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Coronavirus Keeps Online Grocery Demand High: 4 Stocks to Buy

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The COVID-19 outbreak has brought about a major shift in consumers’ buying behavior and spending pattern. Items such as toilet paper, disinfectants, masks, gloves, packaged water, medicines and related food staples have been topping the shopping list for a while now, as people still prefer purchasing essentials and other household products over fashion and leisure items. Well this change in consumer behavior is here to stay, as working and dining at home have become the new normal.

In keeping with this, product innovation, prudent pricing and digitization are the need of the hour. It comes as no surprise that companies have been stepping up omni-channel capabilities and adopting ways to enhance delivery and payment systems, in particular, to expand in the booming online grocery space. To this end, companies’ same-day and last-mile delivery services, and buy online and pick-up in store facilities bode well. In fact, companies’ initiatives to expand delivery options and contactless payment solutions have been a boon amid the pandemic, helping them cater to soaring demand arising from stay at-home trends and social distancing.

Per a media report, the U.S. online grocery market is anticipated to see double-digit CAGR in 2020. The report also highlights that the U.S. online grocery market is expected to reach a worth of $152.3 billion by the end of 2026. Evidently, Amazon (AMZN - Free Report) and Walmart (WMT - Free Report) have been making inroads into the burgeoning online grocery space.

Impressively, Amazon’s online grocery sales tripled year over year during the second quarter of 2020. The owner of Whole Foods also informed that it has expanded the grocery delivery capacity by more than 160% and tripled grocery pickup locations during the quarter. Talking about Walmart, the company launched Express Delivery, a service which delivers orders to customers’ doorstep in less than two hours. Walmart’s Pickup program enables customers to place orders online and then pick them up at a store. The company offers Delivery Unlimited membership option at 1,400 U.S. stores. Moreover, Walmart unveiled Walmart+ membership program, offering unlimited free delivery, Scan & Go options and discounts.

Our Choices for Now

Although lockdowns are being lifted and businesses are resuming, the rise in the number of coronavirus cases has fueled fears of a second wave of COVID-19. And with no vaccine yet, there is a lot of uncertainty surrounding the duration and severity of the virus. Amid such concerns, investing in grocery stocks is a tempting option at the moment. Grocery stocks have always been safe bets and the pandemic just threw light on how secure these stocks can be during extreme market volatility.

All said, here we have shortlisted four stocks on the basis of a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.

Target Corporation (TGT - Free Report) is worth betting on. The stock has a Zacks Rank #1 and a VGM Score of B. The company has a trailing four-quarter earnings surprise of 37.6%, on average. It has a long-term earnings growth rate of 7.2%. Moreover, the Zacks Consensus Estimate for its current financial year earnings indicates an improvement of 12.4% from the year-ago period. Notably, this general merchandise retailer is well equipped to capitalize on consumers’ increasing preference for a seamless shopping experience.

This was best exemplified when this Minneapolis, MN-based company came out with sparkling e-commerce sales numbers in its recently-reported quarterly results. Target registered a sharp rise in comparable sales during second-quarter fiscal 2020, courtesy of booming digital sales. Digital comparable sales soared 195% and added 13.4 percentage points to comparable sales. Same-day services (Order Pick Up, Drive Up and Shipt) skyrocketed 273% and accounted for roughly 6 percentage points of total comparable sales growth.

Investors can also count on SpartanNash Company (SPTN - Free Report) , which distributes and retails grocery products. The company has a trailing four-quarter earnings surprise of 21.5%, on average. The stock has a Zacks Rank #2 and a VGM Score of A. Moreover, the Zacks Consensus Estimate for its current financial year earnings suggests an improvement of 10.7% from the year-ago period.

The company’s consolidated net sales rose 9.4% during second-quarter 2020, representing the 17th successive quarter of increase. The results surpassed management’s expectations as the company benefited from increased consumer demand related to COVID-19 in the Retail and Food Distribution segments and strong growth from existing customers in the Food Distribution segment. Markedly, the company’s sturdy e-commerce platform, data insights and understanding of consumer preferences, and systems and infrastructure position it well for success. During the quarter, this Grand Rapids, MI-based company registered more than 300% increase in e-commerce.

You may also choose to invest in Sprouts Farmers Market, Inc. (SFM - Free Report) , which has a Zacks Rank #2 and a VGM Score of A. The provider of fresh, natural, and organic food products has a trailing four-quarter earnings surprise of 49.9%, on average. It has a long-term earnings growth rate of 9.2%. Moreover, the Zacks Consensus Estimate for its current financial year earnings indicates growth of 15.8% from the year-ago period.

Sprouts Farmers’ second-quarter 2020 results reflected a coronavirus-induced spike in demand. The company’s focus on product innovation, emphasis on e-commerce, expansion of private label assortment and enhancement of technology bode well. It launched Sprouts.com website and mobile app to help customers experience hassle-free shopping. The company has added to convenience of shopping by rolling out pickup services across all its stores and partnering with Instacart to offer same-day delivery. For the quarter, e-commerce accounted for 12% of sales and soared more than 500% compared with last year.

We also suggest investing in The Kroger Co. (KR - Free Report) , which has a long-term earnings growth rate of 5.5%. This grocery retailer has a trailing four-quarter earnings surprise of 13%, on average. The stock has a Zacks Rank #2 and a VGM Score of A. Moreover, the Zacks Consensus Estimate for its current financial year earnings suggests growth of 6% from the year-ago period.

Impressively, this Cincinnati, OH-based company prioritized its actions to resonate well with the prevailing crisis and burgeoning demand for essential commodities. Notably, the company’s digital business remains a key growth driver. The company has been making prudent investments to bolster omni-channel operations, improve supply chain and increase manpower to ensure swift customer service amid such challenging times. We note that the company’s digital sales surged 127% during the second quarter of fiscal 2020.

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