Is it time to buy ASX supermarket shares?

It seems like extreme volatility on the S&P/ASX 200 Index (ASX:XJO) is now the new normal. However, the major supermarket chains are continuing to deliver strong returns to their shareholders.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It seems like every day, cataclysmic news headlines tell us that billions are being wiped off the S&P/ASX 200 Index (ASX: XJO).

It's pretty difficult to look at your share portfolio at times like these. But it is important to remember that – unless you have a dire need for liquidity – it's never a good idea to sell into a falling market. The better strategy is to diversify into other sectors of the market to try and seek out what growth opportunities do exist and ease some of your portfolio's volatility.

And there are two key areas of the market that are continuing to hold up despite the global selloffs. The first is healthcare; companies like ResMed Inc (ASX: RMD), CSL Limited (ASX: CSL), Fisher & Paykel Healthcare Corp Ltd (ASX: FPH) are continuing to deliver gains to their shareholders and are all working to combat the current coronavirus pandemic.

The second group of companies that are rebounding are the supermarket chains. They are proving themselves to be good defensive investments in the current economic downturn. Even as global supply chains are hit and other retailers are closing their doors, supermarkets are relied on by their local communities to support them through the coronavirus panic.

Woolworths Group Ltd (ASX: WOW)

Originally hit hard during the global market correction over the second half of February, Woolworths shares have rebounded strongly over the last week, up over 16% to $40.44 as at the time of writing.

Prior to the coronavirus outbreak, Woolworths has experienced a prolonged period of solid growth in which its share price soared to a 52-week high of $43.96. These gains were driven by a solid underlying performance: for first half FY20, Woolworths reported a 6% growth in sales from continuing operations to $32.4 billion (against first half FY19), as well as a 16% uplift in net profit after tax (NPAT) from continuing operations to $979 million.

Coles Group Ltd (ASX: COL)

While the Coles share price also plummeted in late February, it has outperformed Woolworths more recently. Over the last week, Coles shares have gained over 20% and, as at the time of writing, are trading at a 52-week high of $17.78. The Coles share price surged after it was reported that the company would be hiring 5,000 extra casual staff to help restock its shelves.

Excluding revenues from fuel sales and hotels, Coles Group reported revenue growth of a little over 3% to $18.8 billion for first half FY20, while NPAT was flat at $489 million after adjusting for the financial impacts of the new leasing accounting standard.

Metcash Limited (ASX: MTS)

The Metcash share price has skyrocketed recently, jumping from the 52-week low of $2.17 it posted on 13 March to its current price of $3.20. Metcash is a conglomerate which owns – among other brands – the IGA, Foodland and Friendly Grocer supermarket chains.

Metcash's results for the first half FY20 weren't as strong as its two larger competitors, with underlying profit after tax falling almost 5% to $95.7 million even prior to adjusting for the deleterious impacts of the new leasing accounting standard. However, as a smaller company, Metcash has greater room to expand, which is why growth-hungry investors are flocking to it and pushing up its share price.

Rhys Brock has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has recommended ResMed Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Person pretends to types on laptop drawn in sand.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a disappointing end to the trading week for investors this Friday.

Read more »

A young boy points and smiles as he eats fried chicken.
Share Gainers

3 ASX All Ords shares smashing the benchmark this week

Investors are sending these three ASX All Ords shares rocketing 18% to more than 29% this week. But why?

Read more »

watch
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

Disappointed man with his head on his hand looking at a falling share price his a laptop.
Share Fallers

Why APA, Flight Centre, Reece, and Transurban shares are falling today

These shares are having a tough finish to the week. But why?

Read more »

a young woman raises her hands in joyful celebration as she sits at her computer in a home environment.
Share Gainers

Why Alliance Aviation, BHP, Boss Energy, and Orthocell shares are racing higher

These shares are ending the week on a positive note. But why?

Read more »

Mum playing with her baby boy holding him on her tummy as she lays down while smiling about the Bubs share price going up today
Broker Notes

Following two unfortunate incidents, what's Macquarie's price target on Monash IVF shares?

Is Monash IVF a buying opportunity?

Read more »

A happy male investor turns around on his chair to look at a friend while a laptop runs on his desk showing share price movements
Broker Notes

Macquarie tips 18% return for this ASX 200 stock

The broker thinks this blue chip's profits are going to rebound in FY 2026.

Read more »

Three happy office workers cheer as they read about good financial news on a laptop.
Broker Notes

Bell Potter names more of the best ASX 200 shares to buy in FY26

These shares are among the best to buy in the new financial year according to its analysts.

Read more »