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Food producers stocks offer inflation protections

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Food producers stocks offer inflation protections

November 18
14:37 2022

From a long-term perspective, the food stocks industry belongs in the portfolio. The food industry is classified as one of the so-called non-cyclical sectors of the economy because food is high on the list of household consumption priorities. While you change your mind about buying a car or television when your family’s financial situation is bad, you don’t stop buying food.

This is reflected in the share prices of food producers and processors, which are also subject to the general mood of investors in the stock market, but to a much lesser extent. The volatility of non-cyclical stocks is significantly lower. Yet they maintain a long-term growth rate of plus or minus the rate of inflation, which follows from the nature of these firms’ activities. As a rule, about half of the profits are then paid out to shareholders in dividends. Shares in food producers thus offer an ideal way to protect capital from inflation over the long term and have a small passive dividend income.

The biggest companies in the industry

  • The biggest players in the market are Nestlé and Unilever. We know the Swiss company Nestlé by its namesake brand, but its product portfolio includes many other brands such as Nescafé, Nesquik, Orion, Maggi, and Friskies. The British-Dutch consortium Unilever has a slightly broader focus and, in addition to the food brands Knorr, Hellmann’s, Lipton, Rama, Algida, or Magnum, also produces drugstore products under the brand’s Axe, Rexona, Dove, Signal, Cif or Domestos.
  • The third in the order is the American company Kraft Heinz, whose main activities are overseas, but also in the market, we can find a few brands such as Milka, Jacobs, or Figaro. The fourth major producer of food products is the French company Danone, which, in addition to yogurts, also sells Aqua bottled water.

ING and KBC mutual funds

You would look in vain for a mutual fund focusing exclusively on the food industry. However, ING and KBC have sector funds focusing on personal consumption, with the food industry, beverages, tobacco, and pharmaceuticals making up a large part of the portfolio. Both funds are in the black on three, five, and 10-year time horizons, with the KBC fund having the better historical performance.

Given that food industry stocks are relatively expensive today with P/Es of 15-20 and trading around long-term highs, this is not a good time to buy them. Archer Daniels Midland Company stock may be an exception. However, they have a long-term place in the portfolio. Food will always be in demand, as food is one of the basic physiological needs of humans.

Is it a new opportunity?

In recent years, consumers have been much more open to plant-based foods. However, in the context of the current economy, where prices of all commodities and the cost of living are rising across the board, they are moving away from experimentation. However, experts agree that in the future our diet will be plant-based. And those producers who jump on the green bandwagon now will be the best of them.

Dairy alternatives, meat-free meat-like products, spreads made from legumes and other plant-based ingredients, or gluten-free flour. These are all products that have been appearing on supermarket shelves in greater numbers in recent years. They have lost the label of products that consumers buy when they have health problems such as intolerances or allergies. They have also found their way to those who care about the environment and want to eat more ethically.

The 2 best stocks from the food and snacks sector to buy now

At the mention of food stocks, you probably think of grocery stores and related retailers, wholesalers, and suppliers. These types of companies do indeed appear on this list, but it also includes a number of companies that make these foods possible.

That means we’re looking for stocks that seem poised to perform well in the near term, when consumers feel inflation, and also over the longer term.

  • Short-term performance is difficult to judge. The Consumer Price Index (CPI) rose 8.5% in May, but the rise in food costs was even higher at 10.1%.
  • Food costs in the household food category rose even faster, by 11.9%.

This means that companies in this sector have no choice but to balance rising input costs, pass these prices on to consumers, and hope that the calculations work out in their favor. The following stocks seem, Gainy recommended, to be some of the best ones that will be able to balance these issues.

Coca-Cola (KO)

Coca-Cola is sure to show up on various lists of stocks to buy throughout the rest of 2022 and into 2023. It does especially well when the going gets extreme.

  • This can be proven by a few components, counting its five-year month-to-month beta of 0.59. Beta measures the systemic hazard of a given stock or portfolio relative to the broader showcase, with a number underneath 1 considered less unsafe.
  • As the showcase proceeds to churn through 2022, anticipate Coca-Cola stock to reflect generally 59% instability.
  • Coca-Cola is getting a part of the consideration for its profit, which hasn’t been cut since 1963. It’s fair, another sign that financial specialists can tally on KO stock indeed in times of turbulence.

Campbell Soup (CPB)

Shares of Campbell Soup (NYSE:CPB) are synonymous with value, and the theory goes that in shrinking economies, consumers buy more soup.

  • That wasn’t really true during the 2008 recession, at least at one point, when sales plunged 7% in one quarter.
  • In 2022, meanwhile, it was a different story, whether you want to call the period a recession or not: sales for the period ending May 1 rose 7%, even though volume was down 3%.
  • This suggests that not only could consumers actually be buying more soup this time around but also that Campbell Soup could actually skyrocket if it signs off on supply chain issues. In that case, it could theoretically charge lower prices because input costs would be reduced.
  • At the moment, this is just a guess, because Campbell Soup management has said that prices could rise again in the next few months.

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