The Organic Trade Association’s annual survey of the U.S. food marketplace showed a record $45.2 billion in sales of organics in 2017, up 6.4% from a year earlier. Conventional food sales eked out a 1.1% gain.
Some companies, including United Natural Foods and Sprouts, are growing rapidly as consumers prefer healthier and tastier foods. Others, among them Campbell Soup and General Mills, have fallen behind as they’ve failed to keep up with the times.
Here are five stocks that are profiting as they tap into the trend of high-quality (and often high profit margin) foods, and five others that are struggling.
5 tasty food stocks to buy
While local farms producing artisanal ingredients are hard to directly tap into via publicly traded companies, it is not impossible to play this broader shift in the food marketplace. The following five companies illustrate the changing shelves of the grocery store, and have shown they know how to evolve with the times.
Herbalife (HLF): Much has been made of Bill Ackman’s failed war against Herbalife Nutrition. But hopefully, it has not been lost on investors that there has been plenty of profit potential for those wise enough to take the other side of the trade. Herbalife’s weight-loss solutions, meal replacements and protein shakes are directly in line with consumer trends right now, and it shows. Herbalife is one of the top performers on Wall Street this year, with more than a 50% gain since Jan. 1.
Pinnacle (PF): On the surface, Pinnacle Foods Inc. seems like the typical processed foods company. Its brands include Bird’s Eye frozen veggies and Duncan Hines baking products. However, a deeper look at the product portfolio shows that Pinnacle has taken great pains to diversify away from its stodgy legacy business and into truly 21st-century tastes. These include Smart Balance and Earth Balance dairy-free spreads, various gluten-free items and a strong focus on sustainability even for its traditional foodstuffs. This has allowed PF stock to avoid the tarnish other companies in the space have suffered, allowing it to keep pace with the market in 2018 as competitors stumble.
United Natural Foods (UNFI): United Natural Foods has been a bit rocky this spring, but is up about 16% in the past 12 months to slightly outperform the broader S&P 500 Index (.SPX). That’s because UNFI has a great business model as one of the biggest organic food distributors in the space. Amazon.com (AMZN) property Whole Foods is its top client, worth about a third of total sales, but United Natural Foods also serves a variety of smaller organic retailers nationwide that provide diversity to revenue — and, more importantly, growth potential. With about 9% in projected revenue growth this year and an impressive 20% increase expected in earnings per share growth, UNFI is exemplary of the opportunity posed by health-conscious consumers.
Sprouts (SFM): While Sprouts Farmers Market has had an interesting year or so after Amazon.com purchased Whole Foods and made overtures about slashing prices to take on SFM and others, this fresh-foods grocer has managed to hang in there. Right now, Sprouts is projecting double-digit revenue growth both this year and next year, as earnings per share (EPS) jump 25% in fiscal 2018 and another 11% in fiscal 2019. While the shares haven’t gone much of anywhere in the past year amid fears of the “Amazon effect,” a forward P/E just north of 15 and impressive growth prospects bode well, as does nearly perpetual buyout chatter for this mid-sized organics merchant.
Boston Beer (SAM): OK, so as much as I would like to say that beer is a health food, it is admittedly apart from these others. However, the same consumer trends reshaping American cupboards — namely, a desire for artisan ingredients and modern flavors instead of the stodgy options of the past — are vividly illustrated in the beer market. The craft beer megatrend can’t be stopped, as old school brewers like Anheuser Bush InBev (BUD) struggle mightily and small-time brewers are ascendant; this trend is vividly illustrated in the Brewer’s Association 2017 tally that showed an overall volume decline of 1% in U.S. beer sales, but a 5% increase for the craft beer segment. Boston Beer and its Sam Adams brands helped create the revolution with a focus on quality and taste, and the company continues to thrive with a roughly 70% increase in shares over the past 12 months.
5 stale food stocks to sell
In contrast to the previous group, the following five stocks have all seen better days — and likely have more pain to come. That’s evidenced by sluggish sales and sliding share prices. Their general dependence on consumer tastes from decades past leaves them a rather unappetizing option in 2018.
Campbell Soup (CPB): When your very brand is tied up with a decades-old recipe for sodium-laden condensed soup, it’s hard to hack it in this era of fresh and healthy eating. So it should be no surprise that Campbell Soup Co. has struggled mightily lately, most recently with a sharp decline after cutting its full-year guidance. Even firing its CEO hasn’t really seemed to cheer up Wall Street — and small wonder, given that shares have declined more than 40% from their 52-week high roughly a year ago. The company is trying to keep up with changing consumer tastes with lines like its “Well Yes!” craft soups, but it’s clearly an uphill climb.
Ingredion (INGR): With a name that sounds like an agribusiness firm from another planet, Ingredion Inc. makes sweeteners, coatings, ingredients and other “biomaterials” used around the world by big-time foodstuff companies. As the initial processor of some of the ingredients that appear in the packaged foods we see at the grocery store, it’s natural that INGR stock has suffered in kind as consumers look to source their own fresh, healthy ingredients. Sales are set to grow by low single digits this year, if Ingredion is lucky, and shares have fallen almost 20% since Jan. 1 as investors have had no appetite for INGR stock.
General Mills (GIS): Foods giant General Mills has a powerhouse portfolio that includes iconic breakfast cereal Cheerios and Yoplait yogurt. However, the brand power of these items can’t overcome the fact that its portfolio is also stuffed with less-than-healthy items that include Fruit by the Foot snacks, Totino’s frozen pizza rolls and Betty Crocker cake mixes. General Mills certainly isn’t going bankrupt, but growth is incredibly challenged as the company stares down flat revenue for fiscal 2018, owing to changing consumer tastes. The stock is down almost 30% since Jan. 1 as a result.
B&G (BGS): You may not recognize processed foods conglomerate B&G Foods Inc., but you likely know its most popular products like Green Giant vegetables, Cream of Wheat hot breakfast cereal or Ortega taco shells. Unfortunately, frozen veggies are out and processed foods are falling by the wayside. Earnings and revenue are set to increase by low single-digit percentages in 2018, and investors find that prospect rather unappetizing; the shares are down about 30% in the past 12 months, and down about 20% since Jan. 1.
Hostess Brands (TWNK): I personally love a Twinkie as an occasional treat. But Hostess Brands Inc. is in deep trouble if it depends on consumers like me giving in to a guilty pleasure a few times a year. Remember, Hostess shut down in 2012 in part because of the very real pressures posted by its legacy product line in an age of healthier eating. Much was made of the fact that private-equity giant Apollo had resurrected Twinkie the Kid & Co. thanks to union-busting and automation at Hostess facilities, but cutting costs isn’t a path to growth — just short-term success that could lead Apollo to a profitable exit. Now that Wall Street is holding the bag, TWNK looks moldy as its shares are off 20% so far in 2018 about two years after re-entering the market as a publicly traded stock.
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