Back to top

Image: Bigstock

4 Grocery Stocks to Buy Despite Inflationary Challenges

Read MoreHide Full Article

People are spending cautiously in the face of rising prices. They are cutting down on luxuries and spending on necessities like food and gasoline. However, food is one area where cost cannot be compromised much. This has seen a steady growth in sales of groceries, which is helping retailers during this challenging time.

The retail sector hasn’t yet succumbed to inflationary pressures as demand continues to surge. The grocery segment is mainly behind this strength. Given this scenario, grocery stocks like Dollar Tree, Inc. (DLTR - Free Report) , Dollar General Corporation (DG - Free Report) , TreeHouse Foods, Inc. (THS - Free Report) and General Mills, Inc. (GIS - Free Report) are likely to do well in the near term.  

Grocery Sales Increase in June

According to the latest report from the Commerce Department, U.S. grocery sales rose 0.6% in June. This came as retail sales grew 1% month over month in June. The retail sector has been going through a tough time as rising costs have made people spend cautiously.

An increasing number of people are cutting down on luxury purchases but that cannot the done with necessities. Groceries is one such area. At the same time, demand is high. The uptick in sales indicates that demand is holding up despite the Fed’s aggressive rate-hike policy that is pushing up the prices of commodities.

Food and fuel prices were among the leading contributors to June’s consumer price index. While people can’t compromise on necessities, they are being compelled to pay higher prices.

Thus, higher demand, coupled with higher prices of goods is driving grocery sales. However, in the end, sales are getting a push, which is a positive sign.

Grocery Market Poised to Grow

A separate Mastercard SpendingPulse report shows that grocery sales jumped 14% year over year in June, recording a double-digit increase for the third straight month. The report is a lot similar to the one from the Commerce Department, which shows that grocery is one of the two categories that recorded higher sales in June despite inflation hitting a 41-year high.

Interestingly, grocery sales are growing both in-store and online, although e-commerce still leads the race. According to a report from Consumer Trends Tracker, 45% of consumers who shop grocery online are omnichannel buyers. On average, online grocery shoppers have a higher spend of $594 compared to $388 for in-store shoppers every month.

Higher inflation has been worrying consumers, but at the same time, they cannot cut down on necessities like groceries.

In order to retain their profit margins, food companies typically pass on increases in raw material costs to customers. Consumer basics and food businesses are non-cyclical industries, thus, even the necessity of purchasing staples cannot dissuade customers. The industry ought to perform well even in an inflationary setting.

Our Choices

Dollar Tree, Inc. is an operator of discount variety stores offering merchandise and other assortments. DLTR’s stores successfully operate in major metropolitan areas, mid-sized cities and small towns. Dollar Tree offers a wide range of quality everyday general merchandise in many categories, including housewares, seasonal goods, candy and food, toys, health and beauty care, gifts, party goods, stationery, books, personal accessories, and other consumer items.

Dollar Tree’s expected earnings growth rate for the current year is 40.5%. The Zacks Consensus Estimate for Dollar Tree’s current-year earnings has improved 4.2% over the past 60 days. DLTR has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Dollar General Corporation is one of the largest discount retailers in the United States. DG offers a wider selection of merchandise, including consumable items, seasonal items, home products and apparel. Dollar General Corporation’s merchandise comprises national brands from leading manufacturers, as well as own private brand selections with prices at substantial discounts to national brands.

Dollar General Corporation’s expected earnings growth rate for the current year is 13%. The Zacks Consensus Estimate for Dollar General’s current-year earnings has improved 1.1% over the past 60 days. DG has a Zacks Rank #2.

TreeHouse Foods, Inc. is a manufacturer of packaged foods and beverages with more than 50 manufacturing facilities across the United States, Canada and Italy, servicing retail grocery, food away from home, and industrial and export customers. THS manufactures a variety of shelf-stable, refrigerated and fresh products.

TreeHouse Foods’ expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for TreeHouse Foods’ current-year earnings has improved 1.5% over the past 60 days. THS has a Zacks Rank #2.

General Mills, Inc. is a global manufacturer and marketer of branded consumer foods sold through retail stores. GIS also serves the foodservice and commercial baking industries. General Mills’ principal product categories include ready-to-eat cereals, convenient meals, snacks (including grain, fruit and savory snacks, nutrition bars, and frozen hot snacks), super-premium ice creams as well as baking mixes and ingredients.

General Mills’ expected earnings growth rate for the current year is 1.8%. The Zacks Consensus Estimate for General Mills’current-year earnings has improved 1% over the past 60 days. GIS has a Zacks Rank #2.