Lakeview's Rothbort on Kroger: Much Better Buy Than WFM (Audio)

continue to slump. Stocks are falling in the worst sell off since the UK voted to leave the European Union, Britain leaving the European Union after a Federal Reserve official signaled more willingness to raise interest rates Right now, the SMP down forty four points at thirty seven, a drop there of two percent. Navs stacked down a hundred and thirteen points, a drop there of two point two percent. Down, Industrials now down three hundred twenty points, a drop of

one point seven percent. The tenure down thirty seconds had yield one point six eight percent, Gold down eight to thirteen twenty nine, a drop of six tents of one percent. And crude oil West Texas Intermedia Crude down three and a half percent, dropping a dollar sixty seven of barrel to I'm Charlie Pellot. That's a Bloomberg business flash. You're listening to Taking stock with Pim Fox and Kathleen Hayes on Bloomberg Radio. All right, let's bring in Scott roth

for right now. He is president and founder of Lakeview Asset Management, and he joins us from the great state of New Jersey. Scott, Uh, we're gonna talk a little bit about supermarkets and food retailers because they've had a horrible, horrible week, um, getting really crushed, except for the fact that Kroger is doing well today, um after putting out earnings.

So what's going on with Kroger. Well, you know, I think that when you're looking at the industry right now, people are looking at what happened with Sprouts Farmers Market earlier in the week and Whole Foods earlier in the summer, and both of those stocks have have ciently had problems recently, and and Kroger as well had really been so both hard from it, it's highs. Kroger is somewhere. Um it's kind of a hybrid type of operation. Uh. It's it's

part Costco because it does sell gasoline. Um, it is part Whole Foods because the Kroger is trying to bring in organic foods into the mix. And it's part of the traditional uh you know path Mark type of of a restaurant chain. They also happened to be the the uh, in my opinion, the best managed company the entire industry. And they have a larger buy back plan on and and they're very opportunistic. UM. So the company reported results today. UM.

Their margins were down very slightly because of food prices. UH. They kind of trimmed backed their guidance, but overall it wasn't all about it that bed of a quarter. Comps are doing well, especially once you factor out the gasoline side of the business. UM. And I think they have a good mix of business as opposed to when you look at Whole Foods and Sprouts, which really are more focused on the organic side of the business. It's only

about of Kroger's business right now. UM. But it's the healthcare costs and the pension costs paying people that's hurting them, right, That's only part of it. Um. Uh, pensions are hurting them. UM and UM. Look, these two companies are experiencing growth, you know, growth pains. UM. It happens. You know, you start out in these industries, um, and you know you grow slowly and you you get you know, white acceptance.

But you know, as time goes on UM. While you're selling a higher priced organic UM product to people, you're still managing with lower cost UH inputs. And now what they're funding is that things like you know, pensions are starting to hit them, healthcare costs which didn't hit them before. UH. And so they're they're they're maturing here and and they're beginning to experience UH some of the complexities of maturing businesses.

Scott Rothbort Kroger has undred stores around the country, Kroger of course the brand name Ralphs as well as Dylan's. The stock is down, you know since the beginning of the year. Is it worth buying Kroger KR at thirty six to share well him? As you know, we run a separate restaurant and food portfolio and put our newsletter h within the last few days we actually bought some Kroger before it during his couple of days before UM

has a decent divon yield of one point five. We thought that that all the BED news as already in the stock. With the stock coming down from a fifty two week high of forty two seventy five down into that's today, I mean in today training it hit aft two week low. Uh it it actually a couple of days ago, but but we're pretty close to it today. And of course the stock is up on the day. Yeah.

I don't see the stock going much lower. And I think this company has the ability to manage through the storm, if you want to call that in in the grocery industry. And because they don't have the exposure to exposure to the organic end of the business where we're seeing food costs come down tremendously and there's pressure on companies like Sprouts and Whole Food to lower their prices to the end consumer, Prober really doesn't have it because Probo gives

you a choice. You can buy the traditional head of lettuce or you can buy an organic head of lettuce. And I think that's the big difference that's going on here. But also fund actually quite fascinating also is that that the comps a Whole Foods were down, yet the comps

at Sprouts were higher. Um and you knows, as I tell my students at at UM at Setonhole University where it teaches in the snance department, when you look at comps, you really have to dig down through comps and comps have three different aspects to him, it's a traffic how many people come into the store, the price, um, you know, the price of the products, and the ticket side, how

much you are actually buying. And so I think we we we've got to deconstruct um the comps for all these stores based upon those three uh different aspects of comps. And I think what's happening that Sprouts and Whole Foods are starting to see their their traffic flowing uh to Kroger's or other chains that are not organic but do have organic offerings. So you like the stock at about

thirty one and a half dollars to share. But if you pull up him, if you pull up the c o MP on the Bloomberg can take a five year look at Kroger over the last five years, including reinvested dividends right the S and P and the consumer stage. No, no contest, Kroger did much better. Yeah, it's tripled, you know, Uh, the SPS only doubled, and Whole Food is you know,

down over the last five years. So you know, Kroger understands how to manage um east to west and north to south in this country, both in a flute areas and just regular, you know, middle and lower class areas. Whole Foods doesn't understand how to do that because they can't appeal to every consumer. So, you know, plus Kroger's understands how to manage through good and bad economic times.

Wholefoods doesn't understand that. We do want a little bit of Whole Foods because we want to be in the stock, But I think Roger is a much better buy at this point in time. We've gotta run, Thanks very much, Scott Rothford. He is the president founder lake View Asset Management. This is Bloomberg coming up on taking stock. We're going to take stock of Jesse Ventura, former governor of Minnesota. He's gung ho on his marijuana manifesto. Will tell you what it is next