The market's choppy / consolidating pattern continues, suggesting the need for a defensive play or two (or perhaps more) as the new year begins. Further, there are few defensive plays better than a grocery store chain, and in this category Kroger is worth a review.

The Kroger Co. (NYSE: KR) is the nation's largest grocery chain, boasting more than 2,400 stores, with the typical format being food/drug store combination stores.

Analysts see modest sales growth in 2008 of 4-7% but margins should widen, due to Kroger's ability to pass on product cost increases, and a more-modest advertising budget.

In general, analysts also sense that Kroger is in-tune with competitive pressures in the grocery chain segment - - improving customer service levels and the overall shopping experience. Further, look for KR's private label items to play a larger role in revenue, particularly as some consumers switch down to generic brands in 2008 to reduce their food costs. The Reuters FY 2008/FY 2009 EPS consensus estimates for KR are $1.69 to $1.89.

The market's choppy/consolidating pattern (or perhaps worse) continues, with several unknowns weighing on the minds of investors. It goes without saying then, that in this market defensive stocks represent a prudent addition to almost any portfolio. The grocery store sector is a dependable defensive, and in this category, Safeway is worth a review.

Safeway Inc. (NYSE: SWY) is one of North America's largest grocery store chains, with more than 1,700 stores, primarily in the West, Midwest, and Mid-Atlantic United States. Safeway also operates the Vons, Dominick's Finer Foods, Carr-Gottstein (Alaska), Genuardi's, and Randall's Food Market Chains (Texas). SWY also has an international presence via ownership of about 125 Casa Ley food/variety stores in Mexico.

Analysts expect 2008 sales to increase about 3%-5% to about $44 billion, up from about $41.8 billion in 2007, as Safeway increasingly sees the fruits of a store remodeling campaign. Gross margins should remain adequate. The Reuters fiscal year (FY) 2007/2008 earnings per share (EPS) consensus estimates for SWY are $2.01 to $2.24.

Other positives: Safeway has struck the right balance between its high quality/wide selection Safeway stores and Safeway supercenters: the former, via remodeling, better reflect middle-income customers' needs, and the later have displayed solid traffic. This winning formula leads many analysts to conclude that Safeway should be able to build on its 8% grocery store sector market share.

The risks? Analysts are keeping an eye on intensifying competition: wholesale operations and warehouses represent the biggest threat, as they boast comparable economies of scale.

The First Call mean rating for SWY is: Hold [15 firms]. Mean 2008 target: $39.00 [high: $42, low: $34].

Stock Analysis: Safeway is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 2 years should be rewarded from SWY's shares. Sell/Stop Loss if you were to purchase shares in this company: $23.