3 Food Stocks to Hedge Against a Market Downturn
Upon easing inflation, grocery retailers and food manufacturers expect moderate growth in 2023. Lower costs will undoubtedly boost consumer shopping and food consumption is essential in any economic environment.
This makes many food-related stocks attractive as markets have begun to lose steam over the last few weeks. Food-related stocks can generally be defensive against a market correction especially when it’s associated with a broader economic downturn.
To that point, with the 10-year yield rising over 4% and currently at its highest level since 2007 many investors are on edge. Peaks in the 10-year yield can correlate or be a prelude to further market volatility as many companies could face tougher borrowing costs which stalls growth.
With that being said, here are three food-related stocks that could weather this storm if it comes and are shaping out to be sound investments.
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Grocery Outlet GO
Since going public in 2019, Grocery Outlet's stock has become more and more intriguing. The company is a value retailer of quality name-brand consumables and fresh products sold through a network of independently owned and operated stores.
Grocery Outlet's stock is up a respectable +14% this year with a strengthening outlook following impressive Q2 results last Tuesday. Second-quarter earnings of $0.32 per share beat EPS estimates of $0.26 a share by 23% and rose 10% from a year ago. Sales of $1.01 billion topped estimates by 3% and jumped 12% from Q2 2022.
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More importantly, annual earnings estimates have trended higher over the last 30 days. Annual earnings are now expected to be up 3% in fiscal 2023 and leap another 12% in FY24 to $1.18 per share. This is also accompanied by steady top-line growth with sales forecasted to rise 10% this year and jump another 9% in FY24 to $4.33 billion.
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Post Holdings POST
Post Holdings stock may be able to offer defensive safety against an economic downturn with the company’s bottom line expected to rebound and surpass pre-pandemic levels this year.
With a niche as a provider of refrigerated nutrition products, one of the highlights of Post Holdings’ fiscal third-quarter results in early August was the company raising its FY23 EBITDA range from $1.09 to $1.13 billion to $1.18-$1.2 billion. Analysts are high on Post Holdings stock at the moment with Goldman Sachs notably raising their price target.
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While Post Holdings stock is down -3% YTD the company has started to reconfirm its anticipated rebound with Q3 earnings of $1.52 per share largely surpassing estimates of $0.89 a share. This crushed earnings expectations by 71% and skyrocketed 120% YoY. Sales of $1.85 billion beat estimates by 2% and soared 22% from the prior-year quarter.
More impressive, FY23 earnings estimates have soared 18% over the last month. Post Holdings’ annual earnings are now expected to soar 184% this year to $4.78 per share compared to EPS of $1.68 in 2022. Plus, FY24 earnings are forecasted to rise another 6% and projections of $5.06 per share would nicely eclipse pre-pandemic earnings of $4.91 a share in 2019.
Total sales are anticipated to rise 13% this year and climb another 13% in FY24 to $7.89 billion. Fiscal 2024 sales projections would be 39% above 2019 pre-pandemic levels of $5.68 billion.
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J&J Snack Foods JJSF
Offering frozen beverages and snack foods to the retail supermarket industries, J&J Snack Foods’ outlook continues to strengthen as well.
J&J blasted its fiscal third-quarter earnings expectations in late July by 27%, and for better transparency, we will fast forward to the trend of earnings estimate revisions afterward.
To that point, J&J’s fiscal 2023 earnings estimates have soared 16% since its Q3 report. Better still, FY24 EPS estimates have risen 6%. J&J’s annual earnings are now forecasted to soar 62% this year at $4.48 per share compared to $2.76 a share in 2022. Fiscal 2024 EPS is expected to expand another 26% to $5.63 per share.
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On the top line, sales are projected to jump 11% this year and rise another 3% in FY24 to $1.59 billion. J&J stock is up a modest +9% this year but the company’s intriguing growth trajectory indicates there could be plenty of upside.
Additionally, J&J offers a generous dividend with a 1.68% yield in an industry where many companies don’t offer a payout. This also tops the S&P 500’s 1.45% average and J&J’s annualized dividend growth over the last five years is a respectable 8.93%.
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Bottom Line
The top and bottom line growth of these food companies is attractive. Furthermore, the trend of rising earnings estimate revisions is very compelling landing Grocery Outlet, Post Holdings, and J&J Snack Foods’ stocks a Zacks Rank #1 (Strong Buy).
With rising earnings estimates being one of the strongest catalysts in the upward price movement of a stock this is a great sign as markets have lost steam. Plus, these food-related stocks could be a defensive hedge against a market downturn associated with broader economic fears as food consumption is always essential.
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J & J Snack Foods Corp. (JJSF) : Free Stock Analysis Report
Post Holdings, Inc. (POST) : Free Stock Analysis Report
Grocery Outlet Holding Corp. (GO) : Free Stock Analysis Report
