4 cheap food stocks with big earnings growth

  • By Teresa Rivas,
  • Barron's
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Many food producers did well during the pandemic, as consumers broadly shunned restaurants and ate at home more often. That, however, means the group will find it challenging to beat last year’s growth as concerns about Covid-19 fade.

Nonetheless, there are still plenty of reasons to like consumer staples stocks. They have outperformed during the recent market rout triggered by Russia’s invasion of Ukraine, as investors sought safer assets. And although people have returned to restaurants, the increased popularity of hybrid schedules means more people are still spending more time working—and eating—at home than they did prepandemic.

The key for investors may be finding the producers whose growth will stand out this year, while not paying a premium for it.

Average analyst estimates call for most consumer staples companies to notch more modest earnings-per-share percentage growth in 2022, in the single-digits year over year. That makes sense: The pandemic boost is fading, food prices have risen, and consumers don’t have stimulus checks to spend at the grocery store this year, as they did in 2021.

Yet there are still some companies that may see stronger growth this year. Barron’s screened for food producers with a market capitalization of at least $1 billion, whose consensus estimates imply double-digit percentage growth for per-share earnings in 2022 from the year before. We then excluded the companies with less than a 20% expected increase, and the stocks trading at more than 35 times forward earnings. That left us with four names.

Egg producer Cal-Maine Foods (CALM) is first on the list, with the biggest expected growth, but smallest dividend. Analysts expect full-year earnings to climb to $2.79 a share in 2022, according to FactSet data, up more than 56% from last year. Its stock trades at 20 times forward earnings, and has a very small 0.1% yield.

Lamb Weston (LW), one of the largest makers of frozen french fries and other potato products, will see 2022 earnings climb more than 48%, to $2.85 a share, analysts say. Its stock trades at just under 25 times forward earnings, with a 1.1% yield.

Poultry producer Sanderson Farms (SAFM) is the cheapest name on the list, with its shares changing hands for about 8 times forward earnings. Analysts, however, predicting that full-year earnings will rise nearly 37% in 2022, to $27.95. It sports a 0.9% yield.

Snack maker J&J Snack Foods (JJSF), which sells products under brand names like Superpretzel soft pretzels and Icee, is the priciest stock on the list, trading at 34 times forward earnings. Consensus calls for earnings to jump almost 37% to $3.98 a share this year. The stock carries a 1.6% yield.

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