The nation’s leading grocer, Kroger (KR), reported excellent 4Q21 earnings Thursday morning. Comps excluding fuel were +4%, gross margin was solid at 22.2% resulting in a 12% increase in EPS to 91 cents. KR expects the strength to continue into 2022 as it guided current year comps to +2% to +3% and EPS to $3.75-$3.85. Even though KR is +10% today to $54, it’s forward P/E is still only 14x. KR is Top Gun’s largest non-ETF, single stock, position at slightly more than 8% of long/short portfolios and I have no intention of selling any because it’s going even higher.
KR is the perfect stock for the stagflationary environment we are now entering. Because it sells necessities (i.e. food), demand for its products are inelastic and it has pricing power. As slowing growth and inflation squeeze consumers’ budgets, they’ll have to cut back – but not at KR. KR also has pricing power because you have to eat, after all.
KR is the perfect stock for the current environment in my opinion which is why it is Top Gun’s largest single stock holding. I see shares reaching $80 in the next two years.