[Editor’s note: “9 of the Best Food Stocks to Buy Right Now” was originally published in March 2020. It is regularly updated to reflect the most relevant information.]
With so much chaos in the financial markets – something that the novel coronavirus and subsequent record-breaking job losses have only exacerbated – it has been difficult to find individual names that haven’t been deeply and negatively impacted. A better approach may be to consider suddenly relevant sectors that have now been discounted. In this case, few market segments offer as much potential as food stocks to buy.
Hardly a sexy place to park your money, food stocks are somewhat of an afterthought in bull markets. But this narrative changes during bearish cycles. In an email to InvestorPlace, Veljko Fotak, PhD Associate Professor Department of Finance School of Management University at Buffalo wrote the following:
“Consumer staples usually outperform the rest of the market during economic downturns. In particular, there is an expectation that certain food stocks will benefit from increased grocery spending, as people dine out less. During the 2008-2009 crisis, we saw US consumer spending on frozen and refrigerated foods spike.”
Yet that doesn’t mean that you can blindly pick food stocks to buy. Every situation is different, with some companies featuring greater financial stability than others. Moreover, certain organizations have been able to adjust to the crisis, which is not a universal achievement.
In addition, you must consider the consumer. All of us have had to make sudden changes to our lifestyle. However, individual responses vary, posing challenges to businesses.
Ultimately, though, the bottom line is that people are stressing over this unprecedented crisis. At least for the next few months, the food industry should enjoy unusually bullish tailwinds. Here are nine food stocks to buy.
Food Stocks to Buy: Kroger (KR)
Kroger (NYSE:KR) is one of the few names that are still positive for the year and for good reason. As a pivotal necessity in any circumstance, KR stock represents consistent demand. No matter how technologically advanced we become as a society, we still need to eat. The dramatic escalation of the outbreak has made Kroger one of the most important food stocks to buy.
Specifically, with the outbreak comes a “new normal” of acceptable behaviors such as social distancing. To keep in line with these developments, Kroger can now easily and organically advertise its alternative transactions, such as deliveries and online orders and pickups.
Undoubtedly, several people will take the company up on these offerings even after the coronavirus fades. In a way, the pandemic makes Kroger more relevant to the emerging generation, providing another incentive to buy KR stock. And in the meantime, the overall panic should help lift shares.
Finally, traditional grocery stores represent the most cost-effective means of procuring our food, short of waiting in breadlines. In my opinion, you can reasonably expect Kroger to keep marching forward throughout this year.
On any given day, Costco (NASDAQ:COST) warehouses are always crowded. Thanks to big open spaces brimming with discounted goods, it’s no wonder why COST stock has offered steady returns. But when the coronavirus-led panic erupted in the U.S., Costco suddenly found itself at the epicenter of a consumer frenzy. Obviously, that makes its shares among the better food stocks to buy.
But even against a longer-term perspective, I believe COST stock is better positioned than most warehouse-style retailers. Estimates vary depending on the source, but the average Costco shopper typically makes about $100,000 a year. Logically, this makes the company more resilient to economic downturns. Further, when things bounce back, Costco will always enjoy strong demand.
Food Stocks: General Mills (GIS)
In the paradigm before the pandemic, General Mills (NYSE:GIS) has become a rather frustrating name. Once among the most popular food stocks to buy, General Mills encountered shifting consumer trends. Largely, this was due to millennials’ penchant for healthier choices. As a result, GIS stock hit a peak in the summer of 2016 and then proceeded to decline.
To be fair, the coronavirus hasn’t definitively changed this trajectory. Still, you’ve got to like its chances now. Unlike fresh fruits and vegetables, General Mills specializes in shelf-stable foods like cereal. Obviously, in a prolonged emergency, shelf life, not necessarily healthy eating, is the top priority. Thus, GIS stock wins in this new paradigm, one that could stay with us for a while.
Another popular and iconic cereal company, Kellogg (NYSE:K), has been a mainstay in the American household for decades. However, growing evidence indicated that younger generations might eschew traditional processed breakfasts and other food products for fresh, healthier choices. This trend sparked changes in food logistics, which didn’t necessarily bode well for K stock.
However, the spread of Covid-19, which has devastated many industries, may offer a lifeline for K stock. Although shares have been exceptionally wild in the past few weeks, Kellogg offers the same fundamental narrative as other food stocks: long shelf life and convenience.
With young people unlikely to pick up farming as a new skill, K shares should enjoy a steady return to demand as we work through this crisis together.
Food Stocks: Tyson Foods (TSN)
Offering a variety of food products, Tyson Foods (NYSE:TSN) specializes in meat: the real kind, not the fake stuff, thank you very much!
