Consumer staples stocks typically carry lower valuations than the broader market due their lower growth, defensive nature. Many also come with above-market dividends making them valuable components of a balanced long-term portfolio.
But as with other sectors, the valuations of the consumer staples group ebb and flow around industry dynamics and company-specific events. Here we highlight three food-related consumer defensive plays that are on the inexpensive side.
Is the Bottom in for Kraft Heinz?
Kraft Heinz (NASDAQ:KHC) is trading at 12x trailing earnings. On a forward P/E basis it goes for around 14x which is significantly below its five-year average of about 18x. The question is, why?
There are legitimate concerns around rising expenses at Kraft Heinz. This includes higher input costs (especially in the dairy business) and costs related to COVID-19 safety. While these headwinds may persist for the better part of the year, the reality is, these challenges are common among North American packaged foods and beverage companies.
What's less common is Kraft Heinz's industry-leading portfolio of cheese, condiments, meats, coffee, and other grocery mainstays. Besides its namesake brands, it owns brands like Oscar Mayer, Velveeta, Maxwell House, and Oreida. It’s a lineup that has generated revenue of more than $20 billion in each of the last five years.
Granted, investors care more about the bottom-line performance which has slowed in recent years. However, management sees EPS growth of 4% to 6% over the long haul in the aftermath on its strategic review, new operating model, and based on signs of a turnaround.
As underappreciated as the potential turnaround underway at Kraft Heinz is the company's opportunity to derive growth overseas. Although it has a presence in nearly 200 countries, only about one-fifth of sales come from outside the U.S. and Canada.
The bottom is likely in for Kraft Heinz. Patient investors willing to let the strategic transformation play out while collecting a 5% dividend can get a slice of Kraft Heinz on the cheap today.
What is Expected to Drive Growth at Post Holdings?
Post Holdings (NYSE:POST) is another packaged foods stock that is hanging out in the bargain aisle. The maker of Raisin Bran, Fruity Pebbles, and other popular cereals as well as those irresistible Hostess products that have helped us pack on the pandemic pounds has some interesting catalysts in play.
First, it has an up-and-coming division in Weetabix which makes hot and cold cereals, breakfast drinks, and oat and cornflakes-based muesli products that are becoming more popular outside the U.S. market. Sales and profits were up 9% and 10%, respectively in the most recent quarter and the unit has strung together some impressive quarters of late.
While sugary cereals and donuts may come to mind when we hear Post, the company has yet another health-focused division that is performing well. BellRing Brands gives Post-exposure to the fast-growing convenient nutrition space. It is the company behind PowerBar, Premier Protein, and other RTD bars and shakes geared towards the fitness-minded, on-the-go consumer. BellRing Brands notched 32% sales growth in the fourth quarter—and this was before office workers and gym goers have returned in full force.
Strength in these supporting businesses along with steady demand for Post's core cereal and snack brands are a recipe for solid growth going forward. Analysts are expecting earnings growth to be north of 30% in each of the next two years and for Post to return to its pre-pandemic EPS level by 2022.
Post Holdings stock can be had for just over 1x sales and around 2x book. Given the company's more balanced growth profile and increasing exposure to the healthier corners of the market, investors can expect to crunch on some steady gains ahead.
Is Mondelez Stock a Buy Here?
Our last stop in the supermarket of food bargains is Mondelez International (NASDAQ:MDLZ). The company behind the seemingly endless varieties of Oreo cookies and Triscuit crackers has performed well of late yet its valuation has yet to catch up.
Pandemic-led demand drove strong results in 2020 as consumers stocked up on family size everything to satisfy their at-home cravings. Better yet, management offered a bullish outlook for 2021 that has analysts pointing to an acceleration in both top and bottom-line growth. The company expects adjusted EPS growth in the high-single digits driven by to the effectiveness of its restructuring initiatives, cost savings plans, as well as contributions from acquisitions.
Mondelez shares trade at an attractive PEG ratio of 2.3x which is well below the peer group average. They have been rangebound for the last several months despite some improving fundamentals (including a declining long-term debt balance) and a bright outlook for the next two years.
A breakout in one direction or the other looks imminent and a strong move north is warranted. The recent pullback to $55 with support at the 200-day moving average line appears to be a good opportunity to nibble on Mondelez.
Featured Article: FinTech7 Undervalued Stocks That Deserve More Attention
With the Dow Jones Industrial Average (DJIA) hitting new highs seemingly every day, it may seem like the wrong time to be looking at undervalued stocks. Or is it?
From cannabis to cryptocurrencies, and let’s not forget electric vehicles the market seems to be blowing bubbles wherever you look. And that’s why now may be exactly the right time to zig while the market is sagging. And that means looking for undervalued stocks.
But finding undervalued stocks is subjective. Some analysts use specific fundamental metrics. Others use technical analysis.
However, the general idea is that you’re looking for stocks that are trading below their fair value.
In some cases, these may be stocks whose financials are stronger than other stocks in their sector, but it’s trading at a lower price. In other cases, a company may have potential that is not reflected in its stock price. Put another way, undervalued stocks are stocks that have room to grow. That’s why they deserve a place in your portfolio.
And that’s why we’ve put together this special presentation on stocks that are undervalued right at this time. An investment in these companies is likely to be rewarded because the stocks are moving under the radar from the broader market.
View the "7 Undervalued Stocks That Deserve More Attention"
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