There are a few qualities that Warren Buffett is known to look for in a stock. It’s known because he shares his investing wisdom freely, although he rarely explains his rationale for buying specific stocks.
One of his holding company’s (Berkshire Hathaway) less talked-about stocks is supermarket giant Kroger (NYSE: KR). But it’s a classic Buffett stock and offers more than investors might realize. Here’s how it could make you richer as part of a diversified portfolio of great stocks.
Why does Buffett love Kroger?
Kroger is a recent Buffett pick. It’s the largest non-discount supermarket chain in the country, with 2,750 stores under more than 20 banners.
Buffett looks for undervalued stocks. At the time that Buffett bought Kroger in 2019, it was under some pressure, and its stock was losing value. But during the past five years since Buffett bought it, it has outperformed the market.
KR Total Return Level Chart
Buffett clearly spotted an opportunity here. Right before Buffett purchased it, Kroger stock had sunk to a price-to-earnings ratio of only 5.7, its lowest ever.
Kroger has an incredible brand and targets a resilient shopping demographic. Even more, this demographic isn’t being taken by the Walmarts and Costcos of the world. Management developed a turnaround plan, and Buffett bought in.
Buffett’s secret sauce
Although Buffett doesn’t keep his investing methods a secret, he still thinks about stocks differently from many conventional investors. Something that stands out about Kroger, which isn’t a very exciting stock by investing community standards, is its direct participation in an important part of the economy.
What sets it apart from supermarket juggernauts like Walmart and Costco is that it targets a more affluent clientele. The high-income population isn’t necessarily going to drive out to get better deals at Costco, or at least they’re not counting on it. They like to drive to their local, well-appointed supermarket that’s full of fresh food and has a pleasant atmosphere. This is Kroger’s bread and butter, and this might be what Buffett sees in its…
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