. Harshal Patel has been particularly informative on Kroger, and Ian Bezek has been a good guide to learn from in general. Best of luck.
Disclosure: I am/we are long KR.