Food stocks have shown remarkable growth and innovation in recent years, especially in the segments of natural and organic food, snacking and convenience food, and online grocery delivery.
The food industry is one of the most essential and resilient sectors of the economy. It encompasses a wide range of businesses that produce, process, distribute, and sell food and beverages to consumers. Various factors, such as consumer preferences, health trends, environmental issues, regulations, and supply chain disruptions, influence food companies.
For investors looking for food stocks that could return to form in the medium or long term, they may want to consider these three companies that have decent fundamentals, attractive growth prospects and favorable industry trends.
Cal-Maine Foods (CALM)
Despite an avian flu outbreak killing chickens across America and increasing the price of eggs at the cash register, eggs remain a staple food for many households.
Cal-Maine Foods (NASDAQ:CALM) is the largest producer of eggs in the U.S., selling its products under well-known brands like Land O’Lakes and Egg-Lands Best.
Eggs are a staple food for many Americans, and their prices had more than doubled in January 2023. However, this did not deter consumers from buying them, and Cal-Maine Foods has benefited from the increased demand and pricing power.
From Q3 2022 to Q1 2023, Cal-Maine’s quarterly revenues increased year-over-year by triple-digit figures. Q2 2023 earnings were more sluggish on falling eggs prices but still came in the double digits at more than 16%.
Due to lower egg prices, Cal-Maine’s shares experienced a sell-off and are trading down nearly 14.5%.
The company’s forward price-to-earnings (P/E) ratio is 15.7x, which is higher than it was in previous but is explained by lower revenue growth figures and a recent downgrade.
However, shares in the egg producer could serve as an interesting value play for patient investors. The company offers a valuable product to Americans and has a high dividend yield of 11%.
Sprouts Farmers Market (SFM)
Considering on where consumer preferences are heading, investors may get ahead through buying shares of viable, growing organic foods businesses.
Sprouts Farmers Market (NASDAQ:SFM) is a supermarket chain that offers just that. The supermarket chain’s wide selection of natural and organic food and products are sold in its more than 391 stores in 23 states. Sprouts also has an online platform that delivers to directly to customers’ homes.
Sprouts Farmers Market caters particularly to the changing preferences of consumers who are looking for healthy, organic and sustainable products.
By doing this, the organic grocer has amassed a loyal customer base that is less sensitive to economic downturns or price fluctuations, making the stock possibly a good hedge against slowing economic activity.
Year-to-date, the company has been able to grow revenue in the high single digits in both the first and second quarters while maintaining solid gross margins. Sprout Farmers Market’s forward P/E ratio is trading at around 13.7x forward earnings. Similarly, the organic grocer’s is trading at about 10.0x forward EBITDA.
SFM shares are up more than 17%, slightly beating the S&P500. For investors interested in the space, Sprouts Farmers Market is well positioned to grow its market share and profitability in the fast-growing natural and organic food segment.
Performance Food Group (PFGC)
The food distribution sector is competitive and dynamic, and Performance Food Group (NYSE:PFGC) could be a decent value investment in the sector.
The food distributor is a food service, snacking and pre-packaged convenience food distribution behemoth. The company with an expansive product portfolio serves over 125,000 customers across various segments, including restaurants, schools, hospitals, hotels, vending machines, and convenience stores.
Performance Food Group last-twelve-month revenues are up more than 24% driven by elevated selling prices and volume. However, this figure is below where top-line growth was in 2022.
Recently, shares of the business have begun to severely underperform the S&P500, and this is largely a result of the aforementioned growth metrics coupled with how the macroenvironment environment has dampened demand for goods and services.
Despite macro headwinds, shares are not the cheapest out there. PFG’s LTM P/E ratio is 27.7x trailing earnings. If we consider potential future growth through forward-looking multiples, the stock is only valued at 14.2x forward earnings.
Over the past few years, the company also announced several strategic acquisitions that will expand its services and product portfolio, customer base, and geographic reach. Investors looking for a food distribution company with broad reach and robust financial performance should give Performance Food Group a look.
On the date of publication, Tyrik Torres 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.
