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4 Solid Stocks to Buy on Soaring Grocery Sales

Rising costs have been worrying retailers for a while now, with many, despite reporting impressive quarterly results, revising their revenue guidance for the next quarter. Despite the existing fears, the retail industry is going strong, with sales increasing almost every month.

The grocery segment particularly has been doing well, with sales soaring. Groceries are necessary and although higher prices of food and essential goods have been hurting people, they have been spending on these. Moreover, higher demand has also been driving grocery sales. Given this situation, grocery stocks like Costco Wholesale Corporation COST, Dollar General Corporation DG, General Mills, Inc. GIS and Dollar Tree, Inc. DLTR are likely to do well in the near term.  

Grocery Sales Soaring

According to the latest Mastercard SpendingPulse, retail sales grew 11.2% in July on a year-over-year basis. Sales increased across a variety of segments. However, the grocery segment has been the brightest spot among all.

According to the report, grocery sales jumped 16.8% year over year in July. Moreover, sales were 29.5% higher than July 2019 figures. July was also the fourth straight month in which grocery sales recorded double-digit growth. Grocery sales rose 12.4%, 13.8% and 14% in April, May and June, respectively.

This also shows the constant growth in grocery sales and the continued growth in demand. Although many economists have attributed this growth to higher prices, demand for groceries has also been on the rise.

Interestingly, grocery sales are rising both offline and online. According to a Consumer Trends Tracker report, 45% of consumers who shop for groceries online are omnichannel consumers. Every month, the average amount spent on groceries by online customers is $594 against $388 for in-store customers.

The jump in July grocery sales was primarily driven by high demand for pickup and delivery services, according to research firm Barrington. July’s e-grocery sales through pickup totaled $3.4 billion, increasing 17.2% year over year.

People have been limiting their spending on luxury goods, but they cannot stop buying basics. Grocery is one such area. At the same time, demand has also been soaring. The increase in sales shows that the market is holding up despite the Fed's aggressive rate-hike strategy, which is pushing up the cost of commodities.

Sales of groceries are therefore being driven by increased demand as well as rising costs of commodities. In the end, however, sales are increasing, which is a good sign.

Our Choices

Costco Wholesale Corporation sells high volumes of food and general merchandise (including household products and appliances) at discounted prices through membership warehouses. COST is one of the largest warehouse club operators in the United States. Costco Wholesale Corporation also operates e-commerce sites in the United States, Canada, the United Kingdom, Mexico, Korea, Taiwan, Japan and Australia.

Costco Wholesale Corporation’s expected earnings growth rate for the current year is 18.2%. The Zacks Consensus Estimate for Costco’s current-year earnings has improved 0.3% over the past 60 days. COST has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) 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’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’s expected earnings growth rate for the current year is 13.3%. The Zacks Consensus Estimate for Dollar General’s current-year earnings has improved 0.4% over the past 60 days. DG 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 1.5%. The Zacks Consensus Estimate for General Mills’current-year earnings has improved 0.8% over the past 60 days. GIS has a Zacks Rank #2.

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 houseware, 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 4.4% over the past 60 days. DLTR has a Zacks Rank #2.


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