The Cabot Benjamin Graham Value Investor — as its names implies — focuses on fundamentally undervalued stocks based on a classic, time-tested methodology. Here, editor J. Royden Ward highlights two such value stocks — both within the food & beverage category.

Kroger (KR), the largest grocer in the US, operates 2,778 supermarkets and multi-department stores, 1,400 of these have fuel centers.

Several years ago, management devised a new strategy to cut costs, increase efficiency, and grow sales and earnings consistently. It also created “Customer 1st,” a customer-focused shopping program to gain shopper loyalty.

The results have been impressive, and management will continue its strategy in 2016 and 2017. Management will also focus on over 200 remodels, new store openings, and its program to enrich shoppers’ visits.

I expect sales to rise 7% and EPS to climb 16% to 2.30 during the next 12-month period. The company’s purchase of Roundy’s is producing better than expected results.

At 18.0 times latest 12-month EPS, the company stands out in the consumer staples sector. Kroger’s stock price will likely rise 38% to my minimum sell price target of $50.18 within two years. Buy at $36.68 or below.

Starbucks (SBUX) is the number one roaster and retailer of specialty coffee in the world. The company operates 24,395 stores across 74 countries.

Starbucks is introducing many technology innovations to strengthen its brand, improve efficiency, and increase profitability.

In the US, its mobile app has over 19 million users. Its loyalty cards are gaining popularity, with 12.3 million active members in the US and more than 8 million reward members in China.

The company announced it will introduce nitro cold brew coffee in stores, to capitalize on the explosive growth in iced coffee drinks. The company expects cold coffee sales to double in the next three years.

At 32.9 times current EPS, SBUX shares are not cheap, but sales and earnings growth will likely continue to advance at a steady, rapid pace. The dividend has been increased every year by more than 20% since the initial payment in 2010.

I expect the stock to climb 40% to reach my minimum sell price target of $79.99 within 12 to 18 months. Buy SBUX at $57.34 or below.

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By J. Royden Ward, Editor of  The Cabot Benjamin Graham Value Investor