When it comes to the holidays and investing, retail stocks may be what first comes to mind. After all, once the plates are cleared for Thanksgiving dinner, what comes next? Black Friday and the mad dash of shoppers to the big box stores and malls in the weeks leading up to Christmas. But along with exploring opportunities in the retail sector, you may want to take a look at food stocks to buy as well this time of year.
Don’t think of these as just seasonal trades, though. Consumer staples stocks like these work best as long-term “buy and hold” investments. Leaning more towards the blue chip variety, several of them are dividend aristocrats. “Slow and steady” is the best approach with this sector. But with how unique this year has been, you may want to take an even closer look at this sector.
Many names have been beaten down by inflation and supply shock worries. Much of this concern is warranted, as both issues could impact profitability this quarter and in the quarters ahead. On the other hand, with investors perhaps too aware of these headwinds, these names may have been oversold. That would make them great contrarian buys ahead of a “return to normal” after months of not-so-“transitory” inflation.
So, across the many industries that make up this sector, which names should you load up on in your portfolio? Consider it high time to feast on these seven reasonably-priced food stocks:
- Albertsons (NYSE:ACI)
- Conagra Brands (NYSE:CAG)
- Campbell Soup Company (NYSE:CPB)
- Mondelez International (NASDAQ:MDLZ)
- Performance Food Group (NYSE:PFGC)
- Sprouts Farmers Market (NASDAQ:SFM)
- Tyson Foods (NYSE:TSN)
Food Stocks to Buy: Albertsons (ACI)
Unless you live West of the Mississippi, you may not be familiar with this grocery store operator’s flagship brand of the same name. Chances are though, you likely know or shop at one of the other chains under its banner. These include Safeway, Vons, Jewel-Osco and Balducci’s.
But even if you’re not stopping by one of its 2,277 stores for your Thanksgiving and Christmas food shopping, you may want to take a look at ACI stock. ACI stock has doubled year-to-date and is facing the above-mentioned inflation and supply shock headwinds, but I wouldn’t view this as a reason to fade the momentum.
Why? Despite the run-up, shares aren’t exactly expensive at today’s price levels ($34.29 per share at the start of Nov. 22). Trading for a forward price-to-earnings, or P/E, ratio of 13.6, valuation is in line with peers like Koninklijke Ahold (OTCMKTS:ADRNY), which owns U.S. chains like Food Lion and Giant. Today’s forward multiple may also be a reflection of the fact its earnings are expected to dip this fiscal year (ending February 2022) and the next.
That said, with the company passing along rising food costs to consumers and the “eat at home” trend continuing, Albertson’s could pleasantly surprise when it next reports results in January. While it’s raised its quarterly dividend by 20%, I’ll concede that it’s not much of an income play. Yet with the potential to add more to its 2021 gains, consider heading straight to the express lane with this supermarket stock.
Conagra Brands (CAG)
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Conagra Brands is best known by consumers for the packaged food brands in its portfolio. These include Healthy Choice TV dinners, Hunt’s ketchup and Orville Redenbacher’s popcorn.
When it comes to investors, though, CAG stock may be best known for its low volatility, low valuation (forward P/E of 12.4) and above-average dividend (forward yield of 4.07%). But pulling back in recent months due to the overarching inflationary and supply shortage issues, it makes sense why the market has become skittish lately.
However, instead of following the crowd and selling or avoiding this food stock, you may want to go against the grain. Why? There are many signs it will ride out recent challenges much better than expected. At least, that’s the view of Morningstar‘s Rebecca Scheuneman, in her bullish take on Conagra published on Oct. 29.
Between likely cost reductions — including from the consolidation of operations from its 2018 purchase of Pinnacle Foods — as well as improvements to its marketing efforts, the company may be well-equipped to ride out rising labor, raw ingredient and shipping costs. Trading for around $31 per share, down from the $38-$39 per share it traded for six months back, you may want to take a look at CAG stock, one of many food stocks erroneously thrown into the bargain bin.
Food Stocks to Buy: Campbell Soup (CPB)
Source: HeinzTeh / Shutterstock.com
After years of strategic hiccups, Campbell Soup caught a bit of a break (for lack of a better word) with the Covid-19 pandemic. Due to the virus and the “stay at home” trends that follows, it saw solid results in the months following the outbreak, a stark contrast to its middling performance just prior to the global health crisis.
Although it didn’t do much to give CPB stock much of a jolt, it did help it hold steady. However, post-“reopening,” sales have dipped a bit, as have earnings. The sell-side projects earnings per share (EPS) will dip once more this fiscal year (ending July 2022), falling from $2.98 to $2.76. With this slight post-lockdown hangover, shares have slid back slightly. It’s down 15% year to date. Campbell is facing the same inflationary challenges as its peers.
Even so, you may want to grab some CPB stock while it trades at multi-year lows. Trading for just 15 times forward earnings and with a 3.65% forward yield, it’s a great value play at $40.40 per share as of Nov. 22. It’s also a recession-resistant business and could be a great “safe stock” to include in your portfolio, in case the other shoe drops with the stock market.