Despite demand for long shelf life products, there’s only so many servings of rice and beans that a human can eat. Additionally, Tyson provides consumers with what they know. In a crisis like this, it isn’t the time to experiment with plant-based meat if you haven’t tried it before.
Admittedly, the narrative for TSN stock took a hit when Tyson warned that the pandemic will bring about a meat shortage due to heavily disrupted supply chains. Unfortunately, with popular eateries suffering a sudden demand loss, Tyson will navigate unprecedented waters.
In the meantime, Tyson last year launched an alternative protein brand called Raised & Rooted. With real meat steadily disappearing from grocery store shelves, TSN can help mitigate this disruption.
And at some point, you have to assume that the food supply chain will normalize. This is the forward-thinking but risky thesis for TSN stock.
Shake Shack (SHAK)
While returning home from a grocery run, I passed by an In-N-Out Burger location. I was startled that a massive line had formed in the drive-thru area. If I didn’t know any better, I would assume that everything was normal.
Of course, it’s not but it got me thinking. If In-N-Out was a publicly traded company, it would be an easy candidate for food stocks to buy. With so much demand despite a terrible crisis, shares would likely soar. But investors don’t need to fret as Shake Shack (NYSE:SHAK) and specifically SHAK stock could provide some upside opportunities.
What clued me into Shake Shack is the company’s demographics. The brand appeals strongly to the youth market, along with those earning six-figure incomes. Thus, SHAK stock can grow with its core consumer base while experiencing some mitigation during this health and economic crisis.
Food Stocks: Hain Celestial Group (HAIN)
Given the meat shortages and the dramatic rise in grocery prices, many consumers have started eyeballing meat alternatives. Suddenly, this niche segment has become a very hot topic. Nevertheless, there are several people who are concerned about consuming food products with too many chemicals. For these folks, they may appreciate what Hain Celestial Group (NASDAQ:HAIN) has to offer.
Indeed, this pandemic and subsequent supply chain disruption is a free marketing opportunity for Hain’s Yves Veggie Cuisine brand. Replicating the taste and texture of meat products, Yves manages this without resorting to artificial colors or flavors. That could help put many first-time customers at ease, thereby potentially boosting HAIN stock.
Additionally, Hain offers many other protein products with an emphasis on healthy ingredients. Because most of the stimulus checks are being spent on food and groceries – no surprise there – HAIN stock should have more upside remaining.
Sprouts Farmers Market (SFM)
From a contrarian perspective, right now may be a good time to consider fast-food eateries as viable food stocks to buy. Given the pent-up demand from millions of people who have forgotten how long they’ve been in quarantine, these entities could enjoy a sales spike.
But it’s equally important to consider possible consumer behavioral shifts over the long run. Undoubtedly, many of us have succumbed to “emotional eating” during the lockdowns. Combined with people flocking to high-shelf life food products – which admittedly carry significant amounts of sodium and various chemicals – this pandemic may worryingly expand our waistlines. Therefore, Sprouts Farmers Market (NASDAQ:SFM) may offer some relevance here.
As you know, Sprouts specializes in natural, organic and gluten-free foods. Therefore, consumers could continue to shop there in higher-than-normal volume as a form of quarantine detoxing. If so, that would obviously benefit SFM stock.
Of course, the one problem is that we’re in an economic crisis, which would see consumers saving every penny. At the same time, a reduction in discretionary spending may translate to shoppers paying an extra premium for quality foods. In that scenario, SFM stock would be a name to watch closely.
Food Stocks: Darden Restaurants (DRI)
Like Denny’s, Darden Restaurants (NYSE:DRI) is among the food stocks that have taken a serious beating. However, on the Mar. 24 session, DRI stock skyrocketed over 31% on anticipation that Washington will pass a $2 trillion stimulus package. Well, that day finally came after much (unnecessary) bickering. Still, that’s not the reason why I’m interested in Darden as a contrarian play.
Instead, I anticipate that Americans will go stir crazy over these shelter-in-place orders. We only need to look at the experiences of many stay-at-home moms who encounter depression. Why? Staying homebound prevents you from interacting with others in the real world. We’re social beings. Therefore, I anticipate DRI stock moving higher as people take advantage of Darden’s contactless service, if only just to get out of the house and enjoy some semblance of normalcy.
Finally, it’s important to note that Wall Street has responded well to the company’s efforts to ease the damage, including deep cuts to executive pay. Plus, it’s encouraging that to-go sales for Darden’s Olive Garden and LongHorn Steakhouse have soared amid the crisis. This suggests that as states open their economies, demand will steadily trickle in.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.