Will SUPERVALU Help You Retire Rich?

Now more than ever, a comfortable retirement depends on secure, stable investments. Unfortunately, the right stocks for retirement won't just fall into your lap. In this series, I look at 10 measures to show what makes a great retirement-oriented stock.

Supermarkets seem like they ought to be stable, secure businesses that should fit well in retirement portfolios. With steady demand and reliable flows of customers in and out of stores, they seem like a good candidate for a recession-proof industry. But as the recent experience of SUPERVALU (SVU) shows, the low-margin business can be brutal to companies during tough times. Can the beleaguered grocery chain pass the key test it faces right now? Below, we'll take a look at how SUPERVALU does on our 10-point scale.

The right stocks for retirees
With decades to go before you need to tap your investments, you can take greater risks, weighing the chance of big losses against the potential for mind-blowing returns. But as retirement approaches, you no longer have the luxury of waiting out a downturn.

Sure, you still want good returns, but you also need to manage your risk and protect yourself against bear markets, which can maul your finances at the worst possible time. The right stocks combine both of these elements in a single investment.

When scrutinizing a stock, retirees should look for:

• Size. Most retirees would rather not take a flyer on unproven businesses. Bigger companies may lack their smaller counterparts' growth potential, but they do offer greater security.
• Consistency. While many investors look for fast-growing companies, conservative investors want to see steady, consistent gains in revenue, free cash flow, and other key metrics. Slow growth won't make headlines, but it will help prevent the kind of ugly surprises that suddenly torpedo a stock's share price.
• Stock stability. Conservative retirement investors prefer investments that move less dramatically than typical stocks, and they particularly want to avoid big losses. These investments will give up some gains during bull markets, but they won't fall as far or as fast during bear markets. Beta measures volatility, but we also want a track record of solid performance as well.
• Valuation. No one can afford to pay too much for a stock, even if its prospects are good. Using normalized earnings multiples helps smooth out one-time effects, giving you a longer-term context.
• Dividends. Most of all, retirees look for stocks that can provide income through dividends. Retirees want healthy payouts now and consistent dividend growth over time -- as long as it doesn't jeopardize the company's financial health.

With those factors in mind, let's take a closer look at SUPERVALU.

Source: S&P Capital IQ. NM = not meaningful; SUPERVALU suspended its dividend in July 2012. Total score = number of passes. *Year-to-date performance in 2012.

With just a single point, SUPERVALU clearly lacks most of what conservative investors want from a retirement portfolio stock. The stock has lost two-thirds of its value in the past year as the grocery chain is struggling to survive under a massive debt load.

The grocery business has clear divisions among companies. On one hand, high-end grocer Whole Foods (WFM) has maintained impressive margins that largely blow the rest of the industry away. On the other hand, traditional grocers Kroger (KR 1.80%), Safeway (NYSE: SWY), and SUPERVALU have faced pricing pressure from higher wholesale food costs, forcing them either to raise prices for customers or accept even thinner margins than they usually fetch. Moreover, as Target (TGT 1.03%) and Wal-Mart have made forays into food sales, SUPERVALU and its grocer peers face even more competition.

Back in July, things really unraveled for SUPERVALU. The grocer posted earnings that were only half what investors had expected, and SUPERVALU finally gave up on maintaining its lucrative dividend, suspending its 7% payout in order to consider a possible sale of the company. With the company needing to restructure its debt, SUPERVALU will need to use its real estate as collateral.

Since then, the stock has bounced around on news about its future. In August, Bloomberg reported that various potential buyers could be interested in its Albertsons and Shoppers chains. Yet at least for now, the company hasn't cemented any firm deal.

For retirees and other conservative investors, the loss of the dividend puts SUPERVALU into uncharted territory. With the shares so cheap, a speculative bet could be wildly successful, but only at the risk of potentially losing everything. SUPERVALU really isn't the sort of stock that fits well with most retirement investors' risk profiles.

Keep searching
Finding exactly the right stock to retire with is a tough task, but it's not impossible. Searching for the best candidates will help improve your investing skills, and teach you how to separate the right stocks from the risky ones.

Add SUPERVALU to My Watchlist, which will aggregate our Foolish analysis on it and all your other stocks.