Yes, given the market’s current sentiment, some may prefer the term “value trap” for it. Nevertheless, tackling inflation like its peers by raising prices, in the quarters ahead it may be able to start mitigating the effect of rising costs. A refresh of its main soup business could help it out as well.
Mondelez International (MDLZ)
The importance of meat, starch and veggies when it comes to holiday meals notwithstanding, you can’t forget the importance of treats this time of year. That’s where Mondelez — which makes Cadbury and Toblerone candies along with packaged snack foods like Oreo and Ritz — comes into play.
But as I recently discussed when talking about MDLZ stock, the company may be in anything but a merry mood. Rising costs are threatening its margins. They could also drive its customers to find lower cost generic substitutes to the branded products it manufactures.
So, with uncertainty ahead and my own recommendation to give it a pass for now, why am I including it on this list? You may not want to buy it right away. But keeping it on your radar may be worth doing. Its perceived inflationary troubles aren’t on the verge of easing. But the company could surprise analysts (who have trimmed estimates) when it next reports earnings in January.
As my InvestorPlace colleague Tezcan Gecgil wrote back in October, the company has over the past year implemented many changes that could positively affect future results. Changes to its digital marketing strategy could help boost sales. A simplification of its operations could help its margins, enabling it to deliver earnings above estimates. It’s not exactly cheap, with a forward P/E ratio of around 20. Yet a spate of positive news down the road could be enough to send MDLZ stock (at around $60.40 per share today) up to new highs.
Food Stocks to Buy: Performance Food Group (PFGC)
A wholesaler, Performance Food Group is far from a household name when it comes to food stocks. Mainly a food service vendor, the company’s purchase of Core-Mark this year means it is also now a major distributor to convenience stores.
Heavily affected by Covid-19, which minimized foodservice demand, Performance Food has been making a comeback. That was on full display in its recent quarterly results. Even as the Core-Mark purchase played a big role in its 47.4% year-over-year revenue increase and big increase in EPS, existing operations played a role as well.
That said, its stellar numbers and impressive earnings beat have done little to drive investors back into PFGC stock. At $44.30 per share today, it’s been trending lower since releasing results earlier this month. The likely culprit, of course, is the concerns that have affected companies all across the food sector. It’s understandable why investors may be worried what historically high inflation could do to results in the near-term, especially given the low margin nature of its business.
However, while investors are on the fence, one analyst (Wells Fargo’s Edward Kelly) is very bullish. The analyst believes Performance Food will continue to recover over the next two fiscal years. He also noted its low valuation, relative to its 2023 expected earnings. Maintaining the equivalent of a “buy” rating, Kelly gives the stock a $66 per share price target.
Sprouts Farmers Market (SFM)
Source: Ken Wolter / Shutterstock.com
A small challenger to Amazon’s (NASDAQ:AMZN) Whole Foods Market chain, Sprouts was a name I noted as a value play a few times earlier this year. Since then, however, after trending higher in early summer, it trended lower into fall and has just now started to bounce back again.
Chalk up its recent rebound to a strong earnings report, released on Nov. 4. While top and bottom line results for the natural foods retailer were down year-over-year, it did beat estimates. Given its high short interest (around 18.7% of float) this better-than-expected earnings print may have squeezed many on the short-side, as they ran to cover positions.
It faces inflationary challenges. Its banner year in 2020 was clearly a one-time event. However, I wouldn’t give up on Sprouts as a possible long-term buy-and-hold. With results normalizing and the company plugging away with its steady expansion of operations (more than 10% annual unit growth), the grocery chain stands to deliver gradual growth in the years ahead.
At around $25.80 per share, SFM stock is still cheap, with a forward P/E of 12.4 times. Consider it one of the food stocks to buy. Once inflationary headwinds fade, this name could see a nice boost due to improved results and multiple expansion.
Food Stocks to Buy: Tyson Foods (TSN)
Best known for its chicken, Tyson Foods is in actuality a diversified provider of meat products. Its units serve up not just chicken (and turkey), but beef and pork as well. You would think that, with the labor crunch and rising costs, the company would be in bad shape right now.
Yet that’s not the feel you get from checking out its most recent results. Despite the challenges, which have forced it to raise prices, customers have been buying up anyway, enabling it to beat earnings projections for the preceding quarter. This may suggest the meat processing giant will continue to thrive, even if inflation carries on into 2022. More strong results in the next few quarters could temper worries and help TSN stock continue to rise.
That’s not to say it’s not without its risks. Consumer spending for now may still be strong, despite the inflationary pinch. But this may not be the case a few months from now. If meat prices continue to climb, like the price of everything else, households could start to cut back.
Having said that, considering that its low valuation (forward P/E of 11.4 times) accounts for much of this uncertainty, you may want to give shares some consideration, as they change hands for $82.65 per share at the start of Nov. 22.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
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