I recently did an article on buying the dip on one of the most beaten group, restaurant stocks. That group got another kick in the teeth last night as the Social Distancing mandate is being extended to the end of April.
Now let’s dig a little deeper. If restaurants are suffering, then so too are the main suppliers to the industry. Indeed you will see serious cuts to the share prices of many quality firms. Yet now may indeed be a great time for long term investors to consider entry to these stocks for the gains that will unfold as life eventually returns to normal.
With that in mind let’s review the 3 most appetizing suppliers to the restaurant industry: Sysco Corporation (SYY), Arhcer Daniels Midland (ADM), and Middlleby Corporation (MIDD).
Sysco Corporation (SYY)
SYY and its subsidiaries provide food and related items to:
- Lodging establishments
- An array of other institutions
Yes, those are some of the most harmed sectors because of the coronavirus which has certainly been harmful to SYY shares down nearly from a high of $86. Yet over the years you would be hard pressed to find a more consistent growth & income stock than SYY.
The bottom line is restaurants will not be closed forever. Even if it takes a couple months to win back the public’s confidence, restaurants will eventually thrive once again, helping the likes of SYY. And while you wait for shares to regain their footing you get an ample 3.6% dividend yield (many times better than the bank these days).
Archer-Daniels-Midland Company (ADM)
Though the coronavirus pandemic has temporarily suspended the demand for meals at restaurants, agriculture products and commodities are still an essential component of the economy and ADM is an essential player in this sector. In fact, ADM is pretty much the first name that comes to mind when folks thing large ag.
To be honest, their past earnings history is a tad lumpy which is why shares have had a hard time getting above $50. Yet now ADM has been given a haircut down towards $35. That is a very attractive price for one of the marquee names in the industry. And this is where ADM tops SYY. With ADM you get a 4.3% dividend yield while you wait for the economy to get back on track. That sure makes it easier to hold on to ADM shares with the knowledge that everyone needs to eat. So one way or the other, shares should find their way north once again making this an interesting time to add ADM to your portfolio.
Middleby Corporation (MIDD)
The coronavirus selloff has chopped MIDD’s value in half (kind of the MIDD-way point…yes, that was a bad pun, but couldn’t stop myself 😉
More importantly this cooking equipment maker creates the essential tools used in kitchens of all types. Yes, that means demand for MIDD equipment at traditional eateries is tumbling along with the share price. But the government stimulus program should help to mitigate the pain for restaurants and suppliers like MIDD. This should lessen short term pain. And in the long run it will have restaurants in better financial shape to get back to buying from key suppliers like MIDD.
Let me be clear. MIDD is the riskiest pick in today’s article. However, it may also provide the most long term reward. If you want to go the safer route, then go with SYY and ADM.
Want more great investing ideas?
The Fake Rally is Over! – Why the bear is still in charge. Along with the right investment strategy to generate profits while stock prices head lower.
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Reitmeister Total Return portfolio – Discover the portfolio strategy that Steve Reitmeister used to produce a +5.13% gain while the S&P 500 fell by -14.97%.
SYY shares fell $0.34 (-0.73%) in after-hours trading Monday. Year-to-date, SYY has declined -45.53%, versus a -18.23% rise in the benchmark S&P 500 index during the same period.
About the Author: Steve Reitmeister
Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks. More...
More Resources for the Stocks in this Article
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