There’s a supermarket anomaly near my home. Two supermarkets, a block apart: King Soopers (a Kroger store) and Safeway. In my town, everybody shops at King Soopers. Safeway is deserted. There are literally more employees than customers. Consequently, I get tremendous prices at Safeway, including a large percentage of my groceries at 50% off.
What’s up with that? For some reason, Safeway has made the corporate decision to keep the store open as a loss leader. Curious.
They stock all the normal foods, but then they have to get the food out of the store quickly at 50% off while it’s still fresh and appealing. It’s a massive relief to me as I budget for a household of six people!
How does Safeway stock look as an investment? Is it in financial shambles, based on my local experience, or do I have a warped view of the macro picture?
Safeway (SWY, $16.53) is a North American food and drug retailer, operating about 1700 stores. Sales were $41 billion in 2010, and net income was $589 million — it’s a low margin industry. Large supermarket chain profits tend to grow slowly, so I’m impressed that projected consensus earnings growth is 25% by the end of fiscal year 2013. The price earnings ratio (PE) is 9.7 based on 2011 projected earnings per share (EPS) of $1.70, and the dividend yield is 3.51%.
I like the earnings growth, I love the dividend, and I absolutely hate the share price. I rarely benefit from buying stocks with prices in the teens: I avoid them like the plague.
The stock chart is dismal. EVERYBODY who bought this stock in the last ten years has lost money. Wow. I never buy stocks that are reaching new lows or collapsing from established trading ranges, so this one’s out of the question.
What would I do if I already owned the stock? Well, I guess I’d stop cringing and start selling. It’s easy enough to take that money and put it into a growth stock with a good chart. With a little searching, I could even find a stock with a good chart AND a big dividend. In that vein, Kimberly-Clark (KMB, $69.82) is pretty attractive. You can review KMB on my website, which I wrote about on September 21, 2011.