The US economy is expected to grow significantly, with the Federal Reserve now forecasting that the economy will grow by 2.9% above inflation in the current quarter, seasonally adjusted. Nevertheless, the unemployment rate in the US rose to 4.3% in July – compared to 4.1% in June. The savings rate fell from 4.8% in the same period last year to 3.4% of net income in June 2024.
In addition, numerous large companies, including Disney (NYSE:DIS), Macy’s (NYSE:M), And Amazon (NASDAQ:Amazon), report that many consumers are reducing their spending.
In the current environment, buying grocery stocks is a good idea because everyone needs to eat to live. As a result, many grocery companies should be more resilient to a decline in consumer spending than other types of companies that get the majority of their revenue from the consumer. Here are three top grocery stocks to buy that should deliver strong returns despite the tough consumer spending environment.
The Chicken Loco (LOCAL)
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In a clever marketing move that has apparently impressed Wall Street, El Pollo Loco has hired popular TikTok influencer Yuri Lamasbella to promote its Double Chopped Salads. The marketing campaign featuring the influencer, who has 4.7 million TikTok followers and 3 million Instagram followers, will include “compelling content creation, delicious food photography and strategic branding” from Lamasbella, El Pollo Loco reported.
I’ve long believed that the company will ultimately benefit from its combination of tasty, healthy food, appeal to people who like Mexican food, and affordability. El Pollo’s hiring of Lamasbella could get many Gen Z members to try the brand for the first time, and many of them will likely remain loyal.
The company hired Liz Williams as CEO in March, and the brand was performing well under her leadership even before Lamasbella’s hiring. Specifically, systemwide comparable restaurant sales increased 4.5% last quarter compared to the same period last year, while operating income increased to $12.3 million from $10.9 million in the second quarter of 2023.
Given El Pollo’s strong performance last quarter and the hiring of Lamasbella, I think the company is one of the best food stocks to buy.
Costco (COST)
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Naturally, Costco (NASDAQ:COST) sells large quantities of food, and the retailer could see a big boost as consumers generally eat more at home and less at restaurants.
In addition, investment bank Stifel reported on July 2 that Costco and Amazon combined accounted for 23% of the U.S. grocery sector’s growth from 2019 to 2023. “The companies benefited from a ‘strong value proposition and convenience,’ as well as their spending on loyalty programs and digital offerings,” Stifel wrote. During that period, Costco gained market share from several rivals, including drugstores and traditional grocery stores.
Last month, Costco’s comparable store sales increased an impressive 5.2% compared to July 2023.
Investors Business Daily gives COST stock a very high Composite Rating of 91 out of 99, ranking it first in the Retail – Large Discount Chains category. In addition, the shares have a Relative Strength Score of 92, which indicates that they have performed very well over the past year.
Given Costco’s many positive attributes, it is one of the best grocery stocks to buy.
Freshpet (FRPT)
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Of course, pets also need to eat, and most pet owners want to give their companions high-quality, healthy food. Freshpet (NASDAQ:FRPT), which offers “natural, fresh meals and treats for dogs and cats” in the United States, is expected to continue to deliver strong financial results even as consumer spending growth slows significantly.
In the latest quarter, the retailer’s revenue increased 28% compared to the same period last year, while EBITDA (excluding certain items) rose to $35.1 million from $9 million in the second quarter of 2023. In addition, the company raised its full-year revenue guidance to at least $965 million from at least $950 million and its adjusted EBITDA outlook to at least $140 million from at least $120 million.
Additionally, the company said it had reached 12.8 million households at the end of the second quarter, up 2% from the same period last year. Freshpet expects its products to be purchased by an impressive 20 million households in 2027.
Analysts on average expect the company’s earnings per share to rise from 71 cents this year to $1.16 next year.
At the time of publication, Larry Ramer owned a long position in AMZN and his wife owned a long position in LOCO. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s publishing policies..
At the time of publication, the editor in charge did not hold any positions (either directly or indirectly) in the securities mentioned in this article.
