An Attractive Bet on an Ugly Duckling
Here is how I took a small stake in a name with ‘a lot of warts.’
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We are venturing out to an unloved company in a challenged sector for our latest trade idea. This stock has struggled in 2026 as the company’s results in the first and second quarters have missed expectations. Management did boost its already healthy dividend payout by 13% earlier this year, though. There also has been some recent insider buying in the shares, quite the rarity this year.
The name in question is food and drug retailer Albertsons Companies (ACI). The stock is down some 70% from its highs in 2022 when it was bid up in anticipation of a merger with Kroger (KR), which did not go through.
The company operates across 35 states under the names Albertsons, Vons and Safeway. It has over 2,200 stores, more than 1,700 in-store pharmacies and just over 400 fuel centers. More than 50 million people are enrolled in the company’s loyalty programs.
The pharmacy segment is Albertsons’ fastest-growing segment, with sales rising 19% year over year in fiscal year 2025 to just over $11 billion, albeit this is a low-margin business and has been dogged by claims related to the opioid crisis. A few months ago, the company reached an agreement with every jurisdiction (save the state of Washington) that will cost the company $600 million after-tax, to be paid out over the ensuing seven years. This will finally put that issue behind it.
The grocery business is very competitive, slow-growing and produces low margins. That said, the company has been in this business since before World War II.
The surge in inflation since the pandemic has been problematic across the industry. As previously mentioned, quarterly numbers have missed the consensus this year. That said, Albertsons did deliver nearly $25 billion in overall revenue and over $1 billion in adjusted EBITDA in the second quarter.
Albertsons sports an approximately market cap of $6 billion and the stock currently trades around $12.
The company is aiming to deliver approximately $3.6 billion in adjusted EBITDA in FY 2026 and cut $200 million out of operating expenses with some key initiatives. Earnings are expected to be down by around 15% in FY 2026, but to grow in the mid-single digits in the coming years on flat sales growth.
The balance sheet is in decent shape, with some $9 billion in long-term debt, and the company is executing against a $2 billion stock buyback authorization.
I have described a company with a lot of warts, but one that remains profitable and has a dividend yield of 5.6%. Insiders are signaling brighter times might be ahead with three of them buying roughly 220,000 shares late in July. Meanwhile, the shares appear to be trying to put in a bottom over the past couple of weeks.
A lot of bad news seems fully priced into the stock, which is trading at under 7x forward earnings with a big dividend yield. Here is how I took a small stake in this ugly duckling.
Option Strategy
Here is how one can initiate a position in ACI utilizing a covered call strategy. As a reminder, covered call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.
Selecting the January $11 call strikes, fashion a covered call order with a net debit in the $9.90 to $10.10 a share range (net stock price – option premium). Liquidity is solid with the options against this equity.
This strategy provides downside protection of 18% over the trade’s duration, which includes one quarterly dividend payout of $0.17 a share. It also provides return potential of nearly 12%, including the dividend, even if the stock trades down 8% over its option duration.
At the time of publication, Jensen was long ACI.
