The Motley Fool Take
Shares of grocery giant Kroger (NYSE: KR) recently hit a 52-week low, making it even more attractive as an investment. Kroger has been facing challenges such as falling food prices and increased competition. That’s especially tough in an industry known for narrow profit margins.
Still, Kroger is a top performer with a lot in its favor. For starters, its industry is defensive. During hard economic times, consumers will cut back on or delay spending on cars, appliances, vacations and other nonessential expenses. They’ll keep spending on categories such as electricity, medicines and groceries, though.
Kroger’s strength is reflected in the fact that its sales in stores open a year or longer have been growing each quarter since 2004 – through economic downturns and upturns. Price cuts have hurt its profit margin, but it has more than made up for that through increased volume.
Kroger has also been boosting business in its 2,700-plus stores via a growing line of store-branded products that now generate about a quarter of its revenue. It has acquired some competitors, too, such as Harris Teeter and Roundy’s.
Patient believers can enjoy Kroger’s dividend, which recently yielded 1.6 percent. It has been growing by an annual average of 18 percent over the past five years and still has room to grow. You might want to add shares of Kroger to your shopping cart.
Ask the Fool
Q: What can I do if I want to invest in a particular mutual fund and my brokerage says it can’t help me? – F.M., Woodville, Michigan
A: Brokerages vary in the funds they offer. Some offer hundreds, some relatively few. A brokerage may not offer a fund you want, or it may not be able to get you into it if the fund is closed to new investors. Funds will sometimes be closed if the managers believe they have more money than they can invest effectively. (That’s a good thing. Lots of funds just keep taking money, even if they have to park much of it in less promising investments.)
Some funds will just do a “soft close,” though. That means they won’t accept new shareholders coming in from third parties such as brokerages, but they will let you invest directly through them, such as via their company’s website.
It can be convenient to invest in funds through your brokerage, as you’ll be able to move money between funds and fund companies more easily – though there will likely be a commission fee charged. But know that you can usually invest in an open fund directly, via the fund company itself.
Q: Do I, a single person, need life insurance? – S.W., Nags Head, North Carolina
A: Not necessarily. Insurance is primarily protection against a financial loss, not an investment. (There are, after all, more effective ways to invest.) If anyone (such as a partner, children, or even your parents) is depending on your income or is tied to any of your debts, such as a mortgage, then buying life insurance is smart. But if no one will be financially hurt should your income stream disappear, consider parking your money elsewhere.
My Dumbest Investment
In the late 1990s, a friend used to show me his portfolio, and I thought I would like to have something to show him, as well. So I opened up a brokerage account and started putting $500 a month into it.
Mistake No. 1 was buying ticker symbols, not businesses. I was buying whatever was popular (i.e., tech stocks), with little thought about what those companies actually did. Mistake No. 2 was using margin (i.e., investing with money borrowed from the brokerage). I always owed money and was paying interest. Mistake No. 3 was putting additional money that I needed in the next few years into stocks.
As you probably suspect, when the market crashed, I had to sell many of my stocks to cover my margin debts (because the lower the value of your account, the less you can borrow). Within about six months, my account’s value went from around $100,000 to $3,000. At that point, I closed the account and vowed never to invest again. Later, I did a lot of reading and learning about investing – and I’m back at it, but much more sensibly. – S.B., McKinney, Texas
The Fool responds: Not knowing exactly what you’re investing in, or why, or whether it’s attractively priced is very dangerous. Margin, meanwhile, is appealing because it can amplify your gains – but it amplifies your losses, too. You should be enjoying better results now!
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