Recently, Starbucks (NASDAQ:SBUX) announced that it will be adding plant-based items to its Asian menu. The objective is to target more environment conscious diners. As the Harvard Gazette points out, roughly 18% of greenhouse gas emission comes from raising livestock.
This indeed is a strong reason to move towards a vegan diet. Global management consulting firm AT Kearney believes that by fiscal year 2040, 60% of meat products will be cultured or plant-based. The gradual shift to plant-based food is already evident. Total plant-based market in the U.S. has increased from $3.9 billion in FY2017 to $5 billion last year.
Environment conscious diners are not the only reason for expecting that strong growth will sustain. Researchers at Stanford Medicine have published a new study, indicating that “plant-based meat alternatives can lower some cardiovascular risk factors.”
In other recent news, China banned export of pork from Germany due to concerns on a swine fever outbreak. It’s also being speculated that just before the novel coronavirus pandemic, China already faced a swine epidemic. Contagious viral diseases are another reason that can trigger strong growth for plant-based food.
With these catalysts, vegan stocks are likely to remain in focus in the coming years. Therefore, it makes sense to have one or more of the following vegan stocks in your portfolio:
- Beyond Meat (NASDAQ:BYND)
- Conagra Brands (NYSE:CAG)
- Tyson Foods (NYSE:TSN)
- Forum Merger II (NASDAQ:FMCI)
Vegan Stocks for Health-Conscious Investors: Beyond Meat (BYND)
There might be a view that BYND stock is trading at stretched valuations. I do agree that some correction is likely after a 156% rally in the last six months. However, the company’s earnings are likely to grow by 275% for the current year and by 655% for FY2021. This is reason enough to consider BYND stock among the top vegan stocks.
One reason to believe that this growth will continue is the pace of distribution growth and product awareness. At the time of the initial public offering, the company’s products were available in 31,000 outlets worldwide. This has expanded to 112,000 outlets by June 2020.
The company’s customers and distributors include the likes of Walmart (NYSE:WMT), Costco (NASDAQ:COST) and Target (NYSE:TGT), among others. These big retailers will provide strong visibility and ensure that growth sustains.
I also like the fact that the company has been spending aggressively on research and development. For the most recent year, the company’s R&D as a percent of revenue was 6.9%. These investments are producing results in the form of new product launches and existing product improvement.
Overall, Beyond Meat has spread its wings globally and this provides the company with ample scope for growth. As visibility of plant-based food increases, BYND stock is likely to trend higher backed by strong earnings growth.
Conagra Brands (CAG)
Conagra Brands is also betting big on the plant-based food market opportunity. The company believes that in the next seven to ten years, the market size of plant-based food is $30 billion in the U.S. The company also believes that “40% of Americans … are attempting to incorporate more plant-based options into their diets.” If this holds true, there is immense scope for growth.
Furthermore, there are global opportunities to be tapped.
I also like CAG stock from a valuation perspective. The stock currently trades at a forward price-to-earnings-ratio of 14.7x. This is attractive for a company with a dividend yield of 2.43% coupled with an exciting growth opportunity.
In July 2020, the company launched a variety of plant-based meal and snack options. This includes meatless lasagna and plant-based soups, among others. An important point to note is that the company’s products are non-GMO. This is likely to attract health-conscious diners.
Like Beyond Meat, the company’s product offering is available in Kroger (NYSE:KR), Target, Walmart Grocery and Safeway. With brand visibility coupled with a diversified product offering, the company’s plant-based food business looks promising to trigger growth.
Tyson Foods (TSN)
In the past year, TSN stock has been an under-performer with a decline of 31.5%. However, the stock has been relatively sideways in the last few months and I believe that it’s a good time to accumulate. The stock is trading at an attractive forward P/E of 12.01x and offers a dividend yield of 2.8%.
It’s worth noting that Tyson Foods was one of the investors in Beyond Meat. However, prior to the IPO, the company sold its 6.5% stake in the plant-based meat maker. Subsequently, the company unveiled its own plant-based nuggets in June 2019. The company’s CEO Noel White opines that alternative protein is “experiencing double-digit growth and could someday be a billion-dollar business for our company.”
The bullish view is backed by a strong intention to aggressively expand the plant-based food business. In September 2019, the Tyson Foods invested in a plant-based shrimp company. Through Tyson Ventures, the company is also investing in other “interesting new start-ups.”
From a growth perspective, Tyson Foods is also eying an aggressive expansion in Europe. The company is bullish on growth from plant-based and convenient snacking in the region. Overall, Tyson Foods seems to be making the right moves. At current valuations, the stock is worth considering.
Forum Merger II Corporation (FMCI)
Special purpose acquisition companies (SPACs) have been in focus in the recent past and that makes FMCI stock interesting. In June 2020, Forum Merger II announced the acquisition of Ittella International, which is a plant-based food company. The products are marketed under the Tattooed Chef brand.
Tattooed Chef delivered sales of $47.9 million in FY2018 and the company is projecting sales to increase to $222 million by the next financial year. This would imply a compounded annual growth rate of 66.7% over the period. In the long-term, the company is targeting net sales and adjusted EBITDA growth of more than 20%.
Clearly, robust growth makes FMCI stock an attractive investment opportunity. In the last six months, FMCI stock has surged by 165%. Therefore, I would wait for some correction before exposure to the SPAC.
Tattooed Chef has been aggressively launching new products that are being sold in the company’s brand name and as a private label. With focus on innovative plant-based products, I expect top-line growth to sustain. To back my view, the company started with 6 SKUs in FY2017. By next year, the company expects 59 SKUs.
This creates a promising opportunity for investors looking at vegan stocks to buy. FMIC stock offers exposure to an early growth stage company. And as business growth sustains, FMCI stock can be a top value creator among vegan stocks.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector. As of this writing, Faisal Humayun did not hold a position in any of the aforementioned securities.