Top Food Stocks

The food industry is composed of companies that focus primarily on offering food and nonalcoholic beverage products. It includes grocery stores, food distribution companies, and other companies offering consumer staples that consumers either eat or drink. It does not include restaurant businesses, many of which are considered cyclical because consumers tend to dine out less during economic slumps. Companies in the food industry include The Kroger Co., Darling Ingredients Inc., and B&G Foods Inc.

The food sector, as represented by the S&P 1500 Food Products Industry Index, has significantly outperformed the broader market, with a one-year trailing total return of 11.6% compared with -12.5% for the Russell 1000 Index, as of Sept. 19, 2022.

Here are the top three food stocks with the best value, the fastest growth, and the most momentum. All numbers in the tables below are as of Sept. 19, 2022.

Best Value Food Stocks

These are the food stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows that you’re paying less for each dollar of profit generated.

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• Ingles Markets Inc.: Ingles Markets operates a chain of supermarkets. The company sells grocery, produce, meat, dairy, and other food and non-food products. It has locations across the southeastern U.S.
• Herbalife Nutrition Ltd.: Herbalife Nutrition is a global nutrition company. It offers weight management products and healthy meals and snacks, as well as sports and fitness, energy, and other targeted nutritional products. It also sells personal care products. On Aug. 2, Herbalife announced a $400 million investment in a digital initiative called Herbalife One. The initiative will create a integrated platform for Herbalife distributors and customers worldwide, offering new distributor sign-ups, onboarding and training, wellness content accessibility, and new shopping tools.
• Pilgrim's Pride Corp.: Pilgrim's Pride produces and sells a broad range of fresh, read-to--cook, and frozen chicken, pork and other products through retailers and foodservice companies. It operates plants and prepared-food facilities throughout the United States, Mexico, and other locations Pilgrim's Pride reported Q2 2022 results on July 27. Net income was $362.0 million compared with a net loss for the prior-year quarter, and net sales climbed by 27.3% year over year (YOY). Operating income was $512.9 million. Strong demand in retail and foodservice and investments in automation helped fuel the improved performance.

Fastest Growing Food Stocks

These are the top food stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly YOY percentage revenue growth and their most recent quarterly YOY earnings per share (EPS) growth. Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of more than 2,500% were excluded as outliers.

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• Celsius Holdings Inc.: Celsius is a holding company that develops, sells, and distributes a variety of calorie-burning beverages. It sells through multiple channels, including grocery, drug, convenience, and nutrition stores, as well as gyms. Celsius announced Q2 2022 earnings results on Aug. 9. Net income grew about 11-fold YOY as revenue more than doubled. Domestic revenue nearly tripled over this period, fueled by gains in traditional channels, optimization and SKU expansion in existing accounts, and the expansion of the company' Direct Store Delivery network, among other factors.
• The Chefs' Warehouse Inc.: The Chefs' Warehouse is a distributor of specialty foodsm, ingredients, and produce. It serves customers who own and operate restaurants, hotels, culinary schools, and similar food-centered businesses.
• Performance Food Group Co.: Performance Food Group is a food and foodservice distribution company with operations across the U.S. and Canada. It delivers food and related products to restaurants, businesses, schools, healthcare facilities, and other distributors. On Aug. 17, the company reported results for its Q4 FY 2022, ended July 2. Net income surged by more than 142% YOY as net sales increased by 57%. Improvements in customer mix and better margins led to strong growth across all business segments.

Food Stocks with the Most Momentum

These are the food stocks that had the highest total return over the last 12 months.

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• SpartanNash Co.: SpartanNash is a retailer, distributor, and wholesaler of grocery products. It provides a range of different independent and chain retailers, its own retail stores, and U.S. military commissaries and exchanges. The company also operates supermarkets as well as a fresh produce distribution network. On Aug. 29 SpartanNash announced a quarterly cash dividend of $0.21 per common share. The dividend is payable Sept. 30 to shareholders as of Sept. 15, 2022.
• Hostess Brands Inc.: Hostess Brands is a maker and distributor of packaged foods. It develops, manufactures, and markets a variety of baked and sweet goods across the U.S. On Sept. 13, the company announced the launch of Bouncers, bite-sized snack cakes with creamy fillings. The product offers consumers "on-the-go" versions of popular Hostess products including Twinkies and Ding Dongs.
• Grocery Outlet Holding Corp.: Grocery Outlet Holding is a holding company that, through subsidiaries, offers a variety of food products through retail outlets across the west coast and the northeastern U.S. Its offerings include produce, refrigerated and frozen foods, meat, seafood, and more.

Risks of Food Stocks

Food stocks carry a wide range of risks for investors. The COVID-19 pandemic has exacerbated many of these challenges, while others have been long-standing throughout the industry:

1. Trade Issues: Food companies often rely on international shipping to exchange ingredients and delivery products globally. Shifting trade networks can mean unexpected tariffs or trade barriers. Unlucky businesses may suddenly find the costs associated with shipping or receiving these items to be unwieldy. One recent example is when the Chinese government instituted tariffs on billions of dollars worth of U.S. food exports in 2018 during heated back-and-forth trade battles with the Trump administration.
   
2. Heavy Competition: Many food companies face extreme competition and low margins. Customers may be most likely to choose price or convenience over other factors, often giving well-established and larger companies an advantage.
3. Climate Change: Climate change has enormous potential to disrupt the global food industry. Agricultural yields are expected to fall by a third or more by 2100 even as population growth could send food demand skyrocketing. Many of the impacted agricultural products, such as corn, could in turn impact other foods like livestock or processed food items utilizing corn products. Businesses will need to adapt as these trends take shape.

Advantages of Food Stocks

Although there are many potential risks to investing in food stocks, this industry also has a number of advantages. First, demand for food is never in danger of collapsing, and indeed is only likely to climb higher as the global population grows. Second, food companies tend to be a fairly effective hedge against inflation because they are often able to pass some of the additional costs associated with an inflationary climate along to consumers. Finally, the food industry allows investors a wide degree of flexibility. An investor can target commodities, restaurants, food suppliers, equipment manufacturers, logistics and shipping companies, and many others, all within the broader food industry.

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