Cook-at-Home Stocks Could Reward Patient Investors

Cook-at-home plays are cooling off after a pandemic-driven buying spike lifted many of these issues to 52-week highs, but American cooking habits may have changed permanently, especially among millennials who grew up on fast food diets rather than learning the intricacies of baking, broiling, or frying. As a result, the current pullback could offer a low-risk buying opportunity and solid dividend income at a time when profit margins are getting squeezed to the bone.

A recent consumer survey by investment bank Piper Sander suggests a "15% - 20% sustainable lift for food cooked at home." More than 70% of respondents said they'll continue to cook at home more often after the pandemic runs its course, with that group expecting to consume an average of four or more meals per week at home. More importantly, in the short run, 53% advised that they are "unlikely or unsure" if they'll return to restaurants once they've all reopened.

The high likelihood of a second infection wave in the fall and winter should keep a trading floor under these issues as well, regardless of long-term paradigm shifts, with less than four months before temperatures start to drop in the Northern Hemisphere. In turn, cautious investors may wish to keep a watch list of the most beneficial plays, with an eye on forward dividend yields, which have dropped due to the bounce and soaring bond markets.

Campbell Soup Company (CPB) shares posted a new high at $62.88 in 1998 and entered a persistent decline that found support in the upper teens in 2002. The stock retraced about half those losses into the 2007 top at $42.65 and posted a higher long-term low during the 2008 economic collapse. The subsequent uptrend completed a 100% retracement into the last century's peak in 2016, yielding a breakout that failed seven months later, generating a steep decline into January 2019's six-year low.

The subsequent uptick reversed after spiking above the .618 Fibonacci sell-off retracement level in March, with the stock now sitting on top of the 50-month exponential moving average (EMA) in the mid-$40s. The monthly stochastic oscillator is trying to cross into a buy cycle at the same time, but big movement in either direction isn't likely until the June 3 earnings report. The stock currently pays a 2.97% forward dividend yield.

General Mills, Inc. (GIS) stock posted a three-year low at $10.31 in 1994 and turned higher in an uptrend that eased quickly into a rising channel, while violations of channel support in 2000 and 2009 attracted strong buying interest that reinstated this persistent pattern. A 2016 channel breakout failed as well, triggering a downtrend that broke support decisively in 2017, ahead of a downdraft that ended at a six-year low in the $30s in December 2018.

The 2020 bounce reversed at the .786 Fibonacci sell-off retracement level about two weeks ago, with the pullback now extending about five points. Even so, the monthly stochastic oscillator is engaged in a strong buying cycle, indicating that bulls remain in charge of long-term price action. Like Campbell's, the 50-month EMA looks like a trading floor for General Mills stock, ahead of an assault on resistance in the mid-$60s. General Mills currently pays a 3.27% dividend and will report earnings on June 24.

B&G Foods, Inc. (BGS) came public at $13.50 in May 2007, entering an immediate downtrend that posted an all-time low at $2.54 in October 2008. The subsequent recovery wave completed a round trip into the IPO opening print in 2011, generating a breakout that posted solid returns into July 2016's all-time high at $52.84. A pullback accelerated in 2017, breaking support in the mid-$30s and mid-$20s before bottoming out near the 2011 breakout level on March 12.

The uptick into May featured a breakout above the three-year trendline of lower highs (black line), improving the bearish technical outlook, but the rally has failed to clear broken support at the 2018 low (red line). It is also trading below the 50-month EMA at $26, raising doubts about the rally's durability. As a result, investors should wait for a buying spike above the moving average before considering a long-side entry. The stock currently pays a hefty 8.50% dividend.

The Bottom Line

Cook-at-home plays are pulling back after strong bounces, but these stocks could offer substantial upside in coming months.

Disclosure: At the time of publication, the author held Campbell Soup shares in a family account but no positions in the other stocks mentioned.