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Retail 'Mattress' Stock: Under the Radar

Village Super Markets competes with much bigger rivals in the food business, but it's up to the task.



) -- If you've never heard of

Village Super Markets

(VLGEA) - Get Village Super Market, Inc. Class A Report

, you're not alone.

Village operates a chain of 26 markets in New Jersey and Pennsylvania. Its stores aren't even called Village Super Market -- they're under the Shop Rite umbrella, which is a bit larger with about 200 stores all told. It's a far cry from massive chains like


(KR) - Get Kroger Co. Report




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, but Village has been a better investment than both, and that doesn't seem like it will change.

Based in Springfield, New Jersey, Village Super Markets was founded in 1933 and generates about $1.2 billion in annual revenue. That's 1.5% of the revenue generated by Kroger, but with a margin of 2.26%, Village is more profitable than Kroger, which runs on a margin of 1.7%. Supermarkets have never been highly profitable, so that small difference is more impressive than it seems.

Also, with a dividend yield of more than 3%, investors can expect more current income from Village than some other supermarket chains. Kroger pays a dividend yield of 1.6%, while Safeway's is a touch higher, at 1.8%.



, another large chain, currently doesn't pay a dividend.

While Village's price movement may be ultra-choppy due to its small size, it's fared much better than its bigger brethren over the past year. Village has soared 51%, while Kroger and Winn-Dixie have fallen 10% and 13%, respectively. Safeway has risen 8.9%.

As consumers switched to eating at home rather than going out during the recession, many analysts thought supermarkets would be poised to pop. That hasn't come to be. Investors may have simply pulled their money out altogether rather than investing in safety stocks, skipping out on any market risk in favor of government securities or a large mattress. That could be seen in Village as well -- the stock hasn't really moved much in the rally.

With a price-to-earnings ratio of about 14.5, a fat dividend yield and a beta value of just 0.34, consider Village as a mattress stock to guard against stock-market turmoil. Savings accounts currently yield far less than this stock's dividend and offer no chance of appreciation when the market picks up for good.

Smaller companies like this are rarely written about or the subject of analysts' reports. That can lead to gems that haven't been overbought. Village Super Markets has a "buy" rating from Ratings with a grade of A-minus.

-- Reported by David MacDougall in Boston.

Prior to joining Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level III CFA candidate.