In the stock market, everything is fluid and anything can happen with the passage of time. For decades, Intel (NYSE: INTC) was one of the hottest growth stocks in the market but over the last decade, it's become a boring value stock.
On the other hand, boring stocks can become exciting for a period of time due to unforeseen developments in the economy. For example, shipping stocks had been an underperforming sector for many years, plagued by an oversupply of ships and too much debt, but it exploded higher due to the pandemic's secondary effects leading to a surge in goods demand while ports were operating at limited capacity, leading to a surge in shipping rates.
Another example of this phenomenon can be seen with grocery store stocks. Most of the time this sector is pretty boring as they have low single-digit revenue growth, low margins, and are pretty cyclical. But, these are unusual times, and grocery stocks have been acting like growth stocks, while growth stocks have been mired in a brutal bear market.
The reason is pretty obvious. We are living through a period of soaring inflation which includes food inflation. Grocery store stocks are a beneficiary because they can raise prices and when these inflationary pressures abate, some benefit will flow to the bottom line.
Additionally, during inflationary periods, people are more likely to look to save money by cooking at home. Additionally, there does seem to be a post-pandemic shift of people cooking at home. This was also evident in earnings reports from big-box retailers whose grocery segments showed strong growth.
This positive catalyst emerged as many grocery stocks were extremely undervalued due to negative, secular trends like decreasing foot traffic, increasing market share for big-box retailers, and the threat of online sales in addition to the changing habits of newer shoppers. Additionally, grocery stores have very low margins and the industry has tremendous turnover.
Three interesting grocery stocks with growth potential and at attractive valuations are Grocery Outlet (NYSE: GO), Natural Grocers (NYSE: NGVC), and Sprout Farmers Market (NYSE: SFM).