My latest column is up at RealMoney.

Given that the grocery industry is typically classified as noncyclical, nondiscretionary and defensive, Supervalu’s (SVU) stock chart looks pretty scary. After reaching a high of more than $47 a share last year, the stock drifted down along with other grocers, then plummeted in late December and early January after it lowered its fiscal 2008 (which ended in February) earnings to a range of $2.91 to $2.97 a share before one-time acquisition-related costs. The original forecast was for $2.93 to $3.03 a share. The stock ultimately hit $26 in March.

When you cut through the noise, however, earnings estimates for the operator of the Shaw’s, Jewel-Osco and Albertson’s chains have been fairly stable over the last few months. The final tally for 2008 came in at $2.97, just a penny shy of the midpoint of the original range. Both the 2009 and 2010 estimates were raised a couple of months ago and have since been trimmed somewhat, but remain above the original levels. The company met or exceeded analyst estimates in each of the last four quarters.

Analysts expect Supervalu to post annual earnings growth of 6% over the next three to five years, an estimate I think is reasonable. I also think the company can expand its price-to-book multiple to the 1.39 industry average over the same period, which would add another 10% annually, for a total annual return of 16%.

Seen another way, if the debt reduction continues, I see no reason the shares wouldn’t merit the 13 times earnings accorded to Safeway. If the company earns “about” $3.30 a share in fiscal 2010, the math could work out to a $43 share price, or a 36% increase from the current level. As long as they don’t get too hung up on the day-to-day fluctuations in estimates, investors could find that Supervalu lives up to its name.

Disclosure: At time of publication, William Trent has no financial position in the companies mentioned in this article.

With the end of the first quarter approaching, it is time to adjust the names in our Watch Lists. We will price all the new lists as of the close on Friday, March 30. Today we present our planned updates to the Large Cap Watch List (Track at Marketocracy).

Though less than the Small Cap Watch List and Mid Cap Watch List (Track at Marketocracy), there was still relatively high turnover in this list. 14 of the original 33 names made the cut for the new list (which was trimmed to just 26 names.) Part of the reason for the turnover was to reduce overlap between the lists. One third of the Mid Cap Watch List (Track at Marketocracy) names appear on each of the Small Cap and Large Cap Watch List (Track at Marketocracy)s, but there is no longer any overlap between small and large.
So without further ado, the names on the chopping block from the previous list are:

3M (MMM); Continental (CTTAY.PK); Mitsui (MITSY); Anheuser-Busch (BUD); ConocoPhillips (COP); Helix Energy (HELX); IndyMac Bancorp (NDE - Annual Report); Barr Pharmaceutical (BRL - Annual Report); Quest Diagnostics (DGX); Public Storage (PSA); ITT Educational Services (ESI); Equifax (EFX); Rent-a-Center (RCII); Kroger (KR); Ricoh (RICOY); First Data Corp. (FDC); Expeditors International (EXPD); and Keyspan (KSE).

The new list is:

Although the organic growth at Mid Cap Watch List (Track at Marketocracy) member Delhaize Group was nothing to write home about - particularly when compared to the recent report from Large Cap Watch List (Track at Marketocracy) member Kroger - the company did manage to excite speculation in Europe that a deal could be in the works with Dutch rival Ahold. Ahold better fit without some of U.S. - Reuters:

Belgium’s Delhaize would find Dutch rival Ahold a better fit without some of the latter’s U.S. operations, notably its U.S. Foodservice unit, Delhaize’s chief financial officer said on Thursday.”It becomes more complementary,” Craig Owens said in response to a question after the company’s 2006 results news conference.

The comments reignited speculation that the two may seek some form of merger, sending shares in Ahold up 4.0 percent by 1215 GMT.

Here are the highlights from 2006, as reported by Delhaize:

• Accelerating sales growth: +5.5% at identical exchange rates
• Strong comparable store sales growth in the U.S. (+2.7%) and in Belgium (+2.8%)
• Excellent full year results at Alfa-Beta in Greece with 13.5% sales growth
• Operating margin of 4.9%
• Net profit from continuing operations: +12.1% to EUR 425.6 million

Kroger showed much stronger growth in the U.S. Delhaize’s Food Lion subsidiary may suffer from poor competitive positioning.

Large Cap Watch List (Track at Marketocracy) member Kroger Co. (KR)  Reported Strong Fourth Quarter Results:

The Kroger Co.  today reported total sales increased 14.5% to $16.9 billion for the fourth quarter ended February 3, 2007. After adjusting for the extra week in the fourth quarter of fiscal 2006, total sales increased 5.7% over the fourth quarter of fiscal 2005.Identical supermarket sales increased 5.6% with fuel and 5.3% without fuel, based on a 13-week period in both years.

Net earnings in the fourth quarter totaled $384.8 million, or $0.54 per diluted share. The current quarter benefited by $0.03 per diluted share from the adjustments of certain deferred tax balances. This was not contemplated in the Company’s guidance.

No matter. Even after deducting the $0.03 per share, EPS were well above the consensus estimate of $0.45. Guidance was also knocked out of the park when compared to consensus estimates of $1.46 per share:

Based on the momentum of its fiscal 2006 performance, Kroger anticipates earnings of $1.60 - $1.65 per diluted share in fiscal 2007. This equates to 9 - 12% growth from the adjusted fiscal 2006 earnings per diluted share shown in Table 5. Shareholder return will be further enhanced by the Company’s dividend.

All this for a lowly grocer. Given the weakness in retail overall, it would be worth looking at a defensive non-cyclical play just for safety. To get growth on top of that is a huge bonus.

We asked, but no one answered. So we are taking our own counsel and breaking our Watch List into three portfolios: Small Cap, Mid Cap and Large Cap. Each will be tracked against the relevant S&P index going forward from their collective inception date of January 31 (priced at the close of market trading that day.)

For your viewing pleasure, the Large Cap Watch List (Track at Marketocracy) (to be measured against the S&P 500) follows.

Astute observers will notice less overlap between this watch list and the names in the Small Cap Watch List and Mid Cap Watch List. This was not for lack of overlap, as the smallest S&P 500 name has a market capitalization of $600 million, which would allow for complete overlap with the Mid Caps if we chose. Instead we selected an arbitrary low of $2 billion for large-cap names, which cuts off five names that are actually in the S&P 500.
In addition, we will provide a “quick and dirty” analysis of each name, with a goal of one such analysis per day. As the name implies, the quick and dirty analysis will be incomplete. We are hoping you will join in the debate and fill the gaps in our analysis.