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Why more investors are fearful of food stocks

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After being the can’t miss stocks of 2020 at the onset of the COVID-19 pandemic as consumers flocked to supermarkets to stock up on everything from peanut butter to frozen food, big food has found a far less receptive Wall Street in recent months amid fears of a growth slowdown. Yahoo Finance’s Brian Sozzi weighs in.

Video Transcript

- We've been watching a lot of the food companies as of late, many of which have done well this year because people are stuck at home, they're buying a lot of packaged food, benefiting the food companies. But now there are a few chinks in the armor, so to speak.

Last week you talked about Coca-Cola, Brian Sozzi, and now you're looking kind of bigger at the food picture and how these stocks are going to do this year.

BRIAN SOZZI: Yeah, Julie. Your favorite consumer undertaker is back in action this Monday. And I was looking at the stock prices of what I would characterize as big food over the past three months, and some of the worst laggards or worst performing stocks are ConAgra Brands. You know, we'll speak to CO Sean Connolly very shortly. They've been doing quite well. But that stock's down about 8.7% over the past three months.

Hormel, they make Spam, obviously. That stock's down about 7%. General Mills down 6 and 1/2% the past three months.

And you talk to a lot of folks on the street, guys, and there is this fear building that the second half of this year, big food will see sharp slowdowns in sales and profit margins, the thinking being as more people get vaccinated, they go back out into the wild-- in this case, the wild means going back out to restaurants and eating-- and maybe they buy fewer bags of frozen food. Maybe they buy less bags of baking mix. Maybe they buy less cans of Spam. I know I bought Spam during the pandemic.

Whatever the case is, that is the fear on Wall Street, and that's why you're seeing these stocks sell off into this potentially happening.

Now, worth mentioning, none of this has happened so far. I just mentioned ConAgra. ConAgra came out last week and blew the doors off with its earnings. Sales up over 8%, double-digit improvement in operating profits, good quarter. Late December, General Mills. They had a strong sales gain. 13% improvement in earnings.

So so far, there's this dichotomy or shift in fortunes here. The stock prices are telling you one thing. As we all know, a lot of pundits come on here and say stock prices are forward-looking mechanisms. They're sniffing out potential sales and profits slowdown in the back half for big food. But at least today, it was also pretty, strong guys.

- You know, Sozzi, I'm curious your view on this, because it sounds like it's the other side of the, you know, tech change pulls all the inevitable forward, whereas, like, the food industry, if we go back to 2017, 2018, all it was was-- you know, Spam, great example. In decline. People that want to eat that stuff anymore. People don't want processed foods. People don't like the old traditional brands. All these companies had to innovate.

It sounds almost like the pandemic may have given them like a respite from that pressure, but now it seems that that's coming back, right? Like, the pressure is back on the names we have on the screen here, Brian, to figure out what the future of their brand looks like, because it's certainly not going to be, you know, all the stuff that we're stocking up on during the pandemic kind of in a pinch.

BRIAN SOZZI: Yeah. Very interested to talk to Sean Connolly again, Miles, because he has brought up a couple good points. One, millennials are home a lot, cooking more, and actually, like, enjoying doing it.

And then two, household formation continues to improve, or has continued to improve, I think, during the pandemic. That means more food sales. I do subscribe to the notion that I don't think we'll be immediately going back into the wild and eating out five times a week.

And then secondarily, a lot of this food just tastes better. These big food companies have invested a lot over the past years to make their bags look better. The frozen food just tastes really good. I mean, I have a whole freezer of-- and I'm actually looking forward to having it for dinner tonight.

- I don't know that there's been much change in Spam, though, in the last five decades or however--

BRIAN SOZZI: It's already good. It was born good.

- Yeah, I don't know if there needed to be. I don't know if they need to be.

BRIAN SOZZI: Sorry, Julie. Just got to push back.

- I'll cop to-- I'm never sure I've ever actually eaten Spam. So I'll cop to that. All right. We're going to take--