E-commerce conglomerate Amazon.com, Inc. (AMZN) acquired organic grocer Whole Foods in 2017 to make its foray into the U.S. grocery market and dramatically shake up the game. Established players in the industry, such as The Kroger Co. (KR), Sprouts Farmers Market, Inc. (SFM) and Weis Markets, Inc. (WMK) preempted the move and have invested heavily to remain relevant in the new landscape by beefing up their online presence, integrating with added delivery options and providing customers with more interactive experiences.
Although American consumers haven't fully embraced purchasing groceries online yet, that trend is set to change, according to Bain & Co. partner Stephen Caine. "We've been early adopters in this country in almost every other retail category," Caine said. "We know online grocery will explode at some point," he added, per CNBC. Data from market research website Statista shows that online grocery sales in the U.S. tallied $17.5 billion in 2018, and that figure is expected to almost double by 2021.
The three supermarket stocks discussed below have underperformed the broader market so far in 2019 but are well positioned to thrive in the new frontier grocery store environment. These stocks also have favorable technical setups that offer tasty swing trading opportunities. Let's take a closer look at each.
The Kroger Co. (KR)
Kroger operates over 2,700 supermarkets across the United States. Many of the Cincinnati-based company's stores have inbuilt pharmacies and also sell fuel. Kroger CEO Rodney McMullen recently told CNBC, as reported by Business Insider, that the company's acquisition of North Carolina-based grocer Harris Teeter in 2014 was a proactive step in accelerating its digital position to compete with FAANG member Amazon. McMullen predicts that Kroger's digital sales will reach $10 billion in 2019, up from $5 billion in 2018. Kroger stock, with a market capitalization of $22.8 billion and offering a 2.03% dividend yield, is up 0.18% year to date (YTD) as of Feb. 13, 2019.
Kroger shares spent most of 2018 in a 10-point trading range. Despite underperforming the S&P 500 YTD in 2019, the stock now sits on an uptrend line dating back to early March, where it found buying support in Tuesday's trading session. Traders who open a long position should aim to book profits between $31.50 and $32.50, where the price may hit overhead resistance from the September and November swing highs. Consider positioning a stop-loss order somewhere beneath the trendline to protect trading capital.
Sprouts Farmers Market, Inc. (SFM)
Headquartered in Phoenix, Arizona, Sprouts Farmers Market primarily provides fresh, natural and organic food products across 300 stores in 19 states. The company, with a $3.04 billion market cap, recently introduced a new store prototype in Philadelphia and now at five other locations featuring enhanced meat and seafood presentation in the deli area that helps customers envisage a variety of meal solutions. Analysts expect the fresh food grocer to report earning per share (EPS) of $0.18 for the fourth quarter, up from $0.16 over the same quarter last year. Sprouts Farmers Market stock has a YTD return of 1.32%, underperforming the S&P 500 by roughly 8% as of Feb. 13, 2019.
Although it may go against conventional wisdom to trade laggard stocks, this issue's share price sits at a crucial support area from which a bounce could occur. The stock currently trades below both its 50-day simple moving average (SMA) and 200-day SMA but is close to an established trendline that extends back to mid-June. Those looking to open a swing trade should seek an entry point close to $23.50 with a stop order placed below the December swing low. Consider taking profits on a run to $28, where the price may find headwinds from a trendline that connects several swing highs.
Weis Markets, Inc. (WMK)
With a market cap of $1.38 billion, Weis Markets sells food products to customers in Pennsylvania and nearby states. The company's center-store goods and fresh goods – such as groceries, dairy products, frozen foods, meats and seafood – jointly account for the lion's share of its total revenue. Weis Markets reported that online sales jumped 36% between January and September 2018. The supermarket chain attributed this expansion to the Weis 2 Go Online curbside pickup program. As of Feb. 13, 2019, Weis Markets stock pays investors a 2.43% dividend and is up 7.01% on the year, making it the top performer of the stocks discussed.
Weis shares have risen above an ascending triangle, a bullish continuation chart pattern, indicating that further gains may lie in store for the stock. Aggressive traders may decide to buy the current breakout above the pattern's upper trendline, while those who want to take a more conservative approach could wait for a pullback to the ascending triangle's lower trendline, which lines up nicely with both the 50-day and 200-day SMA. Consider setting a profit target near $57.50, where the price could find resistance from the 52-week high. Close open trades if the price dips much below the two moving averages, which invalidates the setup.