Amazon.com, Inc. (NASDAQ:AMZN) may have many retailers quaking with its e-commerce prowess and producers concerned with its ability to better market Whole Foods’ private label items, but the latter concern seems overdone.
What’s clear is that over the long-term, food stocks with geographic scale, strong production capabilities and brands with global appeal will still be able to deliver on performance goals. In fact, for some, AMZN is just another retail channel that will actually help them boost sales in increasing convenience for customers.
The outlook for packaged foods may be somewhat muted due to increasing competition, but that doesn’t mean these companies are just going to go belly up. Below, are three food stocks to buy that have staying power.
Food Stocks to Buy: Mondelez International Inc (MDLZ)
Formerly known as Kraft Foods Inc., Mondelez International Inc (NASDAQ:MDLZ) spun off the North American grocery business, which later merged with the H.J. Heinz Company.
What remains is a $61 billion market cap snack business with a strong portfolio of well-known packaged food items that line the shelves of grocery stores worldwide with its Oreo, Cadbury, Toblerone chocolate and Trident gum products, among many others.
While MDLZ is still recovering from the malware cyber attack in June that negatively impacted sales, the company delivered double-digit earnings-per-share growth for the quarter in addition to operating margin improvements of 11% (primarily due to a reduction in overhead), demonstrating its ability to squeeze inefficiencies out of the business and compensate for the lackluster sales growth. While the global snack business is a $1.2 trillion market, lower consumption in developed markets like North America, have weighed on performance.
But Mondelez isn’t going anywhere. With its “power brands” driving revenues and deep supply chain relationships, there remains significant untapped growth potential in emerging markets, where AMZN’s shadow is yet to be seen.
Growth has been mostly flat year-to-date, but its white space initiatives should gain some momentum going into early 2018. As a result, free cash flow expectations are around $2 billion for the fiscal year. This, in addition to further operating improvements through the second half of the year, supports the recent dividend hike and future shareholder returns.
Clearly, MDLZ is one of the more promising food stocks to buy.
Food Stocks to Buy: TreeHouse Foods Inc. (THS)
TreeHouse Foods Inc. (NYSE:THS) 2020 is a blueprint that management is following to be the leading supplier of private label food and beverage products.
The changing retail landscape and pressure on grocery stores has led to a favorable backdrop as these companies look to reinvest in their corporate brands. Large grocery chains see the value and positive P&L impact on store-branded items, especially for commoditized items like beans.
What’s clear through, is that THS needs to get into better financial shape. Queue the 2020 plan that will improve the operating margin structure by approximately 300 basis points. If this plan comes to fruition, then TreeHouse could easily be one of the better food stocks to buy in the age of Amazon.
THS is already executing on that plan with the closing of two manufacturing facilities in Brooklyn Park, Minnesota and Plymouth, Indiana and the transition to non-peanut packaging operations out of Dothan, Alabama.
Progress at TreeHouse is underway, but the market retains some skepticism. After a strong start to the year, the stock is now down roughly 7%. Lowering full-year guidance has been the major culprit. However, as THS continues to stick to its plan of culling its portfolio and reducing the cost structure, the market will reward it as milestones are met.
Food Stocks to Buy: Campbell Soup Company (CPB)
Campbell Soup Company (NYSE:CPB) just can’t catch a break. In 2012, it acquired Bolthouse, a juice and salad dressings producer for $1.55 billion. It was a part of a bid to ride the natural product trend under the Campbell Fresh unit’s banner, but a drink recall and poor harvests have dampened results.
Tack onto that Warren Buffett’s comments that dashed any hopes of a potential acquisition by Heinz, and there you have a recipe for a share price plunge.
It’s precisely due to all the negative sentiment here, that there could be a significant opportunity for Campbell’s to surprise on the upside. The company certainly hasn’t given up on improving profitability and proving to the market that it deserves a multiple re-rating. It trades at a significant discount to the likes of J M Smucker Co (NYSE:SJM) — 16.8x to SJM’s 22.3x.
The transaction in June to acquire Pacific Foods of Oregon, a maker of organic soup and broth, will help Campbell get back on its feet as will its investments in its core offerings.
As of this writing, Luce Emerson did not hold a position in any of the aforementioned securities.