Investing in Supermarket Stocks in 2023

Roberto Rivero

As dispensers of food, drink and a variety of other consumer staples – supermarkets are often touted as prime examples of defensive stocks. Is this the case in 2023? And, if so, what supermarket stocks should investors consider?

Why Invest in Supermarket Stocks?

Amidst rising inflation, increasing interest rates and general economic uncertainty, the stock market has been left reeling in 2022.

In such circumstances, many investors attempt to shield their portfolio by rotating out of riskier stocks and focusing on investments which have defensive characteristics.

So-called defensive stocks tend to be companies which, regardless of the prevailing economic climate, can continue to rely on consistent levels of demand from consumers. Within this select group are supermarket stocks, from which consumers purchase a variety of essential goods, goods which they need throughout all stages of the economic cycle.

3 Supermarket Stocks to Watch

So, which supermarket stocks should investors consider adding to their shopping baskets in 2023? In the following sections, we will take a look at 3 supermarket stocks before demonstrating how to invest in supermarket stocks with Admirals.

Supermarket Stocks
Tesco
Walmart
Amazon

Tesco

Whilst the arrival of Aldi and Lidl has wrested a sizeable amount of market share from the more traditional UK supermarket stocks, Tesco remains firmly in control.

The supermarket giant accounted for almost 27% of the UK market in September 2022, considerably more than second-placed rival Sainsburys at 14.6%. Tesco also has a strong presence in Ireland, where it accounts for more than 22% of the market, and further operations internationally.

As such, the FTSE 100 constituent earns a place on our list of supermarket stocks, but it has been far from plain sailing so far in 2022. In the first nine months of the year, share price fell 28.6%. Inflation is hitting supermarket stocks hard, and this was reflected in Tesco’s interim results for 2022 where, whilst revenue climbed 3.5% year on year (YoY), operating profit tumbled 10%.

Still, Tesco’s dominant position in the UK should see it through the current climate and, with much of the headwinds seemingly factored into its share price, there is potential for growth in the future. Furthermore, Tesco shares have a dividend yield of 5.6% at the time of writing, higher than the wider FTSE 100’s 4.15% and considerably higher than the current interest rate of a savings account.

Depicted: Admirals MetaTrader 5Tesco Weekly Chart. Date Range: 3 April 2016 – 7 October 2022. Date Captured: 7 October 2022. Past performance is not a reliable indicator of future results.

Walmart

We head across the Atlantic for the next of our grocery store stocks. Walmart is the largest company in the world in terms of revenue, generating more than $570 billion in the year ended 31 January 2022, an increase of 2.4% YoY. However, like Tesco, despite revenue rising so far this year, operating profit has fallen, further evidence of the inflationary pressure facing the industry.

Nevertheless, Walmart has a history of performing well in difficult circumstances, which has earned it a reputation as having recession proof qualities. During the ‘Great Recession’ in 2008, for example, whilst the S&P 500 dropped more than 37%, Walmart recorded gains of 20%. Similarly, in the first nine months of 2022, as the wider S&P 500 fell 25%, Walmart’s drop was a far less pronounced 10%.

Moreover, Walmart’s reputation as a discount retailer should play in its favour at a time when consumers are attempting to reduce spending where possible.

Depicted: Admirals MetaTrader 5 – Walmart Weekly Chart. Date Range: 3 April 2016 – 7 October 2022. Date Captured: 7 October 2022. Past performance is not a reliable indicator of future results.

Amazon

Although perhaps not what you would think of when considering supermarket stocks, tech-giant Amazon has made inroads into the industry in recent years.

Amazon first began dipping its toes into groceries in 2007, with the launch of Amazon Fresh, a grocery delivery service exclusively for Prime members. Subsequently, in 2017, Amazon acquired Whole Foods Market, a US multinational supermarket chain with over 500 locations across North America and the UK.

In 2020, Amazon Fresh opened their first physical store in the US and, as of 2022, the chain now has more than 50 stores across the US and the UK.

Whilst the scale of Amazon’s grocery business pales in comparison to the other supermarket stocks we have looked at, it does seem to be expanding. Of course, what investors get with Amazon is a company which is so much more than simply a supermarket stock, an e-commerce giant with many different products, services and streams of revenue.

Depicted: Admirals MetaTrader 5 – Amazon Weekly Chart. Date Range: 13 March 2016 – 7 October 2022. Date Captured: 7 October 2022. Past performance is not a reliable indicator of future results.

How to Invest in Grocery Store Stocks

With an Invest.MT5 account from Admirals, you can invest in the supermarket stocks highlighted in this article. In order to start investing, follow these simple steps:

  1. Open an Invest.MT5 account and log in to the Trader’s Room
  2. Click the ‘Invest’ button next to your account details in the Dashboard to open the MetaTrader WebTrader
  3. Find the stock you want to purchase in the Market Watch and drag the symbol onto the chart to open its price chart
  4. Right-click on the chart, highlight ‘Trading’ and click ‘New Order’ to bring up the order screen shown below. Here you can select the number of supermarket shares you want to purchase and click ‘Buy’ to send your order to the market.
Depicted: Admirals MetaTrader WebTrader – Amazon Daily Chart – New Order. Date Range: 7 February 2022 – 10 October 2022. Date Captured: 10 October 2022. Past performance is not a reliable indicator of future results.

Industry Headwinds Provide Food for Thought

Although, historically, supermarket stocks have sometimes outperformed the market during times of uncertainty and economic downturns, the current combination of economic headwinds are particularly testing.

The grocery industry is highly competitive and, as there is a significant similarity in the products offered by each store, there is not a high level of consumer loyalty. Many shoppers will simply go wherever they can get the cheapest prices, something which is particularly true in the current inflationary environment.

This leads to intense price competition amongst rival supermarkets, as businesses battle to steal market share from one another. Whilst lower prices no doubt incentivise consumers to return, it also reduces profit margins.

As inflation rises, so too do input costs for businesses, which further erodes profit margins. The high level of price competition in the supermarket industry makes it difficult to pass these higher costs onto consumers, which inevitably results in lower profits.

Therefore, the combination of low economic growth and rapidly rising prices is creating a tough environment for grocers. Consequently, investors should carefully weigh the pros and cons of investing in supermarket stocks before risking their capital.

Investing with Admirals

With an Invest.MT5 account, you can choose from over 4,300 stocks and over 200 Exchange-Traded Funds (ETFs). Other benefits of the account include:

  • Competitive transaction fees and no account maintenance costs
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  • Regular market news and analysis at no additional cost
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INFORMATION ABOUT ANALYTICAL MATERIALS:

The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter “Analysis”) published on the websites of Admirals investment firms operating under the Admirals trademark (hereinafter “Admirals”) Before making any investment decisions please pay close attention to the following:

  • This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
  • Any investment decision is made by each client alone whereas Admirals shall not be responsible for any loss or damage arising from any such decision, whether or not based on the content.
  • With view to protecting the interests of our clients and the objectivity of the Analysis, Admirals has established relevant internal procedures for prevention and management of conflicts of interest.
  • The Analysis is prepared by an independent analyst Roberto Rivero, Freelance Contributor (hereinafter "Author") based on personal estimations.
  • Whilst every reasonable effort is taken to ensure that all sources of the content are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admirals does not guarantee the accuracy or completeness of any information contained within the Analysis.
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