Food and beverage stocks have lost their luster in 2020 despite a strong rally into the second quarter underpinned by consumers loading up on staples and household goods during the pandemic shutdowns. Many issues are posting negative annual returns despite the strongest revenue growth in years, with investors ignoring defense and high dividend yields in favor of post-COVID recovery plays and shiny new initial public offerings.
- Food and beverage stocks have fallen out of favor in 2020.
- Meat products have taken the biggest hit due to high infection rates at meatpacking plants.
- Fitness and energy drinks have bucked the downward tide, posting strong returns.
The Coca-Cola Company (KO), Dow component and the beverage sectors household name, has lost 4% so far in 2020. Market leader and rival PepsiCo, Inc. (PEP) has fared a little better, posting a 6% return, but compare that performance to 2019 when the food conglomerate booked a healthy 24% return. Even beer and booze can't get a break in 2020, with Ambev S.A. (ABEV) dropping a painful 35% year to date while rival Anheuser-Busch InBev SA/NV (BUD) has lost 14%.
General Mills, Inc. (GIS) has bucked the downward tide in the packaged foods segment, posting a 10% return, which is much better than Kellogg Company's (K) 9% loss. Campbell Soup Company (CPB) is telling the same sad tale, selling off this week despite guiding for a healthy 5% to 7% revenue increase in the fourth quarter. That stock has lost about 4% year to date, in sharp contrast with 2019's impressive 50% return.
The meat products segment has suffered through a terrible year as well, with the pandemic taking a huge toll on the industry's essential line workers. Management's initial refusal to deal with the growing crisis in the first quarter cost lives and broke supply chains, adding to industry woes. It's hard to gauge the extent of the damage to stock prices, but one set of sector groupings points to an average 16% loss to date.
Tyson Foods, Inc. (TSN) has fared even worse, booking a 24% loss. This household name led the food and beverage sector for many years, posting an all-time high at $94.24 at the start of 2020. It fell a stomach-churning 55% during the pandemic decline and has struggled since that time, recouping about half of those losses. A higher dividend yield may be needed to attract investors in 2021, with the current 2.56% yield not enough to overcome the staggering downside.
The dividend yield, expressed as a percentage, is a financial ratio (dividend/price) that shows how much a company pays out in dividends each year relative to its stock price.
Food and Beverage Standouts
Of course, there have been notable exceptions to this year's food and beverage slump. For example, The Boston Beer Company, Inc. (SAM) is on a roll, posting an extraordinary 250% return to date. It's ironic, but beer has little to do with the upside because the stock is benefiting from rapidly growing demand for hard seltzer, which is capitalizing on the unique alcoholic tastes of the millennial generation. "Hard" tea and lemonade have also added to gains of this unlikely momentum play.
Fitness and energy drinks are also having a great year, as evidenced by Celsius Holdings, Inc. (CELH) and its phenomenal 750% annual return to date. The Florida-based company makes, markets, and distributes "functional calorie-burning" fitness beverages in exotic flavors that include kiwi-guava, cucumber line, and watermelon berry. The stock underperformed for three years before taking off like a rocket in 2020 and posted another all-time high this week.
Momentum is the rate of acceleration of a security's price or volume – that is, the speed at which the price is changing. Simply put, it refers to the rate of change on price movements for a particular asset and is usually defined as a rate. In technical analysis, momentum is considered an oscillator and is used to help identify trends.
The Bottom Line
Food and beverage stocks are wrapping up a terrible year, with the majority of well-known names posting annual losses.
Disclosure: At the time of publication, the author held Campbell Soup and Kellogg in a family account but no positions in the other securities mentioned.