We recently published a list of Recession Resistant Investing: 10 Best Grocery Stocks To Buy Now. In this article, we are going to take a look at where Sprouts Farmers Market, Inc. (NASDAQ:SFM) stands against other best grocery stocks to buy now for recession resistant investing.
Margin Pressure and the Consumer Staples Sector
On April 24, Bryan Spillane, BofA Securities senior consumer analyst, appeared on CNBC’s ‘The Exchange’ to talk about food stocks and how higher costs are weighing on consumers. He said that the biggest incremental headline right now is that costs are a bigger risk than anticipated going into the recent earnings season. Although there is a lot of focus on revenue risk, costs have taken the lead, and tariff risks are also affecting companies across the consumer staples industry.
Companies are sending marketing messages to consumers saying that they won’t be raising prices, which is something consumers didn’t see during COVID-19. These trends are raising concerns about margin pressures across corporate America. Addressing these questions, Spillane said these companies no longer have the ability to price. If there are incremental costs, whether from tariffs or other sources, they will either come from additional cost-cutting or result in margin pressure. Margin pressure is materializing in some major companies in the consumer staples sector, and it is likely to persist into the next quarter as well.
These trends raise the question of whether consumer staples are an area of stability amid current market volatility and macroeconomic concerns. Spillane said that this is a very similar dynamic to what we have seen in the last month or so, which is that the stocks have held in relatively well, even though earnings estimates have come down.
He further said that we have to be very selective from here onwards. Consumer staple companies that do not have negative earnings revision risks are a decent place to hide amid the current market dynamics. However, he warned that the fundamentals are decelerating for the consumer staple companies. These stocks are likely to remain under pressure if market fundamentals continue the way they are.
Is a Recession on the Horizon?
We discussed the risks of recession looming over the stock market in a recently published article on 10 Best Stocks That Will Always Grow. Here is an excerpt from the article:
Threats of an impending recession are looming over the stock market due to Trump’s tariffs and macroeconomic uncertainty. According to CNBC’s quarterly CFO Council Survey for Q1 2025, a majority of chief financial officers are of the opinion that the economy is likely to fall into a recession in H2 2025. The CFOs said that they were generally “pessimistic” about the overall state of the American economy, and expressed uncertainty about the stock market.
With the risk of an impending recession deepening, let’s look at the 10 best grocery stocks to buy now for recession-resistant investing.
Our Methodology
We sifted through stock screeners, financial media reports, and ETFs to compile a list of 15 major grocery stocks and chose the top 10 with the highest number of hedge fund holders as of Q4 2024. We sourced the hedge fund sentiment data from Insider Monkey’s database. The list is ordered in ascending order of hedge fund sentiment.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Is Sprouts Farmers Market, Inc. (SFM) the Best Counter Cyclical Stock to Buy According to Analysts?
A bright, colorful display of fresh produce in a grocery store.
Sprouts Farmers Market, Inc. (NASDAQ:SFM) is a specialty natural and organic food retailer that offers a specialty grocery experience. Its products are made of organic, plant-based, gluten-free, and similar lifestyle-friendly ingredients. The company operates around 407 stores in 23 states and takes the sixth spot on our list of the best grocery stocks to buy for recession-resistant investing.
On March 17, Deutsche Bank upgraded Sprouts Farmers Market, Inc. (NASDAQ:SFM) to Buy from Hold with a $190 price target. The analyst said the firm holds a “high conviction” in its growth outlook, primarily because of its differentiated product assortment and a transition to healthier consumer eating trends. The firm told investors in a research note that it had been a fan of the Sprouts Farmers Market, Inc.’s (NASDAQ:SFM) management team and story but was waiting for a more suitable entry point.
The company also has strong financials, as it reported a 59.2% growth in net income in fiscal Q4 2024 while net sales rose 17.5% year-over-year. Similarly, net income for the full year grew by 47% to $380 million, while revenues grew by 12.9% to $7.7 billion. This improvement was attributed to broad-based and balanced growth across channels, geographies, baskets, and traffic.
Overall, SFM ranks 6th on our list of the best grocery stocks to buy now for recession resistant investing. While we acknowledge the potential for SFM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than SFM but trades at less than 5 times its earnings, check out our report about this cheapest AI stock.
