A Thanksgiving Stock Portfolio With All the Trimmings

With Thanksgiving upon us, several contributors to MoneyShow.com are adding food stocks to their investing menu -- from poultry and snacks to cereal and ice cream. Other favorites include an organic ETF as well as a fitness equipment maker and a weight loss firm for those looking to shed some calories after the holiday season. Jason Clark, The Prudent Speculator Despite reporting fiscal 2019 fourth-quarter results that trailed consensus analyst expectations, Tyson Foods said it believed fiscal 2020 would be very strong for its operations. For the fourth quarter, the protein producer posted revenue of $10.88 billion (vs. forecasts looking for $10.99 billion) and adjusted EPS of $1.21 came in 3% short of projections. The overall miss was driven by a lower-than-forecast quarter in prepared foods due to raw material inflation and distressed inventory sales. The company also said that it expects the havoc caused by the African Swine Fever, which has severely impacted Chinese pork production, to continue to be felt for years to come, which will likely keep pork prices elevated, benefiting Tyson. Additionally, the company said that its plant-based nuggets from its Raised & Rooted business, a key competitor to headline grabbing Beyond Meat , is now available in 7,000 stores, almost double the number of stores since the last quarterly report, with an expanded presence at food-service companies. Further, blended Raised & Rooted burgers, made with a mix of Angus beef and plant protein, began shipping this month. Alternative protein projections remain strong, and we're well-positioned to lead in this growing space, concluded CEO Noel White. Besides the potential for higher protein prices and the high-margin prepared foods segment, we like that Tyson is working on capturing some of the momentum in the fast-growing alternative proteins category. Given the relationships the company boasts, along with its preparation facilities and logistics, we would think that with the right offerings, Tyson could really pressure the Beyond Meat's of the world. We also believe that in the future chicken can take share from other protein sources as it offers a relatively better cost and health profile to consumers. And, increasing protein consumption around the globe, especially in emerging economies, should provide a solid footing for top-line growth. Despite the stock price being up some 70% this year, Tyson currently trades at around 13.5 times next 12-month earnings per share and carries a dividend yield about equal to that of the 10-year U.S. Treasury. Our target price for the stock has been boosted to $104. Food and beverage concern J.M. Smucker posted earnings per share of $2.26, versus the $2.13 estimate, in fiscal second quarter 2020. The company had sales of $1.96 billion, versus the $1.97 billion estimate. Shares gained 4% on the earnings news, even as management announced that it was again trimming its full-year adjusted EPS guidance from a range of $8.35 to $8.55 to a range of $8.10 to $8.30. The company also modestly reduced its full-year revenue forecast to $7.6 billion, a 3% or so drop from the fiscal 2019 tally of $7.84 billion. While there will continue to be operating headwinds and competitive pressures, we like the diversification Smucker adds to our broadly diversified portfolios and think that management's focus on pet foods and healthier franchises will boost the long-term prospects for the company. The stock sports a forward P/E ratio near 13 and a 3.3% dividend yield, while it ranks well relative to its peers in our proprietary scoring math. Nevertheless, given the weaker outlook, our target price has been nudged lower to $139. Hilary Kramer, Value Authority When you think of General Mills , the first thought that may come to mind is iconic cereal brands like Cheerios, Wheaties and Chex, or baking brands such as Gold Medal Flour or Betty Crocker. However, these brands make up less than 25% of General Mills' sales. In reality, General Mills is a broadly diversified food company that controls other brands like Old El Paso Mexican Foods, Yoplait, Colombo Yogurt and Häagen-Dazs ice cream. Through recent acquisitions, General Mills also owns growth brands such the Annie's line of organic products and Blue Buffalo pet food, which marked the company's entry into pet foods. I like General Mills right now because, like most food stocks, it has a very depressed valuation due to the ongoing challenges facing the food industry such as changing consumer tastes towards healthier eating options and emerging new brands. However, aided by its broad portfolio and marketing strength, the company's unit volumes have been flat on an organic basis for the past two fiscal years. Earnings per share have improved from $2.77 