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BlackRock: Rebound Is Underway - Kroger: Taking Market Share
Posted by: Cabot Heritage (IP Logged)
Date: January 16, 2013 04:33PM

by J. Royden Ward

Which stocks will perform well in 2013? As the editor of the Cabot Benjamin Graham Value Letter, I follow value stocks closely. For the past several decades, value stocks have outperformed growth stocks consistently, but during the past 15 months, growth stocks have outperformed value stocks.

During the past three months, though, value stocks have begun to outshine growth stocks. I believe 2013 will be an exceptional year for value stocks. Top-notch companies in leading industries are clearly undervalued and look very attractive.

I scanned my database to find stocks with the right credentials to perform very well in 2013.

One of my recommendations is BlackRock (BLK). BlackRock is the largest publicly traded investment management company in the world, with assets under management totaling $3.7 trillion. The company offers a variety of investment and advisory products and services to institutional and individual investors. The 2009 acquisition of Barclays Global Investors, manager of all iShare ETFs, doubled BlackRock's revenues and added significant profits.

BlackRock is best known for its expertise in fixed-income asset management. The company has benefited from the globalization of capital markets and the growing demand for more sophisticated risk management tools and solutions. The firm has been gaining market share, aided by its size and untarnished reputation in the marketplace.

Sales and earnings growth slowed during the past 12 months, but a rebound is under way. Sales will likely rise 9% and EPS will increase 11% in 2013. New business from banks and governments seeking help to manage asset risk and to help unload troubled assets could push sales and earnings higher than expected. BLK is low risk, share price volatility is below average, and the dividend yield is attractive at 2.9%. Buy now.

Another of my recommendations is Kroger (KR). Kroger, founded in 1883 in Cincinnati, is one of the largest U.S. grocers, with 2,422 supermarkets in 31 states. The company also operates 790 convenience stores, 344 jewelry stores and 1,141 supermarket fuel centers. Kroger's typical format includes food and drug stores containing bakeries, delis, seafood, meat and floral shops, pet centers and high-quality fresh items such as organic produce.

Management recently introduced an ambitious program to boost the number of new stores. Kroger will also expand its business by launching discount stores and restaurants. Management is committed to improve sales and earnings growth considerably during the next couple of years and beyond.

Recent quarterly financial results have been impressive. Kroger's "Customer 1st Strategy" continues to raise customer loyalty, boost same supermarket sales and increase market share. Management lifted its earnings guidance for the current quarter and forecast accelerating sales and earnings for 2013. Kroger is taking market share despite formidable competitors such as Walmart.

At 11.3 times current EPS and with a dividend yield of 2.3%, KR shares are undervalued. The balance sheet is solid, and Kroger shares are less volatile than the shares of most companies. Buy now.

Stocks Discussed: BLK, KR,
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