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With so much chaos in the financial markets – something that Washington gridlock hasn’t helped – it has been difficult to find individual names that haven’t been deeply and negatively impacted. A better approach may be to consider suddenly relevant sectors which have now been discounted. In this case, few market segments offer as much potential as food stocks to buy.
Hardly a sexy place to park your money, food stocks are somewhat of an afterthought in bull markets. But this narrative changes during bearish cycles. In an email to InvestorPlace, Veljko Fotak, PhD Associate Professor Department of Finance School of Management University at Buffalo wrote the following:
Consumer staples usually outperform the rest of the market during economic downturns. In particular, there is an expectation that certain food stocks will benefit from increased grocery spending, as people dine out less. During the 2008-2009 crisis, we saw US consumer spending on frozen and refrigerated foods spike.
Yet that doesn’t mean that you can blindly pick food stocks to buy. Every situation is different, and the present coronavirus pandemic presents a unique challenge: several states have essentially shuttered their economy. And that hurts many food-delivery services due to limited options.
In addition, many consumers are questioning the safety of delivery services. While experts claim that there’s nothing to worry about, the apprehension is understandable.
Ultimately, though, the bottom line is that people are panicking over this unprecedented crisis. At least for the next few months, the food industry should enjoy contrarian sentiment. Here are nine food stocks to buy.
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Kroger (NYSE:KR) is one of the few names that are still positive for the year and for good reason. As a pivotal necessity in any circumstance, KR stock represents consistent demand. No matter how technologically advanced we become as a society, we still need to eat. The dramatic escalation of the outbreak has made Kroger one of the most important food stocks to buy.
Specifically, with the outbreak comes a “new normal” of acceptable behaviors such as social distancing. To keep in line with these developments, Kroger can now easily and organically advertise its alternative transactions, such as deliveries and online orders and pickups.
Undoubtedly, several people will take the company up on these offerings even after the coronavirus fades. In a way, the pandemic makes Kroger more relevant to the emerging generation, providing another incentive to buy KR stock. And in the meantime, the overall panic should help lift shares.
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On any given day, Costco (NASDAQ:COST) warehouses are always crowded. Thanks to big open spaces brimming with discounted goods, it’s no wonder why COST stock has offered steady returns. But when the coronavirus-led panic erupted in the U.S., Costco suddenly found itself at the epicenter of a consumer frenzy. Obviously, that makes its shares among the better food stocks to buy.
But even against a longer-term perspective, I believe COST stock is better positioned than most warehouse-style retailers. Estimates vary depending on the source, but the average Costco shopper typically makes about $100,000 a year. Logically, this makes the company more resilient to economic downturns. Further, when things bounce back, Costco will always enjoy strong demand.
General Mills (GIS)
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In the paradigm before the pandemic, General Mills (NYSE:GIS) has become a rather frustrating name. Once among the most popular food stocks to buy, General Mills encountered shifting consumer trends. Largely, this was due to millennials’ penchant for healthier choices. As a result, GIS stock hit a peak in the summer of 2016 and then proceeded to decline.
To be fair, the coronavirus hasn’t definitively changed this trajectory. Still, you’ve got to like its chances now. Unlike fresh fruits and vegetables, General Mills specializes in shelf-stable foods like cereal. Obviously, in a prolonged emergency, shelf life, not necessarily healthy eating, is the top priority. Thus, GIS stock wins in this new paradigm, one that could stay with us for a while.
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Another popular and iconic cereal company, Kellogg (NYSE:K), has been a mainstay in the American household for decades. However, growing evidence indicated that younger generations might eschew traditional processed breakfasts and other food products for fresh, healthier choices. This trend sparked changes in food logistics, which didn’t necessarily bode well for K stock.
However, the spread of Covid-19, which has devastated many industries, may offer a lifeline for K stock. Although shares have been exceptionally wild in the past few weeks, Kellogg offers the same fundamental narrative as other food stocks: long shelf life and convenience.
With young people unlikely to pick up farming as a new skill, K shares should enjoy a steady return to demand as we work through this crisis together.
Tyson Foods (TSN)
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Offering a variety of food products, Tyson Foods (NYSE:TSN) specializes in meat: the real kind, not the fake stuff, thank you very much!
Despite demand for long shelf life products, there’s only so many servings of rice and beans that a human can eat. Additionally, Tyson provides consumers with what they know. In a crisis like this, it isn’t the time to experiment with plant-based meat if you haven’t tried it before.
Admittedly, on a year-to-date basis, the performance of TSN stock leaves much to be desired. Still, I’m encouraged with the return of momentum in recent sessions. This suggests that consumers aren’t completely stocking up for Armageddon if they’re willing to buy perishables.
Fresh Del Monte Produce (FDP)
As I just mentioned, there’s only so much canned goods you can eat. Don’t get me wrong: rice and beans are awesome. But by day 15 into a mandatory quarantine, you’re ready for variety. Understanding that a good diet is a well-balanced one, Fresh Del Monte Produce (NYSE:FDP) attempts to fill the gap. While the company specializes in canned goods, they offer several vegetables that are not presently feasible in organic form. But will this help FDP stock?
I concede that the extreme volatility for shares has my head spinning. Nevertheless, I believe that the coronavirus impact is imposing a near-term shock to the markets, which also includes food stocks to buy. Over time, however, the markets should recognize the viable demand for this sector. Therefore, I’d keep a close eye on FDP stock.
TravelCenters of America (TA)
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For most of 2019, TravelCenters of America (NASDAQ:TA), which specializes in truck stops, encountered rough waters. In the bigger picture, trucking faces disruption from both driver shortages and potential technological disruption. Further, the U.S.-China trade war didn’t do much to move the needle for TA stock. Nevertheless, TravelCenters represents one of the most pivotal food stocks to buy.
For now, our transportation routes are operated by humans. Of course, humans need to eat. Thus, in spite of the many state-mandated stay-at-home orders, most truck stops remain open, though with pandemic-related limitations. Moreover, I expect them to remain open no matter what. If they close, that levers unacceptable pressure on our supply chains. Therefore, I like TA stock on any significant pullbacks.
Few food stocks have cratered quite like Denny’s (NASDAQ:DENN). To be perfectly honest, I understand the reason why. Following California’s unprecedented statewide shutdown, several other states have followed suit. Naturally, this has severely impacted names like DENN stock.
But who needs government orders to convince you not to eat and drink among strangers? Let’s be real: it’s not like Denny’s attracts the classiest folks.
Nevertheless, the restaurant is one of the only places that I know that’s offering 24-hour service in select stores. Additionally, Denny’s is actively marketing its delivery service, along with online order pickup options. Whether you’re working in an essential job function or just need a bite to eat during off-hours, Denny’s is available. Personally, I like that and it may help lift DENN stock.
Darden Restaurants (DRI)
Like Denny’s, Darden Restaurants (NYSE:DRI) is among the food stocks that have taken a serious beating. However, on the Mar. 24 session, DRI stock skyrocketed over 31% on anticipation that Washington will pass a $2 trillion stimulus package. Well, that day finally came after much (unnecessary) bickering. Still, that’s not the reason why I’m interested in Darden as a contrarian play.
Instead, I anticipate that Americans will go stir crazy over these shelter-in-place orders. We only need to look at the experiences of many stay-at-home moms who encounter depression. Why? Staying homebound prevents you from interacting with others in the real world. We’re social beings. Therefore, I anticipate DRI stock moving higher as people take advantage of Darden’s contactless service, if only just to get out of the house and enjoy some semblance of normalcy.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.