1 Sexy Stock in a Boring Industry

Grocery store stocks are a defensive staple for a reason. They cover nondiscretionary spending, often drift into undervalued territory during bullish periods, and tend to have pretty appealing (and stable) dividends.

The trick with defensive holdings is this — you don’t want to buy them once the situation starts turning ugly. By that time, everyone else will have had the same idea, and what could have been a great hedge turns into something that’s just decent, because prices have already moved. 

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So, instead, what you want to do is allocate a part of your investments toward something like grocery store stocks while the bulls are still firmly in control. And there’s no time like the present.

It might be tempting to simply think about where you do your own shopping and just invest in that business, but that also has a tendency to bring about subpar results. Take Kroger (NYSE: KR) for example — you’ve heard of it, and while it might have solid fundamentals, it’s only the 3rd highest-rated stock in its industry.

But that’s not the stock we’re featuring today. 

Listen, I’m not knocking KR here. We use our in-house rating system to evaluate stocks. When you look at the 115 factors and metrics that make up each stock’s Zen Rating, Kroger shares get an overall rating of B, equivalent to a Buy rating. Stocks like that have provided an average annual return of 19.88% since the early 2000s.

But the top-rated stock in the industry has a Zen Rating of A, and those have provided an average annual return of 32.52% in the same timeframe. That is not a small gap.

The stock in question is Village Super Market Inc (NASDAQ: VLGEA).

Here’s how they stack up on the whole. Kroger ranks in the top 8% of the stocks that we track, and it’s rated 318th overall out of the 4,600 tickers. VLGEA ranks in the top 3% — and it’s rated 117th overall.

Remember those 115 factors that go into each Zen Rating? Well, they’re split into 7 Component Grades — and each stock gets a rating for each Component Grade as well. This is a useful shorthand for communicating which areas a ticker excels in, where it’s average, and where it’s bad. So let’s pull up the two stocks side-by-side: Kroger on the left, Village Super Market on the right.

There are a lot of similarities there. Momentum, Sentiment, and Artificial Intelligence are all areas where both get C Grades. On top of that, both of the stocks get a B rating for Financials.

The differences, however, are a bit more striking. Kroger gets a B on Value, while VLGEA gets an A. KR gets a C for Growth, while Village Super Market gets a B.

Now, to be fair, Kroger does win when it comes to Safety — but the advantages still go 2:1 in VLGEA’s favor.

That’s a big-picture overview, but let’s look at the details.

We’ll start with Value. Right now, KR is trading at a price-to-earnings (P/E) ratio of 43.72x. VLGEA, on the other hand, has a trailing P/E of just 9.74x. On top of that, VLGEA also looks better when you look at price to book (P/B) and price to sales (P/S). In this category, Kroger ranks in the top 17% — but VLGEA ranks in the top 2%.

Now let’s turn to Growth. In the past 3 years, Village Super Market has grown revenue by 50.6%. In the same timeframe, Kroger has seen revenue shrink by 16%. 

When it comes to earnings in the past 3 years, KR’s earnings growth rate has contracted, while VLGEA has seen a significant expansion. In the Growth category, Kroger is in the top 23% — but VLGEA is in the top 18%.

I’ve saved the best for last. We are talking about a defensive position, after all, and that means we have to talk dividends. Kroger has a yield of 2.02%, just slightly above the industry average, while Village Super Market’s 2.41% clears that bar easily. KR has also seen dividends drop by more than 10% in the past 10 years, while VLGEA has not. 

Lastly, Kroger has a payout ratio of 88.4%, which is more than a little stretched — VLGEA’s ratio, on the other hand, stands at a very sustainable 23.5%.

Like I said earlier, KR isn’t a bad stock by any stretch — but name-brand recognition doesn’t trump fundamentals, and the fundamentals are very clearly on Village Super Market’s side. As an added bonus, VLGEA’s price has dropped by 7.63% in the past 7 days, so there’s a great opportunity to buy it on the dip right now.

This shouldn’t be a major holding — but if you want to shore up your portfolio for when things do go south, now’s a great time to do it at a discount.

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