In an improving retail environment, much attention tends to get paid to the obvious subcategories, like Automobiles, Department stores and specialties like Apparel. Often overlooked is this industry sub-segment that produces products that everyone uses every single day – food.
After a wild ride in February and March, the broad markets seem to be settling back into a period of lower volatility and the slow grinding rally is back on.
In fact, history suggests that a spike in volatility, as measured by CBOE Global Markets (CBOE - Free Report) VIX index, followed by a rapid slide signals that the broad markets have put in a short-term bottom. The VIX, sometimes referred to as the market’s “fear gauge,” measures how much traders are willing to pay for out of the money options.
During periods of relative calm, market news tends to focus on the more exciting stocks with interesting stories, but longer-term investors would be well-served to seek out steady performers with growing earnings estimates. Over the past 30 years, the Zacks Rank has proved that companies whose earnings estimates have been rising handily outperform the market.
Let’s take a look at four food stocks in different sections of the industry that fit the bill.
Selling the Brands Everyone Knows
ConAgra (CAG - Free Report) , manufactures and markets packaged food products, primarily for retail markets, but also restaurants and food service. Their brands include household names like Orville Redenbacher, Healthy Choice, Peter Pan and dozens of others. The company makes frequent acquisitions and divestitures to stay abreast of changing consumer preferences.
With margins hurt by increased food and transportation costs last year, ConAgra is poised to regain a positive earnings trajectory. The company recently raised it guidance for earnings in 2018 from $1.84-$1.89 to $2.03-$2.05. Analysts followed with 7 upgrades in the last 30 days, earning ConAgra our highest score, Zacks Rank #1 (Strong Buy).
Retail and Wholesale Food
SuperValu (SVU - Free Report) sells food items both to its wholesale customers nationwide and through 217 of its own traditional retail grocery stores. Also hurt recently by declining gross margins due to higher food and fuel costs, SuperValu plans to take care of earnings by expanding the higher margin wholesaling business.
Analysts expect SuperValu to increase its sales by 37% and 32% in the next two quarters, respectively. Growth estimates for 2018 average 20% vs 15% for the industry and 2018 earnings are expected to come in at $2.43/share, a 20% increase over $2.03 in 2017. SpuerValu is a Zacks Rack #1 (Strong Buy).
Because the stock has been beaten down over the last year, the forward P/E stands at just 6.2X, a true value opportunity.
Banking on a Trend Toward Healthy Choices
United National Foods Inc. (UNFI - Free Report) is the largest distributor of natural, organic and specialty foods in the U.S. The popularity of these healthy alternatives in the retail market have helped United International beat the Zacks Consensus Earnings Estimate in each of the last four quarters by an average of 10%.
Nine analysts have raised their 2018 earnings estimates in the past 90 days (versus zero downgrades), bringing the Zacks Consensus Estimate to $3.09/share from $2.82/share, making United National Foods a Zacks Rank #1 (Strong Buy).
Helping Consumers ake Smart Choices
Finally, Medifast (MED - Free Report) is a leading producer of healthy food choices and other products specifically for the weight loss and “healthy living” market. Recommended by over 20,000 doctors, it’s products are also sold through an independent network of coaches who combine nutritional advice with lifestyle changes to ensure customers’ success.
Thanks to rapidly increasing sales and a whopping 25% earnings beat last quarter, the stock is on a real tear this year, up 47% YTD. Medifast is also a Zacks Rank #1 (Strong Buy).