Sweets and Eats: 5 Top Food Stocks for Your Portfolio

Branded food stocks can add a defensive flavor to your portfolio. From jam to spam, from peanut butter to ice cream, and from baby food to pet food, several leading investment experts and contributors to MoneyShow.com think these leading consumer brands deserve a place in both your pantry and your portfolio. George Putnam, The Turnaround Letter The Kraft Heinz Company is among the world's largest packaged-food companies. It holds a remarkable portfolio of over 200 brands, including the iconic Kraft- and Heinz-branded foods, Oscar Mayer meats, Ore-Ida potatoes and Planters nuts. Following the 2013 acquisition of H.J Heinz Company by Berkshire Hathaway and Brazil's 3G Capital, Kraft Foods and Heinz merged two years later in a giant $49 billion deal. At first, the combination looked promising, winning praises from investors and propelling the shares to over $95 by early 2017. However, flaws began to emerge in early 2018, as the company struggled with weak revenue and profit growth. The issues culminated on Feb. 22, 2019, with a remarkable five-point roster of bad news, as the company missed the fourth-quarter 2018 consensus earnings estimate, offered weak guidance, wrote off $15.4 billion of goodwill, cut its dividend by 36%, and announced an SEC investigation into its accounting. Investors were shocked (even part-owner Warren Buffett expressed his surprise), sending the shares down 27%. Rather than creating value, the Kraft Heinz merger has produced lower revenues and profits, more debt and a much lower share price. While disdained by investors, Kraft Heinz is by no means a lost cause. The company's revenues remain stable (if not growing), backed by still-popular brands and products. Its profit margins are still robust, and it generates sizable cash flows. Most of the problems are centered on the U.S. operations, as international results have been stronger. The sharp drop in its stock price has increased the pressure on Kraft Heinz to improve. We expect that Warren Buffett, as the largest shareholder (with 26.7% ownership) will work behind the scenes to rebuild the value of his now-$10 billion holding. An important first step will be the arrival on July 1 of new CEO Miguel Patricio, who brings needed expertise in rejuvenating products and brands. With low expectations, even moderately positive news might help lift the shares. As Kraft Heinz makes more substantial progress toward meeting its combined challenges of producing revenue growth and margin expansion, its stock price will likely produce meaningful gains. We recommend the shares of The Kraft Heinz Company with a $45 price target. Eddy Elfenbein, Growth Stock Advisor There are several good reasons to like low market volatility. One is that there's a lot of academic research indicating that historically, Low Vol has been a big winner. Your typical low volatility stock is one that's been around a long time in a stable industry and it's not about to get knocked off its perch. There's also the peace of mind; when the market gets rattled, I know my low volatility positions are holding steady. In fact, they often rise because scared investors flock to safety. Also, these stocks often offer generous dividends. That helps scare the day traders away. At the top of the list of low volatility stocks that look good right now is Hormel Foods . This is the Spam stock, but don't be fooled; Hormel is a lot more than that. The company owns a bunch of food brands including Dinty Moore stew and Country Crock. More than 30 Hormel bands are ranked #1 or #2 in their markets. A few months ago, Hormel raised its dividend by 12%. This was its 53rd annual dividend increase in a row. I also like that Hormel has a beta of just 0.13, which is a measure of systematic risk. This means that Hormel is far less risky than most stocks. This is one of the lowest scores in the entire S&P 500. The market got spooked when Hormel lowered its full-year guidance. The problem is that African swine fever in China upended the global hog market. That led to rapidly increasing input costs. Hormel has worked to pass those costs on but it took a toll on their bottom line last quarter. I'm not too worried about Hormel because while it's facing an unfortunate problem, ultimately, it's a manageable problem. In fact, it probably helps long-term investors because the share price isn't as high as it should be. For now, I see long-term gains for