The cost of food in the United States increased 6.3% in December 2021, according to the U.S. Bureau of Labor Statistics. This represents the highest food inflation since October of 2008. Consequently, food stocks are attracting investors’ attention. This is evidenced by the Invesco Dynamic Food & Beverage ETF’s (PBJ) 4.8% gains over the past month versus the SPDR S&P 500 Trust ETF’s (SPY) 0.4% returns.
One of the key reasons for rising food prices is the heavy demand for food commodities. Other factors driving food prices include supply chain disruptions and labor shortages. Because these factors are expected to keep driving food prices up in the near term, the food industry is expected to continue thriving. According to Valuates Reports, the global packaged food market is expected to grow at a 5.2% CAGR through 2030.
Given this backdrop, we think it could be wise to bet on Archer-Daniels-Midland Company (ADM) and Tyson Foods, Inc. (TSN), which are well-positioned to capitalize on the food industry’s growth. These stocks are rated ‘Strong Buy’ in our proprietary POWR Ratings system.
Archer-Daniels-Midland Company (ADM)
ADM in Chicago procures, transports, stores, processes, and merchandises agricultural commodities, products, and ingredients internationally. The company operates through three segments: Ag Services and Oilseeds; Carbohydrate Solutions; and Nutrition. It procures, stores, cleans, and transports agricultural raw materials.
On December 22, 2021, ADM acquired Flavor Infusion International, S.A., a full-range provider of flavor and specialty ingredient solutions for customers across Latin America and the Caribbean. Vince Macciocchi, president of ADM’s Nutrition business, said, “This acquisition represents another important bolt-on addition as we expand our capabilities in this high-value segment.”
ADM’s revenue increased 22% year-over-year to $20.34 billion for its fiscal third quarter, ended Sept. 30, 2021. The company’s adjusted net earnings grew 9.8% year-over-year to $548 million. Also, its adjusted EPS was $0.97, up 9% year-over-year.
Analysts expect ADM’s EPS and revenue to increase 36.4% and 28.1%, respectively, year-over-year to $4.90 and $82.41 billion in fiscal 2021. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 35.4% in price to close yesterday’s trading session at $70.48.
It is no surprise that ADM has an overall A rating, which equates to a Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
The stock has a B grade for Value and Sentiment. Click here to see ADM’s ratings for Growth, Stability, Quality, and Momentum as well. In addition, ADM is ranked #1 of 30 stocks in the Agriculture industry.
Tyson Foods, Inc. (TSN)
TSN operates as a food company worldwide. The Springdale, Ark.-based company operates through four segments: Beef, Pork, Chicken, and Prepared Foods. The company processes live-fed cattle and live-market hogs. It manufactures and markets frozen and refrigerated food products and offers them under Tyson and ibp brands.
On Nov. 15, 2021, Donnie King, president and CEO of TSN, said, “To foster continuous improvement and faster decision making, we’re launching a new productivity program designed to deliver more than $1 billion in annual savings by the end of 2024. The focus of this plan includes operational and functional excellence, digital solutions, and automation and advanced technologies.”
For its fiscal fourth quarter, ended Oct. 2, 2021, TSN’s adjusted sales came in at $12.81 billion, representing a 20.4% year-over-year increase. The company’s adjusted operating income grew 26.5% year-over-year to $1.15 billion. Also, its adjusted EPS came in at $2.30, up 35.3% year-over-year.
For the quarter ending March 31, 2022, analysts expect TSN’s EPS and revenue to increase 11.6% and 10.5%, respectively, year-over-year to $1.49 and $12.49 billion. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock has gained nearly 40.5% in price over the past year to close yesterday’s trading session at $90.99.
TSN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. Also, it is graded A for Value and B for Sentiment, Growth, and Stability.
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ADM shares were trading at $70.36 per share on Wednesday afternoon, down $0.12 (-0.17%). Year-to-date, ADM has gained 4.10%, versus a -0.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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