It's Game Day for Food, Drink and Snack Stocks

With the NFL season in full gear and a slow but steady return to events in outdoor venues, it might be appropriate for investors to look at the popular snacks, drinks and foods that are so prevalent at these events. Several leading investment experts and contributors to MoneyShow.com highlight their favorite ideas from soda, snacks, donuts, wings and other game day treats. Mike Cintolo, Cabot Growth Investor Wingstop is a great long-term growth story, but timing is everything, and the stock has spent the past year doing a lot of bobbing and weaving -- but now is looking ready to continue its major uptrend. The company's story is as simple as can be -- wings in a bunch of different flavors, along with fries, shakes and the like -- but as is the case with a handful of top operators, management has done an outstanding job of thriving since the virus appeared. Wingstop was always heavier on takeout than the average restaurant, but in the second quarter, it got a whopping 65% of its orders online and has a goal to be fully digital on that front down the road ... something that is dramatically boosting sales per location. Indeed, consider that of all locations the company opened in 2019, the average restaurant cranked out $900,000 of sales in their first year; today, that figure is up to $1.2 million! (Initial first-year investment cost has remained around $400,000 during that time.) The fear here is that growth will slow compared to last year, when business exploded as the pandemic took hold, but like many pandemic winners, it's turning out demand is still rising -- same-store sales in Q2 grew 2.1%, but that was on top of a 30% gain last year, and despite a 125% increase in wing prices (!), earnings and cash flow still lifted at double-digit rates. (The firm recently launched an all-digital offering called Thighstop that could allow it to use more meat and boost margins.) Of course, big picture, unit growth will be a growth driver, with the restaurant count rising 12% this year and the top brass seeing the opportunity for 6,000 stores globally, up from about 1,600 today. As mentioned above, the stock has been up and down for the past year, but could be changing character, spending the past five weeks in a calm, proper range. We'd like to see a bit more strength, but WING is back on our watch list. Michael Brush, Brush Up on Stocks Krispy Kreme is exactly the kind of contrarian play I like. Its initial public offering (IPO) was met with a cascade of negative press. Commentators picked on the company for everything from offering unhealthy food and poor profitability growth, to its history of accounting scandals, which seems weird because it is completely irrelevant. It's under new management. Krispy Kreme is now a busted IPO, meaning it trades below its initial IPO price of $17. Instead of chasing IPOs, it usually makes sense to wait for them to turn into busted IPOs. Insiders are challenging the weakness and the negative press by purchasing the stock. We often do well by getting into companies where insiders are challenging market negativity. The growth here is impressive. Krispy Kreme posted a 19% compound annual revenue growth rate over 2016 to 2020. What it calls points of access increased 45% to 8,275 from 5,720 (its own stores, and its display cases in retailers etc.). There are several avenues for growth ahead. Krispy Kreme says it has plenty of room to grow in key U.S. markets where it is underrepresented like New York, Chicago, Boston and Minneapolis. It thinks it has a lot of room to grow in China, Brazil, and parts of Western Europe. It will grow by expanding partnerships with retail outlets on two fronts. It's rolling out shelf-stable packaged products, a tactic Starbucks used successfully. It will continue to deploy branded in-store display cases in grocery and convenience stores. It also says it has room to grow its e-commerce and introduce more products linked to seasonal events and big cultural events. (Disclosure: I own and I have suggested DNUT in Brush Up on Stocks.) Jim Powell, Global Changes & Opportunities Report In times of economic strain it would be logical to think the sale of soft drinks, bottled water, snacks and other non-essential products would decline sharply. It happens that just the opposite is the case. The tougher conditions become, the more people turn to affordable luxuries that they enjoy. As a result, companies like PepsiCo, Inc. have long histories of enduring downturns. In fact, Pepsi has been on a growth track since its founding in 1898. PepsiCo has a wide range of popular products. The list includes Pepsi-Cola, 7UP, Sierra Mist, Gatorade, Mountain Dew, several fruit drinks, Cheetos, Doritos, Fritos, Cap'n Crunch, cereals, and many similar products it markets worldwide. Many products - especially drinks - are bottled in the countries in which they are sold. PepsiCo is popular with retailers because deliveries are usually made directly to the stores that sell its products. In most cases, drivers also stock the shelves and do the paperwork that retailers require. Few companies make it as easy to do business with them as PepsiCo. PepsiCo is an all-weather company that should appeal