Take a Bite Into These 10 Food Stock Favorites

Despite tariffs and trade wars, consumer spending remains robust and many leading advisors and contributors to MoneyShow.com see opportunity in the generally defensive food space. Here's a look at 10 favorite stocks from wings, burgers and burritos to donuts, bakery goods, packaged vegetables and sweets. Jimmy Mengel, The Crow's Nest People love chocolate. Americans eat nearly 20% of the world's chocolate -- or around $18.27 billion. That helps make The Hershey Company a dividend machine. It has paid a higher dividend every year since 2009 and has maintained or grown its payout every year since 1930 -- the year that the Great Depression began. Hershey has stood the test of time. In good times -- and in horrible times -- people still splurge for the creature comforts of chocolate. Well-branded consumer foods companies like Hershey are known for their stability. They have existing relationships with retailers to make sure that when you buy a candy bar, Hershey is the first product you see. Sure, Hershey could coast on its brand. But it isn't resting on its rich, chocolate laurels. In the past five years, the company has invested over $3 billion into marketing and research and development. Its rivals could only dream of catching up to that. It has made Hershey the biggest player in North American chocolate with a 45% market share. In the last quarter, cost cuts amplified gross profitability wins, leading to a 9% increase in operating profit after adjusting for unusual items. Oh, and its gross margins came in at 49.5% in the 2019 second quarter, compared to 45.3% during the same time last year. Net income topped $312.8 million, or $1.48 per diluted share, a 38% jump year over year. Not too shabby. John Staszak, Argus Research Dunkin' Brands Group is among the top franchisors of quick-service restaurants serving coffee, baked goods and ice cream. It franchises restaurants under its Dunkin' Donuts and Baskin-Robbins brand names and has approximately 18,900 locations in 57 countries. We expect higher comps and accelerated store openings at Dunkin' Donuts U.S. to be driven by a range of factors, including drive-thru lines dedicated to mobile orders, brighter interior designs, espresso machines, digital order boards, and a tap system serving coffee, iced tea and cold brew. Over the long term, we remain optimistic about Dunkin's strong franchise program, established brands, and opportunities to expand into new sales channels and geographic regions. In March 2019, Dunkin' raised its quarterly dividend by 8% to $0.375 per share, or $1.50 annually, for a yield of about 2.0%. We expect the company's strong free cash flow (franchisees pay for stores and the company collects 5% of sales) to support further dividend hikes. Our dividend estimates are $1.50 for 2019 and $1.80 for 2020. Consumer discretionary stocks have been out of favor for multiple quarters, and appear undervalued relative to peers. We are raising our rating on Dunkin' Brands from hold to buy and setting a price target of $92. Bernie Schaeffer, Schaeffer's Investing Research The shares of fast food giant Wendy's are continuing their way up the charts, now 28% higher year-to-date. With the company just off a solid earnings reaction, now is the perfect time to initiate a new long position. Short interest on Wendy's recently accounted for over 7% of the stock's total available float, signaling sideline cash is available to create bigger tailwinds. Lastly, another round of upgrades may be in store for the shares; eight analysts that still sport a tepid hold recommendation on the security. Traders should target a move up to $25, with a stop below $18. The shares of fast casual restaurant chain Shake Shack have more than doubled in 2019, with the stock's latest jolt higher sparked by an early August post-earnings bull gap. This positive momentum has continued, with the shares tagging a record .peak Support going forward could potentially be found near the site of those bull-gap highs around $96, while just below here is peak open interest at the September 95 put, which could create an options-related floor, as the hedges related to these bets begin to unwind. A round of upgrades could keep the wind at Shake Shack's back, with nine of 12 brokerages maintaining a hold or strong sell recommendation on the stock. Plus, short-sellers appear to be in covering mode, and a continuation of this trend may create tailwinds for the shares. Adam Mayers, Adam Mayers Investing McDonald's , the world's largest operator of fast-food restaurants, is doing several things well. It is renovating its U.S. and Canadian stores and changing its menus, a move that has led to higher same-store sales. It is selling off company-owned stores to franchisees, believing franchising is the key to profitability, since owners have an incentive to react quickly to changing local food tastes. McDonald's has more than 37,000 outlets in 120 countries with 44% of the outlets in Asia, or other emerging markets. McDonald's is on track to nearly double the number of restaurants in China by 2022, when it will surpass Japan as the second-biggest market outside the U.S. The shares hit an all-time high in August following July's release of second-quarter earnings. While earnings and sales were flat because of the sale of outlets to franchisees, same-store sales in the U.S. and Canada showed the biggest rise in two years. McDonald's last increased its dividend a year ago for the 42nd consecutive year. The $4.64 annual payment per share yields 