3 Severely Undervalued Packaged-Food Stocks Due to Pop Soon


  • Value investors may wish to check out the consumer-packaged food space after a rough past few years of trading.
  • Mondelez (MDLZ): Higher cocoa prices are a notable pressure point but don’t count the confectionary kingpin out, as it does its best to control costs under its control.
  • Pepsi (PEP): It’s the behemoth in the packaged foods space, but it faces stiff challenges that will weigh on growth.
  • Kellanova (K): The relative public market newcomer has great brands and a tech-savvy strategy that could make all the difference.
Undervalued Packaged-Food Stocks - 3 Severely Undervalued Packaged-Food Stocks Due to Pop Soon

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With stocks running into a bit of a speed bump this week, with the S&P 500 falling below the 5,200 mark again, some tech-heavy investors may wonder if now’s a good time to play some defense. Just because the broader markets are feeling weighed down doesn’t mean there aren’t individual stocks that can shrug off the volatility and find the means to move higher.

The consumer-packaged foods scene holds some overlooked and potentially undervalued stocks that may have what it takes to fare better as red-hot CPI (consumer price index) data puts this year’s expected rate hikes on ice.

Though it’s comforting to know that the Federal Reserve’s next move will probably be a cut, there’s some risk that market participants’ rate cut expectations may be too high. For some overheated areas in the tech sector, fewer cuts may set the stage for tougher sledding for the rest of the year.

The good news is some of the improving consumer-packaged goods plays seem insulated (and cheap) enough to make it through a potential rough patch without getting battered. Let’s check out three affordable consumer staples that may have what it takes to gain, even if the rest of the market is in for some consolidation.

Mondelez (MDLZ)

The Mondelez website magnified by a magnifying glass
Source: Shutterstock

Mondelez (NASDAQ:MDLZ) is a top sweets play that could add a bit of sweetness to your portfolio as the hot start to 2024 begins to cool off, along with the scorching tech sector. After retreating nearly 14% from their early February peak, shares of the $89.7 billion confectionary firm look like they’re headed for a roundtrip right back to the lows of October 2023.

Indeed, there are notable headwinds (soaring cocoa prices and the sweets-curbing effects of Ozempic and Wegovy) to keep on one’s radar. However, many are already baked into the stock right here at $66 and change. Moving ahead, effective cost controls and product innovation are key as the firm looks to maintain demand even as it raises prices by a high single-digit percentage in 2024.

Sure, consumers are fed up with inflation, but either higher prices in response to scorching cocoa prices or margins could take a considerable hit. The good news is Mondelez’s chocolate peers will be feeling the same pinch, so those with chocolate cravings will need to pay up either way.

Going for 18.4 times trailing price-to-earnings (P/E), with a decent 2.51% dividend yield, Mondelez stands out as a neglected consumer-packaged goods play that’s rich, not just with calories but value.

Pepsi (PEP)

Pepsi (PEP) Factory in Samara, Russia. Pepsi logo on a blue warehouse.
Source: FotograFFF / Shutterstock

Pepsi (NASDAQ:PEP) is a heavyweight champ in the consumer-packaged goods space, with its flagship cola and a robust portfolio of salty and savory snacks. Like most other inflation-rattled consumer staple stocks, PEP stock is in a rut, now down 14% from its May 2023 high. With an even sweeter dividend yield of 2.97%, the $232.2 billion behemoth is definitely worth consideration for those looking to play defense in spite of the pressures hitting the industry.

Compared to Mondelez and many other quality packaged-goods plays, you’ll pay a lofty price for admission. Today, the stock trades at 25.8 times trailing P/E. Not a cheap multiple for a company that’s experiencing a drastic stall in sales growth. Last week, PEP stock got slapped with a downgrade from Argus over growth concerns. A number of concerns, like inflation and weight-loss drugs, contributed to the major downgrade.

On the plus side, beverage makers have been investing in automation efforts. Such investments should lead to sustained long-term margin enhancement and give lift to PEP stock over the longer term.

Kellanova (K)

Kellogg's sign on their Canada's head office building in Mississauga
Source: JHVEPhoto / Shutterstock.com

Kellanova (NYSE:K) is the snack-focused arm of Kellogg that stands to do a whole lot better now as it focuses on convenience and great taste following its spin-off from Kellogg. Looking ahead, Kellanova is taking the initiative when it comes to technological innovation.

With investments in the digital supply chain, data analytics, and even machine learning, Kellanova may sound like more of an AI-driven tech company than a maker of tasty cereal bars. In any case, expect its tech priorities will help it drive margins and sales growth, even amid turbulent macro conditions.

At writing, K stock is trading for 25.34 times trailing P/E, slightly less than PEP stock. With a similar dividend yield of 3.92% and the potential to grow from recent tech efforts, I’d have to go with Kellanova over Pepsi for those looking to get a jump on the packaged foods scene.

On the date of publication, Joey Frenette 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.

Joey Frenette is a seasoned investment writer specializing in technology and consumer stocks. Contributing to the Motley Fool Canada, TipRanks, and Barchart, Joey excels in spotting mispriced stocks with long-term growth potential in a fast-paced market.

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