I recently read Asif Suria’s March 2009 Newsletter (I highly Recommend reading it). Asif made the following comment about how Safeway (SWY) "The Company is also a good play on inflation eventually making a comeback."
Anyone that has been reading this blog knows I am very bullish on inflation picking up. Recently, I posted this; Marketplaces as a hedge against inflation, on my blog. Although I own the obvious inflation hedges such as gold, lean hog futures, Milk futures, short treasuries, etc. I am always interested in finding the non obvious inflation hedges. They might be available for much cheaper than gold.
I asked Asif to explain his rational about Safeway and inflation. That is what he had to say about it: “The grocery chain stocks got hit by double head winds in this recession, both through decreased sales from customers cutting back on purchases or choosing lower priced products and from price deflation due to falling commodity prices. This is why some of them were selling at very attractive valuations last year and I picked what I believed to be best of breed in Safeway.
Once inflation returns, these chains will increase prices as their low margins will not allow them to absorb price increases without passing them on to customers. Hence my theory that they provide an embedded inflation option. Obviously this is assuming that the next inflation cycle (if and when it occurs) will have the same characteristics as the last cycle and from what we have seen in this recession, hardly anything has stayed true to script.
The stock of the largest egg producer in the United States Cal-Maine foods (CALM) has held up well primarily because of these expectations of inflation”.
I like food, I own lean hog futures! Do you know of any other inflation beneficiaries I should be investigating? Let me know.