to $3.22 due to well-controlled expenses and a lower tax rate due to the 2017 tax law. In the latest quarter, the company held or gained shares in five out of its 10 largest brands and its critical North American retail segment showed signs of improving. Furthermore, the company continued to enjoy strong growth in Blue Buffalo. The company sells for around 15.6X EPS estimates for the current fiscal year and offers a dividend yield of 3.7%. While food companies like General Mills sell at a discount to other consumer non-durable stocks such as personal care companies, I believe that the difference is just too great. General Mills offers a solid value proposition here, with an attractive valuation and strong free cash flow generation that the company can use to reduce debt or make further acquisitions. I believe the stock can do well in practically any economic environment. Ned Piplovic, StockInvestor Founded in 1906, the Kellogg Company manufactures and markets ready-to-eat cereal and convenience foods. The company also offers a line of frozen breakfast foods, including waffles, pancakes and French toast. In addition to the Kellogg brand, the company offers its products under the Kashi, Bear Naked, Eggo, Morningstar Farms, Cheez-It, Pringles and several other brands. A headwind for the company in recent years had been the inefficiency of the distribution network that Kellogg was using to deliver its products. Therefore, the company invested substantial funds and resources to optimize its distribution by changing its network to a group of centrally located warehousing facilities that receive individual product lines directly from the manufacturing facilities and build assorted shipments for direct-store deliveries. Another major business uncertainty was the divestment of the company's cookies business in the first half of 2019. The stock has been has been riding a relatively stable uptrend over the last six months. In addition to the current share price advancement and an average long-term uptrend, the Kellogg Company has rewarded its shareholders with a 15-year long streak of consecutive annual dividend hikes as well as 57 annual dividend boosts in the past six decades. Over the extended period of five years, dividend payouts managed to compensate for the 1.3% share price shortcoming and provided a 15% total return. However, the rapidly rising share price over the last six months and dividend distributions combined for a 10.5% one-year total return. Jim Woods, The Deep Woods The adverse health benefits of eating processed, and packaged foods is a scientific fact and is leading more and more millennials to return to humanity's roots by seeking out natural, sustainable and organic foods for their nourishment. Indeed, a 2016 survey conducted by the Organic Trade Association revealed that 40% of millennials believe that choosing organic is an integral part of living green. At the same time, only 32% of Generation Xers and 28% of Baby Boomers agree. Similarly, the Organics ETF is an exchange-traded fund that seeks investment results that correspond to the performance of the Solactive Organics Index. Thus, Organics ETF provides investors with exposure to global companies that focus on naturally derived food and personal care items. These companies, most of which are food retailers, produce, distribute, market and sell organic food, beverages, supplements or packaging. The top 10 countries that this ETF is invested in include the United States (34.29%), Denmark (20.91%), Australia (16.61%), Japan (11.82%), Hong Kong (6.51%), Canada (3.60%), the United Kingdom (2.38%), Thailand (1.82%), Sweden (1.18%) and Italy (0.63%). Some of this fund's top holdings include Chr Hansen Holding , Sprout Farmers Market , Hain Celestial Group , Ariake Japan Co Ltd. (Tokyo:2815), L'Occitane International SA , United Natural Foods Inc. , John B. Sanfilippo & Son and Bellamy's Australia Ltd. (Australia: BAL). This fund's performance has been solid in the short run. It has amassed $7.37 million assets under management and an expense ratio of 0.35%, meaning that it is cheaper to hold in comparison to many other exchange-traded funds. In short, while Organics ETF does provide an investor with a chance to profit from the world of organic food, the sector may not be appropriate for all portfolios. Thus, interested investors always should conduct their due diligence and decide whether the fund is suitable for their investing goals.

A Thanksgiving Stock Portfolio With All the Trimmings

From poultry and snacks to cereal, ice cream and an 'organic' ETF, these top food stocks are a tasty dish for investors.

Columnist Conversation

Wednesday Morning Fibocall for 10/21/2020

Trifecta Trades

Tuesday Morning Fibocall for 10/20/2020

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.