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Forget SUPERVALU, Buy These 4 Food Stocks Instead for 2018

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Applying the concept of New Year’s resolution to your portfolio would mean moving away from stocks that did not treat you well in 2017 to those that appear promising for 2018. Incidentally, SUPERVALU Inc. appears to be one such bet that has seen its shares slump 33.3% so far this year, significantly wider than the industry’s 2.4% dip. Well, this leading grocery company has been grappling with mounting competition and a tough pricing environment in the grocery space, which has long been denting its retail business.

We note that consumers’ growing preference for online shopping has been weighing on retailers’ store traffic, compelling them to undertake store closures and adopt the e-commerce mantra. Moreover, intense competition in the industry has led to aggressive promotions, thereby hurting margins. To top it, Amazon’s (AMZN - Free Report) takeover of Whole Foods made things worse, as it not only posed threats to other grocery players’ market share but also created solid pricing pressure.

SUPERVALU’s Retail Business: Not in Good Shape

The impact of aforementioned hurdles is clearly visible in SUPERVALU’s retail business, which has remained under pressure for a while now. Evidently, the retail segment (which contributed about 37% to SUPERVALU’s total sales in fiscal 2017) has been facing identical store sales decline for the past ten consecutive quarters.  

In the last reported second-quarter fiscal 2018, net sales at the retail segment slipped 1.1% to $1.02 billion, owing to store closures and soft identical store sales. During the quarter, identical store sales dipped 3.5%, with customer counts down 3.7%. Further, gross margin at the segment remained soft due to elevated promotional expenditure. Together, these factors caused the retail segment to incur an operating loss of $16 million in the second quarter, in comparison with a loss of $8 million in the year-ago period.

Unfortunately, management continues to expect its retail business to reel under competitive pressures and price sensitivity. Apart from this, the company also remains exposed to the risk of input price volatility.

These factors have also made analysts hesitant about SUPERVALU, as evident from the downtrend in estimates. Notably, the Zacks Consensus Estimate for the third quarter and fiscal 2018 have gone down from 53 cents to 48 cents and $2.30 to $2.26, respectively over the past 90 days. Though this Zacks Rank #3 (Hold) company is undertaking robust efforts (like buyouts and e-commerce strategies) to improve its retail business performance, the aforementioned obstacles make the road ahead bumpy for SUPERVALU.

Nervous About SUPERVALU? Check These Trending Food Stocks

Despite being ranked among the bottom 22% of all Zacks industries and witnessing a year-to-date dip of 2.4%, the Food – Miscellaneous industry still has some bright spots for investors to park their funds in. So, for the time being, we suggest investors to forget SUPERVALU and invest in better-performing food stocks for a more gainful year.

Using the Zacks Stock Screener, we have identified some promising food stocks to enrich your portfolio. Notably, these stocks, which have performed better than the industry this year, carry a favorable Zacks Rank, flaunt an impressive past record of earnings surprises and have also witnessed positive estimate revisions.

4 Food Stocks to Satisfy Investors’ Appetite

Nomad Foods Limited
(NOMD - Free Report) is a solid bet. This Zacks Rank #2 (Buy) company has delivered three positive earnings surprises in a row now. Also, Nomad Foods’ consensus mark for 2017 has trended upward from $1.11 to $1.13 over the past 30 days. Notably, this manufacturer and distributor of frozen foods has seen its shares soar almost 76% this year, faring way better than the industry. (Looking for the Best Stocks for 2018? Be among the first to see our Top Ten Stocks for 2018 portfolio here.)

Another stock that has crushed the industry with its marvelous bull-run is Medifast, Inc. (MED - Free Report) , which has rallied 76.8% year to date. Further, this Zacks Rank #2 company has outperformed earnings estimates by an average of 6.1% in the trailing four quarters. Additionally, this leading manufacturer and distributor of clinically proven healthy living products and programs has seen the Zacks Consensus Estimate for 2017 climb by 5 cents to $2.17, over the past 60 days. You can seethe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors can also count on Lamb Weston Holdings, Inc. (LW - Free Report) , which boasts a stellar surprise history. This Zacks Rank #2 company has surpassed both top and bottom-line estimates in the past four quarters. Also, estimates for the current fiscal have improved from $2.29 to $2.36 in the past 90 days. Encouragingly, this frozen products supplier has gained 49.1% so far this year, cruising ahead of the industry.

Finally, we suggest investing in US Foods Holding Corp. (USFD - Free Report) . This foodservice distributor has seen the Zacks Consensus Mark for 2017 rise by a cent to $1.37 over the past 60 days. The company, which has topped earnings estimates in three out of the past four quarters, has jumped 15% on a year-to-date basis. Also, US Foods Holding has an impressive long-term earnings per share growth rate of 15.1%. Aptly, the company flaunts a Zacks Rank #2.

So, with just a few days left before we ring in the New Year, it’s time to forget stocks like SUPERVALU and cash in on better opportunities to gear up for higher returns.

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