2.16% at current prices. I rate the stock a Buy. Mike Cintolo, Cabot Top Ten Trader Many restaurant stocks have been acting well, bolstered by strong earnings reports and their reliance on healthy consumer spending. Chipotle Mexican Grill looks like the emerging blue-chip play in the group, with shares actually nosing out to new price highs recently before pulling back. Bigger picture, we continue to see huge earnings potential: Consider that Chipotle's peak earnings were nearly $17 per share back in mid 2015, nearly 50% higher than the firm's current bottom line despite steady growth in the store count during the past four years. Thus, just on a catch-up basis, Chipotle likely has plenty of room to grow. It doesn't get a ton of press, but Wingstop has been one of the market's best cookie-cutter stories in recent years, and the recent earnings release has Wall Street thinking there's plenty of growth ahead. The business is straightforward -- it operates 1,303 restaurants (nearly all franchised and the vast majority in the U.S.). And this could be just the tip of the iceberg -- management is aiming to make Wingstop a top 10 global restaurant brand over time, with a long-term goal of 6,000 restaurants (3,000 in the U.S., 3,000 international)! Even near-term, there's a ton of potential, with the company targeting an additional 320 openings in its top 25 U.S. markets alone. There are some near-term headwinds (higher wing prices), but big investors are looking for 15% to 20% top- and bottom-line growth for many years to come. Ned Piplovic, DividendInvestor Founded in 1919 as Flowers Industries, the company changed its name to Flowers Foods in 2001. The company produces and markets bakery products in the United States through two business segments -- Direct Store Delivery (DSD) and Warehouse Delivery. The DSD segment produces and markets fresh breads, buns, rolls, tortillas and snack cakes. This segment offers its products primarily under the Nature's Own, Wonder, Cobblestone Bread Company, Tastykake and Dave's Killer Bread brand names. The Warehouse Delivery segment produces snack cakes, frozen breads and rolls for national retail, foodservice, and vending customers; it markets its products under the Mrs. Freshley's, Alpine Valley Bread and European Bakers brand names. This segment also sells products under franchised and licensed trademarks, such as Sunbeam, Bunny and Sara Lee. Since the name change and reorganization in 2001, Flower Foods has boosted its annual dividend payout every year. Over that period, the company has enhanced its annual distribution amount more than 11-fold. Additionally, Flowers Foods managed to maintain a dividend growth rate of nearly 10% over the last five years. Its current $0.19 quarterly dividend is 5.6% higher than the $0.18 distribution in the same period last year. This current quarterly payout amount is equivalent to a 3.30% forward dividend yield. George Putnam, Turnaround Letter B&G Foods has grown by buying the cast-off but valuable brands of other packaged food companies, including Green Giant, Ortega, Emeril's, Durkee and Clabber Girl. The company takes great pride in consistently paying a generous and growing cash dividend since its initial public offering over fourteen years ago. Investors, however, worry that its business model is pressured by the growing strength of mega-grocers as well as changing consumer tastes that could bypass B&G's brands. Reflecting this, BGS shares have fallen 65% from their peak in mid-2016. However, the company is paying down its debt, working to boost its margins and has transitioned its leadership to help re-invigorate its prospects. At 9.4x EV/EBITDA with a reasonably well-covered dividend, the shares offer considerable appeal. Douglas Gerlach, Investor Advisory Service The Cheesecake Factory reported mixed second-quarter results. Sales increased just over 1%, while comparable restaurant sales increased 1.0%. Management attributed the results to a soft restaurant industry sales environment. Comparable sales were driven by price and mix as traffic continues to show declines. Margins were helped as the company lapped legal expenses from a year ago, offsetting higher hourly wages. Adjusted EPS advanced 22%. Expected industry softness led Cheesecake to trim its full-year guidance. Comparable restaurant sales are now expected to increase 1.0%-1.5%, a reduction of 0.5% at the high end of the previous range. Adjusted EPS was also reduced by $0.02 at the high end to $2.58-$2.68, implying an advance of 6%-10%. In an attempt to drive growth, the company also announced it would acquire Fox Restaurant Concepts and the portion of North Italia it does not already own. The transactions were done for $308 million in cash at closing and an additional $45 million due over the next four years. Total consideration including prior investment comes to $440 million. This equates to approximately 1.1x revenue. The combined company is expected to have about $3 billion in pro forma 2020 revenue with anticipated sales growth in the high-single digits. Excluding integration expenses, the transactions are expected to be neutral to EPS in 2020 and accretive thereafter. Cheesecake Factory is a buy up to $42.

Take a Bite Into These 10 Food Stock Favorites

10 favorite stocks from wings, burgers and burritos to donuts, bakery goods, packaged vegetables and sweets.

Columnist Conversation

This Weekend on Real Money

Friday Morning Fibocall for 10/16/202

Thursday Morning Fibocall for 10/15/2020

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.