Hormel Foods. Another low volatility stock is Hershey . This is the #1 chocolate maker in North America. This company works to spread Almond Joy and lots of Kisses. The company owns dozens of legendary chocolate brands like Hershey's, Kisses, Reese's peanut butter cups (a personal favorite), Twizzlers, Mounds, Almond Joy (under a license), York peppermint patties and Kit Kats. The fourth-quarter earnings report wasn't so sweet. But the good news is that Hershey rebounded quite nicely in the first quarter. For the first quarter, the chocolatier had earnings of $1.59 per share. That's an increase of 12.8% over last year. It also topped Wall Street's consensus by $0.13 per share. I was pleased to Hershey reiterate its full-year guidance of $5.63 to $5.74 per share. Notice how good companies always bounce back. Hershey's beta is just 0.13. Along with Hormel, that's one of the lowest in the S&P 500. Both stocks currently yield over 2%. Hormel and Hershey are two excellent stocks to own in an uncertain market. When times get tough, Low Vol is your best strategy. Doug Gerlach, SmallCap Informer Dunkin' Brands Group reported results for the first quarter ended March 30, 2019. Revenues increased 5.9% to $319.1 million, while EPS increased by 10.5% to $0.63. Dunkin' U.S. same-store sales grew 2.4%, the largest quarterly comparable store sales increase in four years. However, Baskin-Robbins U.S. same-store sales shrank 2.8%. The company added 34 net new Dunkin' locations in the U.S. and a total of eight net new Dunkin' and Baskin-Robbins locations globally. The company completed a restructuring of its debt that maintains its overall blended fixed interest rate across all of outstanding securitized debt under four percent. The refinancing provides strong fixed rates as well as flexibility to navigate future market environments. For the full fiscal year 2019, Dunkin' Brands continues to expect low-single digit comparable store sales growth for Dunkin' U.S. and Baskin-Robbins U.S. It continues to expect to be at the low end of the range of 200 to 250 net new Dunkin' U.S. units. It expects new Dunkin' U.S. restaurants opened in 2019 will contribute at least $130 million in system-wide sales in 2019. The company continues to expect low-to-mid single digit percentage revenue growth, and now expects GAAP EPS of $2.63 to $2.72 (previously $2.74 to $2.83) and adjusted EPS of $2.94 to $2.99. Dunkin' Brands is a buy up to $70. John Buckingham, The Prudent Speculator Shares of J.M. Smucker Co. ended last week up a modest 2% as the manufacturer and marketer of food products reported what we thought were solid fourth-quarter fiscal 2019 financial results. Smucker earned an adjusted $2.08 per share in the period, versus the analyst consensus of $1.95. Revenue was $1.90 billion, lagging investor expectations of $1.93 billion. The company is increasing marketing spend a bit to help stabilize market share over the long-term. CEO Mark T. Smucker commented, We are pleased with the progress that we made during the year towards executing against our strategic plan, which supported fourth quarter adjusted earnings growth of 8% and full-year adjusted earnings growth of 4%. We successfully integrated Ainsworth, extending our leadership in pet foods, while our key growth brands delivered double-digit sales growth, demonstrating the power of our brands when supported by ongoing product innovation, including 1850® coffee and Jif Power Ups. We continued to focus on productivity, allowing us to deliver on our cost reduction targets for the year, providing fuel for investment in future growth. Looking ahead, Mr. Smucker explained, Disciplined investment in our brands across pet food, coffee, and snacking leaves us well-positioned to drive sustainable financial growth and enhance shareholder value for the long term. The company also announced that it sees full-year fiscal 2020 adjusted EPS in the range of $8.45 to $8.65, while free cash flow is expected to come in between $875 million and $925 million. 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. While shares are up 33% so far in 2019, we think they have more room left to run. The stock sports a forward P/E ratio of 14.6 and a 2.7% dividend yield. Our target price has been increased to $144.

Sweets and Eats: 5 Top Food Stocks for Your Portfolio

These leading consumer brands deserve a place in both your pantry and your portfolio.

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