By J. Royden Ward, Cabot Benjamin Graham Value Letter

Founded in 1883 in Cincinnati, Kroger (KR) is one of the largest U.S. grocers, with 2,422 supermarkets in 31 states. And the stock rates as my top pick for the coming year.

Kroger's typical format includes food and drug stores containing bakeries, delis, seafood, meat and floral shops, pet centers and high-quality fresh items such as organic produce. It also operates 790 convenience stores, 344 jewelry stores, and 1,141 supermarket fuel centers.

Management recently introduced an ambitious program to boost the number of new stores. Kroger will also expand its business by launching discount stores and restaurants. Management is committed to improve sales and earnings growth considerably during the next couple of years and beyond.

Recent quarterly financial results have been impressive. Kroger's "Customer 1st Strategy" continues to raise customer loyalty, boost same supermarket sales and increase market share.

Management raised its earnings guidance for the current quarter and forecast accelerating sales and earnings for 2013. Kroger is taking market share despite formidable competitors such as Wal-Mart (WMT).

At 11.6 times current earnings per share and with a dividend yield of 2.3%, KR shares are undervalued. KR shares will likely advance to $35.35 in 2013. The balance sheet is solid, and Kroger shares are less volatile than the shares of most companies. Buy now and sell at $35.35.

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