The food industry has been in troubled waters of late. The industry has been grappling with challenges like stiff competition, tight margins and aggressive promotional environment. Moreover, customers are also becoming more inclined toward private label products as they are low-cost alternatives to national brands, which are hurting the food companies.
With e-commerce major Amazon.com, Inc. AMZN acquiring the natural and organic foods supermarket chain Whole Foods Market investors became skeptical. The traditional food companies feared losing customers and had to face pricing pressure amid tight margins, as Amazon is expected to keep grocery prices low. Amazon’s deal has changed the retail landscape and has intensified competition both in stores and online.
If we look into the industry’s performance, we note that it has lost around 10% year to date. On the other hand, the S&P 500 generated a return of 14% over the said time frame.
Industry giants like General Mills, Inc. and Campbell Soup Company have also disappointed investors in their recently reported quarterly results. While General Mills missed both top and bottom-line expectations in first-quarter fiscal 2018, primarily hurt due to the shift in consumer preference toward natural and organic food and lower sales of yogurts and cereals in North America, Campbell’s top and bottom-line results have lagged the Zacks Consensus Estimate as the company faces intense global competition for nearly all key products.
Consequently, excessive pressure from competitors is likely to cause Campbell to incur greater marketing and other costs or reduce prices, all of these are likely to hurt the company's overall performance.
Nevertheless, not all food majors are underperforming. Companies such as Pinnacle Foods, Inc., The J.M. Smucker Co. have resorted to cost cuts and are focusing on innovation to boost sales. Sysco Corp. and United Natural Foods, Inc. are banking on acquisitions to drive growth.
McCormick & Company, Inc. MKC has been gaining momentum of late driven by its efforts to boost its portfolio. Though rising material costs, sluggish sales in the U.K. and higher brand marketing expenses have raised concerns for sustaining the company’s performance, its acquisitions, cost savings and innovation initiatives bode well. The Zacks Rank #1 (Strong Buy) company also posted upbeat third-quarter fiscal 2017 results recently and raised its fiscal outlook. You can see the complete list of today’s Zacks #1 Rank stocks here.
5 Stocks Worth Adding to Your Portfolio
Though the food industry has underperformed the broader market year to date, we have shortlisted five food stocks that flaunt a solid Zacks Rank #1 or 2 (Buy). Their shares have rallied more than 20% year to date and have outperformed the S&P 500’s gain.
The Ridgefield, CT-based The Chefs' Warehouse, Inc. CHEF, which is a distributor of specialty food products in the United States and Canada, is one such stock which is on the roll owing to strong growth prospects. The Zacks Rank #2 stock has performed impressively, with its shares moving up 24.4% on a year-to-date basis. The company also carries a VGM Score of B. The company posted an average positive earnings surprise of 0.08% in the trailing four quarters and has a long-term earnings growth rate of 19.0%.
Texas-based Darling Ingredients, Inc. DAR, which is a provider of rendering, cooking oil and bakery waste recycling and recovery solutions, is also an attractive stock. It carries a Zacks Rank #2 along with a VGM Score of A. Coming to the share price movement, the stock has rallied 29.5% year to date compared with the S&P 500 return.
Investors can also count on Eagle, Idaho-based Lamb Weston Holdings, Inc. LW, which is a supplier of frozen potato, sweet potato, appetizer and vegetable products to restaurants and retailers. The stock carries a Zacks Rank #2 and has posted positive earnings surprises in the past four quarters, the average being 11%. It has a long-term earnings growth rate of 6.3%. The company has strong fundamentals that are reflected in the stock’s price movement, which surged 30.4% in comparison to the market on a year-to-date basis.
U.K.-based Nomad Foods Ltd. NOMD, a manufacturer and distributor of frozen foods, can also be a viable bet. It presently flaunts a Zacks Rank #1 and has delivered an average earnings surprise of 8.7%. Coming to the share price movement, Nomad Foods has rallied 56.6% on a year-to-date basis.
We recommend investing in SunOpta Inc. STKL, which focuses on integrated business models in the natural and organic food, supplements and health and beauty markets. SunOpta presently carries a Zacks Rank #2 and its shares have moved up 31.2% on a year-to-date basis, beating the S&P 500’s gain.
The above-mentioned stocks are in the limelight due to impressive year-to-date returns despite the odds in the industry. We believe that they are great picks from the food industry.
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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
SunOpta, Inc. (STKL) : Free Stock Analysis Report
McCormick & Company, Incorporated (MKC) : Free Stock Analysis Report
The Chefs' Warehouse, Inc. (CHEF) : Free Stock Analysis Report
Lamb Weston Holdings Inc. (LW) : Free Stock Analysis Report
Darling Ingredients Inc. (DAR) : Free Stock Analysis Report
Nomad Foods Limited (NOMD) : Free Stock Analysis Report
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