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No. 2 - Clean Up On Aisle 3

Wednesday, 16 May 2007 | 1:10 PM ET

As Wal-Mart (WMT) and Home Depot (HD) report sagging sales today, the retail space is seeing a supermarket sweep.

Squeezed on both ends by the likes of Wal-Mart (WMT) and Whole Foods (WFMI) earlier this decade, grocers cleaned up their operations - and now their shares are doing some cleaning up of their own.

The Top Three #2
While Wal-Mart, Home Depot Sales disappoint, the supermarket's resurgence is the best story going in retail

Southern supermarket chain Winn-Dixie (WD) tells the story. Shares soared nearly 40% today after the once-bankrupt grocer reported strong earnings, citing a major remodeling of its stores.

Bigger chains are also booming; Kroger (KR) and Supervalu (SVU) have both jumped more than 25% this year alone.

Jeff Macke says groceries are the least sexy sector and he likes it that way because analysts don’t follow them closely.

If you’re interested in buying grocery store stock, Jeff recommends checking out the market personally.

1. Check the produce (Jeff says you can tell how well a grocery store is managed by how well the produce is stacked.)

2. Lots of Coupons? (Jeff thinks too many coupons indicate the store has diluted pricing power)

3. Hang-out or warehouse? (Stores that make people want to linger make more money, he reminds.)

Of all the supermarket stocks Jeff likes Supervalu best because he believes it has the most upside potential.

Eric Bolling adds Kellogg’s (K) and JM Smuckers (SJM) are also good companies.

Got something to say? Send us an e-mail at fastmoney-web@cnbc.com and your comment might be posted on the Rapid Recap! Prefer to keep it between us? You can still send questions and comments to fastmoney@cnbc.com.

Trader disclosure: On May 15, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (SWY), (JWN);Strazzini Owns (WMT) (NWS-A), (SNDK), Strazzini Is Short (MU); Bolling Owns (DIS), Gold, Silver, Coffee, Sugar; Bolling Is Short S&P Futures; Bolling Is Short Nasdaq FuturesNBC Universal Is The Parent Company Of CNBC

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