It may be time to eat, drink and buy the dip in food and beverage stocks. Shares of Coca-Cola (NYSE:KO), Pepsi (NASDAQ:PEP) and several other sugary drink and snack companies have been pummeled lately due to concerns that the rising popularity of injectable weight loss drugs like Novo Nordisk’s (NYSE:NVO) Ozempic and Wegovy and Eli Lilly’s (NYSE:LLY) Mounjaro is leading to a reduced appetite for guilty culinary pleasures.
Consumer staples stocks have already had a tough year, partly due to worries about inflation eating into profits as well as the fact that more exciting sectors like tech have thrived due to more dynamic growth prospects. But recent comments from a top executive at retail giant Walmart about the impact of obesity drugs on food sales certainly didn’t help matters.
John Furner, the president and chief executive officer of Walmart’s (NYSE:WMT) U.S. businesses, said in a Bloomberg interview earlier this month that there has been a “slight pullback” in food sales. People are buying “less units” with “slightly less calories,” he added.
Ozempic Fears Are Losing ‘Weight’ on Wall Street
That rattled investors in food and beverage stocks. Pepsi and Coke each slid about 5% following the report. But this gut punch may have been an overreaction. For one, note that Furner said the hit to sales was “slight.” He didn’t imply that Ozempic is causing a fundamental change in consumption habits.
What’s more, Pepsi just reported strong earnings and sales and a healthy outlook…and the company didn’t express any worries about weight loss drugs hurting demand.
Pepsi CEO Ramon Laguarta said on the Oct. 10 earnings call that “so far, the impact is negligible” for its business. Laguarta added that Pepsi is actually benefiting from more people snacking and having mini meals. He also said Pepsi will continue to look at reducing fat, sugar and sodium levels in its products as well as cutting portion sizes.
That means that Pepsi, as well as soft drink rivals Coke and Keurig Dr Pepper (NASDAQ:KDP) might be good values now. The three have all been left behind in this year’s rally. Pepsi is down 10% in 2023 while Coke and Keurig have each tumbled more than 15%.
Pepsi shares trade for about 20 times 2024 earnings estimates and profits are expected to grow at about an 8.5% clip annually for the next few years. The company also pays a dividend that yields about 3%. Coke trades at a slight discount to Pepsi (at 19 times next year’s earnings forecasts) even though it has a higher dividend yield (3.5%). KO also remains a steadfast holding of Berkshire Hathaway (Warren Buffett loves his Cherry Cokes). KDP is even cheaper. It trades for only 15 times 2024 earnings estimates, and it also pays a dividend that yields more than 3%.
But the cola companies aren’t the only ones that have been dragged down by Ozempic fears. Oreo maker Mondelez (NASDAQ:MDLZ), Hershey (NYSE:HSY), Campbell Soup (NYSE:CPB) and Kellanova (NYSE:K), the recent snack spinoff of cereal giant Kellogg (NYSE:KLG), have all recently fallen near their 52-week lows.
How to Play Food and Beverage Stocks Now
The First Trust Nasdaq Food & Beverage ETF (NASDAQ:FTXG), which owns many of these stocks, is down 18% year to date. Investors can also take a bite out of other top food and drink ETFs, such as the Consumer Staples Select Sector SPDR Fund (NYSEARCA:XLP), Vanguard Consumer Staples Index Fund (NYSEARCA:VDC) and iShares US Consumer Staples ETF (NYSEARCA:IYK.)
If the economy begins to slow in 2024 as a result of the Federal Reserve’s interest rate hikes this year, top consumer staples stocks and ETFs could wind up being a tasty morsel for a risk-averse investor’s portfolio. There’s also the possibility that more consolidation could be on the menu in the industry. This could further lift stock prices. Along those lines, PB&J giant Smucker (NYSE:SJM) recently announced plans to buy Twinkies maker Hostess Brands (NASDAQ:TWNK) for $5.6 billion. Hostess shares surged a delicious 19% on the news.
As of this writing, Paul R. La Monica did not hold (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.
