BOSTON (TheStreet) -- American consumers are reordering their spending priorities by doing without, and they're trading down by buying cheaper store brands instead of designer labels. An uncertain job market coupled with a money squeeze on necessities such as food and fuel has them changing their shopping strategies.There's a lesson in there for investors.
Delhaize Group ( DEG), based in Belgium, is little-known in the U.S. but is the parent company of the Food Lion, Hannaford and Sweetbay supermarket chains in the eastern U.S. It owns about 2,700 stores in five countries, but gets about 70% of its sales from the U.S. What sets it apart from other supermarket chains is that it earns some of the highest margins in the industry, particularly in the U.S. Morningstar analysts say "Delhaize is an industry leader in profitability, generating nearly 5% operating margins compared with 3% to 4% earned by many of its peers. "However, the company is finding growth more difficult today as it faces a cash-strapped consumer in the U.S. and strong competition in Belgium," the analysts said. But they note that it "has the resources and capability to act as a consolidator in the U.S. grocery industry" and so could leverage its existing store network to better operating margins. Delhaize doesn't get much analyst coverage in the U.S. Its ratings on Bloomberg include one "buy" and one "hold." Delhaize disclosed two weeks ago that the U.S. investment giant BlackRock ( BLK) now owns 5.1% of its shares, the biggest of any investment stake. Delhaize shares are up 10.3% this year, but up only 1.6% over the past 12 months. It has a strong, five-year annualized share-price return of 6.3%. Morningstar has a fair value estimate of $105 on its shares, which is about a 30% premium to its current price.
Kimberly-Clark ( KMB) is known for its branded product line in the health and hygiene category, including bathroom tissues, diapers, feminine products, and paper towels under the brand names Kleenex, Scott, Huggies, Pull-Ups and Kotex. Standard & Poor's has a "hold" rating on its shares because it expects the company will face "input cost inflation and continuing, intense competition in developed countries and in its consumer tissue and personal care categories." S&P's analyst survey found three "buy" ratings, two "buy/holds," nine "holds," and one "weak/hold" ratings. Those same analysts' consensus estimate on earnings for 2011 of $4.85 and that they will rise 8% to $5.24 per share in 2012. Its shares, which have a projected dividend yield of 4.19% on the current share price of $65.75 have gained 7.2% this year and 12.8% over the past 12 months.