Food retailers had a profitable year in 2009, but their share prices languished on fears of low inflation.
James Durran, an analyst with National Bank Financial, says now is a good time to throw a few grocery stocks in the investment cart.
The stocks are cheap, the consumer demand outlook is better than expected, earnings forecasts are conservative and food prices are expected to begin rising in the middle of the year, he says.
Mr. Durran has just increased his target prices on all the publicly traded food retailers and particularly likes Loblaw , which he thinks is on track to $42, representing a 17 per cent gain on the current price of $35.94, up 44 cents today.
Value investors have already begun buying positions in the stocks, he notes.
He has an "outperform" on Loblaw stock and maintains "sector perform" ratings on Empire and Metro , which he thinks should hit $53 (10 per cent gain) and $42 (7 per cent gain), respectively.
"Loblaw remains our top pick in the Canadian food retail sector, based on its superior margin recovery potential versus Metro and Empire, providing it with greater earnings torque potential once the deflationary headwinds have passed," he writes.
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