In this article we discuss the 10 best food stocks to buy now. The food industry remains ripe for further growth amid a surging demand and changing consumer trends. You can skip our investment thesis for the food industry and click here to read 5 Best Food Stocks to Buy Now.
Food remains one of the thriving industries worldwide, given its essential business nature and a strong connection to consumers. In 2020, global food industry revenue jumped by a record 20% year over year to reach $8.2 trillion, driven by a huge demand increase amid the coronavirus outbreak. As the pandemic disrupted global food supply chains, consumers flocked to convenience stores to load up their carts, resulting in a 76% rise in convenience food sales. Food industry in the U.S. is extremely diverse, with a variety of subsectors. Moody’s said in an October 2020 report that it expects a slight decline in sales and earnings in the packaged food industry in 2021 when compared to 2020, but the industry will rebound to strong growth levels in 2022 and beyond. The firm maintained its stable outlook for the packaged foods industry, while forecasting that EBIT will continue to rise steadily over the next 18 months.
Coronavirus Altered Consumer Behavior Forever?
The coronavirus crisis was a boon for at-home food consumption as people restricted their movement and governments barred dine-out operations. According to International Food Information Council’s (IFIC) 2020 Food & Health Survey report, 60% of Americans said they started cooking at home more after the coronavirus outbreak, while 32% said they are snacking more. Overall, 27% respondents said they are thinking about food more than usual. All these trends show that the future looks bright for food stocks in the U.S. Analysts think these trends will become the new normal even after the pandemic. About 75% respondents in a survey conducted by New York-based PR and food research firm Hunter said that they have become more confident in the kitchen, while 73% said they are enjoying cooking in the kitchen.
Major food companies, including General Mills, Conagra Brands and Campbell Soup Co., are reporting huge profits and revenue growth amid the changing consumer behavior. In the fiscal fourth quarter, General Mills said its U.S. meals and baking revenue jumped 75%, while cereal sales rose 26% in the period. General Mills CEO Jeff Harmening in December 2020 said that consumer eating habits will not go back to where they were before the pandemic.
Digital Footprint of Food Companies
Food companies are also rapidly changing their strategies to adapt to the changing market. Deloitte said in its Consumer Products Industry 2021 outlook report that food companies’ hold on ecommerce channels is still thin. They will have to increase their digital investments to catch the growing market.
Fresh Food Market
Consumers are also preferring to eat healthy food and fresh items that have shorter shelf lives. Food companies will have to work on their packaging and storage capacities to capture this market. A report by LEK consulting found that 93% of consumers want to eat healthy at least some of the time, while 63% try to eat healthy most or all of the time.
It's not just the food industry which is experiencing drastic changes. The financial markets worldwide are becoming volatile. The hedge fund industry’s reputation has been tarnished in the last decade during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 88 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Let's take a look at 10 best food stocks to buy now. We choose these stocks by analyzing the 13F data of top hedge funds, their financial health and growth catalysts.
10. UNILEVER N.V. Common Stock (NYSE: UL)
Unilever is a London-based multinational giant that makes various products, including food, confections, energy drinks, baby food, soft drinks, cheese, ice cream and tea. In the third quarter, Unilever posted a revenue of €12.93 billion, beating the Wall Street estimate by €240 million. In November 2020, the company announced a goal of €1 billion in annual sales from plant-based meat and dairy alternatives, within the next five to seven years.
As of the end of the third quarter, 19 hedge funds tracked by Insider Monkey held stakes in Unilever. Here is what Mott Capital said about Unilever last year:
“Unilever (UL) fell by almost 5% in the fourth quarter but managed to increase by 9.4% on the year. The company’s fourth quarter decline followed a disappointing sales outlook, noting it would be at the lower end of its prior range. The story for the company hasn’t changed much over the years, with prospects for growth coming from many emerging markets. I continue to believe this company offers a level of stability to the portfolio, and its reach into the growing middle class around the world remains very attractive over the long-term.”
9. Archer-Daniels-Midland Co (NYSE: ADM)
Archer-Daniels-Midland Company, often known as ADM, is a multinational food processing company, with about 270 plants and 420 crop procurement facilities worldwide. The company processes cereal grains and oilseeds into products used in food and beverages.
In November, Credit Suisse upgraded the stock to Neutral from Underperform with a $46 price target. The firm’s analyst Robert Moskow said that he was concerned about the company’s services and ethanol business in the summer, but the key facets of the business have since turned more positive.