to long-term investors. The company is a S&P Dividend Aristocrat. The current dividend yield is a modest 2.8% -- but the company has a 45-year history of increasing it annually. Although there is no such thing as a stock that investors can buy and forget, PepsiCo comes as close to that ideal as possible. Tuna Amobi, CFRA Research's The Outlook Papa John's International is one of the world's largest pizza companies that operate in the quick service restaurants (QSRs) segment of the industry The stock carries CFRA's highest investment recommendation of 5-STARS, or Strong Buy. As of December 31, 2020, there were 5,400 Papa John's restaurants, comprised of 4812 (89%) franchised and 588 (11%) company-owned restaurant units operating domestically in all 50 states and in 49 countries. As the fruits of its recent transformation increasingly take hold, we view the company as well-positioned to sustain some of its recent market share gains since the onset of the Covid-19 lockdown, which accelerated customer demand for its products. Amid the resulting restrictions on eat-in dining, PZZA significantly pivoted to its digital sales channels, including online ordering and expanded partnerships with the major third-party delivery aggregators. In 2020, the company added more than 30,000 associates to meet the surge in demand amid the lockdown. Meanwhile, it also significantly ramped up its customer loyalty program (Papa Rewards), which recently notched a milestone of more than 20,000 members at the end of Q2 2021 (up more than 30% from the previous year). In addition, PZZA's increased focus on menu innovation was recently highlighted by its rollout of a popular offering, Epic Stuffed Crust, which helped to drive a significant increase in ticket and customer traffic in H1 2021. Over the past year, these initiatives in the aggregate have led to a significant acceleration of comparable sales in North America and internationally, extending a recent streak of outsized gains through Q2 2021. We project total revenue of about $2.01 billion in 2021, rising 11% on top of 12% growth in the prior year, with accelerated development hinging on management's plans to add another 220 to 260 net new stores in 2021 (for a potentially sustainable 4% to 5% global net unit growth per year). With further traction in the digital channels, we see continued strong comparable sales growth of high-single to low double-digits in North America and international markets, with strong gains for both franchised and company-owned restaurants. We forecast revenue growth of 4.2% in 2022 and project operating margins of 8.0% in 2021 and 8.2% in 2022, a significant expansion versus 5.3% in 2020. After depreciation, amortization, and interest expenses, with a projected effective tax rate of 20%-23%, and some share buybacks, we forecast EPS of $3.13 in 2021 and $3.24 in 2022. Bruce Kaser, Cabot Undervalued Stocks Advisor Coca-Cola is best known for its iconic soft drinks yet nearly 40% of its revenues come from non-soda beverages across the non-alcoholic spectrum. Its global distribution system reaches nearly every human on the planet. Coca-Cola's longer-term picture looks bright, but the shares remain undervalued due to concerns over the pandemic, the secular trend away from sugary sodas, and a tax dispute which could cost as much as $12 billion (likely worst-case scenario). The relatively new CEO James Quincey (2017) is reinvigorating the company by narrowing its over-sized brand portfolio, boosting its innovation and improving its efficiency, as well as improving its health and environmental image. Coca-Cola's balance sheet is sturdy, and its growth investing, debt service and dividend are well-covered by free cash flow. On July 21, Coca-Cola reported encouraging second-quarter results, with adjusted earnings of $0.68/share, beating the consensus earnings estimate of $0.56 and much stronger than the $0.42 earned a year ago during the depths of the pandemic. Compared to two years ago, unit case volumes matched the two-year-ago level, not bad considering that parts of the global economy remained subdued. The company raised its full-year guidance for organic revenue growth, adjusted EPS and free cash flow. All-in, a good quarter. While the valuation is not statistically cheap, recently at 22.9x estimated 2022 earnings of $2.43 (unchanged this past week) and 21.3x estimated 2023 earnings of $2.61, the shares remain undervalued given the company's future earning power and valuable franchise. Also, the value of Coke's partial ownership of a number of publicly traded companies (including Monster Beverage) is somewhat hidden on the balance sheet, yet is worth about $23 billion, or 9% of Coke's market value. This $5/share value provides additional cushion supporting our $64 price target. KO shares offer an attractive 3.0% dividend yield. We rate the stock a buy.

It's Game Day for Food, Drink and Snack Stocks

With the NFL season under way, investment experts pick their favorite stock ideas from soda, snacks, donuts, wings and other game day treats.

Columnist Conversation

More Insider Buying in American Woodmark (AMWD)

This Weekend on Real Money

Stocks Under $10

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.