Value Investing 101: Kroger

From STOCK PICKS: Top 5 All-Around Value Stocks for Sept. 16:

Each business day, TheStreet.com Ratings compiles a list of the top five stocks in five categories -- fast-growth, all-around value, large-cap, mid-cap and small-cap.

This list is based on data from the close of the previous trading session. Today, all-around-value stocks are in the spotlight. These are stocks of companies that meet a number of criteria, including annual revenue of more than $500 million, lower-than-average valuations such as a price-to-sales ratio of less than 2, and leverage that is less than 49% of total capital.

Kroger (KR Quote) is one of the nation's largest grocery retailers. The company also manufactures and processes some of the foods that it sells in its supermarkets, as well as operates a variety of additional store formats that include convenience stores, multi-department stores, and mall jewelry stores.

Our buy rating for Kroger has been in place since March 2006. Although the company has generally had poor debt management, we feel that the rating is justified due to strengths such as the company's return on equity, attractive valuation levels, and growth in revenue, net income, and earnings per share. For the first quarter of fiscal 2008, Kroger reported a revenue increase of 11.5% year over year, while net income grew 14.5%. Earnings per share also improved, rising 23.4% from 47 cents in the first quarter of fiscal 2007 to 58 cents in the most-recent quarter. The company's total sales increased 11.5%, while identical supermarket sales increased 9.2% with fuel and 5.8% without fuel. Return on equity also improved slightly in the first quarter, rising to 24.73% from 21.79% in the prior-year quarter.

Read the full version of STOCK PICKS: Top 5 All-Around Value Stocks for Sept. 16.

From Value Investing's Golden Rule: Whirlpool, GE:

All of history's great money managers adhere to the formula introduced in part one of this column.

They may not articulate the rule the same way, but each understands and employs this formula:

Absent a material change to the business, as price declines, risk declines, and your anticipated rate of return increases.

Let's look at this all-important precept more closely.