Ric Dillon’s Diamond Hill Capital is one of the 26 elite hedge funds having stakes in ADM as of the end of the third quarter. Here is what he said last year about ADM:
“Agricultural commodities producer Archer-Daniels-Midland Co. outperformed after reporting solid quarterly results. The company benefited from the renewal of the biodiesel tax credit, as well as continued growth in its nutrition business. The company has heavy exposure to agriculture and basic food products and tends to perform well in times of market turbulence.”
8. Campbell Soup Company (NYSE: CPB)
Campbell Soup ranks 8th on the list of 10 best food stocks to buy now. The company is famous for its flagship canned soup products, canned meals, baked goods, beverages, and snacks. The New Jersey-based company is behind several famous brands, including Pepperidge Farm, Snyder's of Hanover, V8, and Swanson.
In October 2020, R5 Capital upgraded Campbell Soup shares to Buy from Hold, with a price target of $59. The firm’s analyst Scott Mushkin said that Campbell’s new management has worked hard to increase efficiencies and cut costs. He also believes that the company’s acquisition of Snyder’s-Lance will create new synergies and income streams.
As of the end of the third quarter, 28 hedge funds in Insider Monkey’s database held stakes in Campbell, down from 32 funds a quarter earlier. Here is what Third Point said about CPB in its 2020 Q2 investor letter:
“One of our biggest winners in Q4 and 2019 was Campbell, which gained over 6% in Q4 and 55% overall in 2019. Our initial foray into Campbell was met with skepticism, both in terms of the difficulty in effecting change in a family-controlled board and the seeming difficulty in turning around what most thought was a moribund and declining business. We saw things differently and created an opening for an attractive settlement with the board by securing support from all proxy advisory firms and building consensus among non-family shareholders around the need for change.
The Board has been refreshed with the addition of three directors – two former packaged food CEOs and a marketing guru. The senior leadership team has been upgraded with the appointment of a new CEO and CFO. The balance sheet has been repaired with the divestiture of non-core fresh food and international snacks businesses for more than $3 billion, which reduced leverage from ~5x to 3.5x. The core business has stabilized, providing a stronger foundation on which to build. And, a compelling multi-year turnaround is now underway to return the company to sustainable sales and earnings growth.
CEO Mark Clouse, who is only one year into his tenure, has demonstrated how powerful leadership working with an engaged board can revitalize a company. During the most recent quarterly call in December, Clouse was upbeat about the potential for top line growth in 2020, which is key to the next leg of the story. Given strong 2019 performance, we took some profits and reduced our position to below 5% of the company, however we remain enthusiastic about Clouse’s leadership and Campbell’s future and are pleased to have played a role in repositioning this iconic company.”
7. Hormel Foods Corp (NYSE: HRL)
Hormell Foods started off in the meat industry selling ham, sausage, chicken, beef and lamb products, but now has presence in about 80 countries all over the world and sells famous branded-products including Applegate, Columbus Craft Meats, Dinty Moore, Jennie-O and Skippy. In the fourth quarter, the company reported a revenue of $2.42 billion, down 3.2% year over year and missing the Street’s estimate by $180 million.
Cliff Asness’ AQR Capital Management is one of the 30 hedge funds tracked by Insider Monkey having stakes in Hormel Foods as of the end of the third quarter. The fund owns 3.65 million shares of the company, worth $177.75 million.
6. Kellogg Company (NYSE: K)
Michigan-based Kellog is famous for its cereal and convenience foods. Some of the company’s known brands include Corn Flakes, Frosted Flakes, Pringles, Eggo, and Cheez-It. In October 2020, the company reported a 4.5% growth in third-quarter sales, above the Street’s estimate of 4%. The company continues to see a strong growth in Asia and Latin America. The company also increased its FY2020 revenue guidance to 6%, versus its prior outlook of 5%.
Jim Simons’ Renaissance Technologies owns 2.73 million shares of the company as of the end of the third quarter, worth $176.46 million. Overall, 35 hedge funds in Insider Monkey’s database held positions in Kellog entering the fourth quarter of 2020.
Continue reading this article by clicking 5 Best Food Stocks to Buy Now.
Disclosure: No positions. 10 Best Food Stocks To Buy Now is originally published at Insider Monkey.