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3 Food Stocks to Please Investors' Palate

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The food industry has underperformed the broader market in a year’s time as the industry has been struggling in the face of numerous issues. Again, the industry currently ranks among the bottom 20% of all Zacks industries, signifying that industry-level factors will continue to be unfavorable.

With obesity ballooning into a major heath issue in America, consumers are desperately looking for food with health benefits. They are cutting back on food items that contain artificial flavor, color, sodium and saturated fat. Also, food items proven to contain traces of pesticides, genetically modified organisms and antibiotics are consciously avoided. Hence, with an increasing number of Americans choosing healthier lifestyle practices, packaged food companies are finding it hard to survive.

Meanwhile, this rising health awareness is not going down well with companies selling snacks and packaged food products. Companies like Kellogg Company (K - Free Report) , General Mills, Inc. (GIS - Free Report) , Mondelez International (MDLZ - Free Report) have been facing top-line weakness over the past several quarters. Along with a shift in preference, increased price consciousness among consumers is acting against the industry.

All is Not Lost

Per the Organic Trade Association, organic food now accounts for more than 5% of total food sales in the United States. Organic food sales increased 6.4% from last year in 2017. Sales are expected to rise further this year, largely banking on innovation and product launches. The organic food and beverages market is expected to grow at a rate of 14% from 2017 to 2021, per the latest market research report by Technavio.

Needless to say, it makes it pertinent for food companies to comply with changing preferences to regain footing. Food companies are aggressively trying to improve their products through innovation as well as acquisitions and divestitures. They are channeling funds toward product and packaging innovation as well as reformulating a number of existing products to meet rapidly changing consumer view on health and wellness. Apart from this, companies have adopted multi-year restructuring initiatives with focus on improving operational efficiency to generate cost savings.

Again, some companies are opting for co-branding to boost sales. Cereal Partners Worldwide deserves a special mention here. General Mills formed a joint venture with Nestle called Cereal Partners Worldwide, which serves customers in more than 130 global markets. Mondelez International teamed up yet again with the third-largest cereal company in the United States, Post Consumer Brands, to create two cookie-inspired breakfast cereals.

Moreover, the overall economy appears to be in good shape, driven by an improved labor market, higher consumer spending, rising consumer confidence and increased business investments.

Making the Right Choice

Several food companies defy all odds on varied endeavors like product innovation and co-branding to keep up with evolving trends. Using the Zacks Stock Screener, we have zeroed in on three food stocks that have been performing well. We have ensured that the selected stocks possess a  Zacks Rank #1 (Strong Buy) or 2 (Buy) with other relevant metrics. You can see the complete list of today’s Zacks #1 Rank stocks here.

Medifast, Inc. (MED - Free Report) sports a Zacks Rank #1. Shares of the company have gained more than 200% against the industry’s loss of 18.5% in the past year. Moreover, the company is witnessing upward estimate revisions — 12.3% for 2018 and 18.6% for 2019 — in the last 60 days. This reflects that analysts are optimistic about the stock’s prospects. Per the Zacks Consensus Estimate, EPS growth is at 59.4% and sales growth at 30.9% for 2018. Again, EPS is projected to grow nearly 15% in the next three to five years.

The Chefs' Warehouse, Inc. (CHEF - Free Report) carries a Zacks Rank #2. The stock has gained around 82% in the past year. Though estimates have been stable over the last 60 days, earnings are expected to grow a solid 65.9% in 2018. Again, EPS is projected to rise nearly 22% in the next three to five years. Meanwhile, the company’s Value Score of B reflects that there is upside potential for the stock.

Conagra Brands, Inc. (CAG - Free Report) has a Zacks Rank #2. Earnings are expected to grow a solid 17.8% in 2018. Again, EPS is likely to grow nearly 8% in the next three to five years. Meanwhile, the company’s Value Score of B reflects that there is more room to run for the stock.

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