Analysts recommend these grocery stocks this holiday season.
Most Americans are preparing for holiday meals, and grocery prices are soaring. Grocery retailers are dealing with rising costs, supply chain disruptions and difficult year-over-year pandemic comparisons. Online grocery sales continue to rise and are now roughly double their pre-pandemic levels, according to Bank of America. Grocery stores were essential businesses during the health crisis, and they remain staples for investors, as well. Not all grocery retailers are successfully navigating the difficult environment, however, making stock selection critical. Here are seven grocery stocks to buy as Americans head to the stores this holiday season, according to Bank of America.
Walmart Inc. (ticker: WMT)
Market research company eMarketer projects that Walmart will generate $35.38 billion in digital grocery sales this year, accounting for more than 50% of Walmart’s total online sales. Analyst Robert Ohmes says Walmart is gaining grocery market share, and inflation could drive even more grocery market share to value grocers, especially as stimulus measures come to an end. Ohmes has named Walmart a top stock pick for the fourth quarter and says the stock’s lukewarm reaction to its third-quarter earnings beat has created a buying opportunity. Bank of America has a “buy” rating and a $190 price target for WMT stock, which closed at $142.39 on Nov. 19.
Amazon.com Inc. (AMZN)
Walmart may be the leader in online grocery sales, but Amazon is a close second. In fact, eMarketer projects $29.12 billion in online grocery sales for Amazon in 2021. Those impressive sales numbers don’t even include Amazon’s in-store Whole Foods sales. Amazon is a far cry from a pure-play grocery stock, but analyst Justin Post is bullish on Amazon across the board. Post says Amazon is gaining online retail sales market share, and Amazon Web Services revenue growth has accelerated for four consecutive quarters. Bank of America has a “buy” rating and a $4,250 price target for AMZN stock, which closed at $3,676.57 on Nov. 19.
Target Corp. (TGT)
Outside of Walmart, Target is Ohmes’ other top grocery stock pick. Target is also the third-biggest U.S. online grocery business, according to eMarketer. Target will generate an estimated $6 billion in online grocery sales in 2021. Ohmes says Target should benefit from the same inflationary pressures as Walmart as shoppers move away from high-end grocery retailers and toward discount supermarkets. Ohmes says Target should also benefit from a potential millennial baby boom, which should also serve as a tail wind for discount grocery retailers. Bank of America has a “buy” rating and a $329 price target for TGT stock, which closed at $250.70 on Nov. 19.
Albertsons Cos. Inc. (ACI)
Ohmes says Albertsons is well positioned within the grocery space given its leadership in omnichannel sales and its fresh produce offerings. Ohmes says Albertsons is significantly undervalued relative to Kroger Co. (KR), and Albertsons has more growth opportunities in digital initiatives and merchandising. In addition, he says Albertsons has more “self-help” opportunities since its loyalty program has more than 27.5 million users, up 17% last quarter. Ohmes says Albertsons should continue to gain market share, grow same-store sales and expand gross margins. Bank of America has a “buy” rating and a $36 price target for ACI stock, which closed at $33.78 on Nov. 19.
Costco Wholesale Corp. (COST)
Costco has tremendous momentum heading into the holiday shopping season and reported same-store sales growth of 11.8% in October. Ohmes says Costco continues to put up impressive growth numbers despite difficult year-over-year comparisons. Same-store sales were up 28.1% on a two-year basis, and traffic growth accelerated from 7.2% in September to 8.4% in October. Ohmes says positive management commentary on October candy sales also suggests that the company did well leading up to Halloween. Finally, Costco is reporting strong membership growth and renewal trends. Bank of America has a “buy” rating and a $555 price target for COST stock, which closed at $533.79 on Nov. 19.
Pinduoduo Inc. (PDD)
By 2025, Goldman Sachs predicts, roughly half of China’s grocery shopping will take place online. Pinduoduo is one of China’s fastest-growing e-commerce companies, and it launched a next-day, self-pickup grocery service called Duo Duo Grocery in 2020. Analyst Joyce Ju says Pinduoduo is a particularly attractive investment because of its exposure to online shopping in smaller Chinese cities. Ju also says Pinduoduo has done an excellent job leveraging social networks and integrating them into its business model, creating an “innovative, viral marketplace” and growing customer engagement. Bank of America has a “buy” rating and a $148 price target for PDD stock, which closed at $81.87 on Nov. 19.
DoorDash Inc. (DASH
Walmart and Instacart account for roughly 92% of all U.S. grocery deliveries, but meal delivery service DoorDash has been expanding deeper into the grocery delivery space. In September, DoorDash added alcohol delivery to its online marketplace in 20 U.S. states. DoorDash also launched a new grocery delivery partnership with Albertsons this summer and recently expanded the partnership to include DoorDash’s new DoubleDash order bundling service. Analyst Michael McGovern says DoorDash is capitalizing on demand for third-person delivery services in a wide range of categories. Bank of America has a “buy” rating and a $270 price target for DASH stock, which closed at $215.25 on Nov. 19.
Grocery stocks for your holiday shopping list:
Walmart Inc. (WMT)
Amazon.com Inc. (AMZN)
Target Corp. (TGT)
Albertsons Cos. Inc. (ACI)
Costco Wholesale Corp. (COST)
Pinduoduo Inc. (PDD)
DoorDash Inc. (DASH)
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7 of the Best Grocery Stocks to Buy Now originally appeared on usnews.com
