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Top 10 Food and Beverage Stocks for Consumer Demand

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Selling What People Need

A lot of attention in financial markets is given to “trendy” sectors. Biotech, EVs, IT, renewables, or even oil & gas, banks, etc. This makes sense as these sectors are either very important for the global economy or display amazing technologies and growth.

But at the same time, it means some other “boring” sectors are often forgotten by investors. One such sector is food and beverage. This is a segment of the economy everybody is exposed to daily, as, after all, everybody needs to eat.

It is also a sector with intense competition, where the only way to secure good margins is through high-quality brands. These brands can commend extremely high loyalty from their consumers, with Coca-Cola's business moat probably only equaled by super brands like Apple or Tesla.

Still, because they are far from popular among most investors and unlikely to make the news headlines, stocks in this sector can be remarkably cheap despite great returns on invested capital or growth. This can create excellent long-term returns while also offering low volatility and steadily growing dividends.

Top 10 Food and Beverage Stocks for Consumer Demand

1. Nestlé S.A.

The food and beverage giant headquartered in Switzerland is behind so many of the brands we know in shops that it is hard to grasp how omnipresent Nestle is in every consumer's daily life. To name just a few, this includes Nescafe, Nespresso, Maggi, KitKat, Corn Flakes, Felix, Purina, Hot Pockets, Perrier, and Vittel.

The company is doing most of its business in Europe and North America but is also growing quickly in the rest of the world. Beverage (especially coffee) and pet care are its top segments, at 27% and 19% of total revenues.

Source: Nestle

The company sees most of its growth opportunity in emerging markets, where it captures only 0.5% of the global food and beverage expenditure, a market share bound to grow with the emergence of a global middle class starting to consume more local and international brands.

The Nestle Group has shown a steady 4.5% yearly organic growth in the last decade, adding to a long history of successful acquisitions, with many of the group's current brands acquired years ago. In 2022, Nestle acquired no less than 5 different companies, strongly expanding its health & nutrition portfolio.

Nestle is a good stock pick for investors looking for an extremely stable company and proven compounder with efficient business operations. It also offers an almost 3% dividend yield when writing this article.

2. The Coca-Cola Company

finviz dynamic chart for  KO

Coca-Cola is best known for its flagship sugary and bubbly soda. Building upon the basis and cash flow of soda sales, the company has grown into an international conglomerate in everything drinkable, holding many of the best brands on Earth in this segment.

This includes Fanta, Schweppes, Dasani, Fanta, Minute Maid, Sprite, Powerade, etc. Coca-Cola also has a 16.7% equity investment in the energy drink producer Monster. The company's product lineup is slowly changing, with now 29% of sold volume low or zero-calorie drinks.

The company sees a large opportunity in the people who are still not yet consumers of Coca-Cola products, especially in developing and emerging markets.

Source: Coca Cola

Coca-Cola's business model focuses on brands, with the actual operation of producing and distributing the drinks locally licensed out to 200+ “bottlers” who buy from Coca-Cola concentrated products, put them into bottles, and handle the distribution.

This makes Coca-Cola an extremely capital-efficient business, with most of its spending from advertisement and marketing, leaving the capital-intensive business of building factories and bottling the drinks to its sub-contractors. This efficiency is also behind the rationale for Warren Buffett to have acquired a large stake in Coca-Cola in 1988, never selling it then, and currently owning a 9.2% stake in the whole company.

The company has managed an average of 7% organic growth in the last 5 years and grew its free cash flow by 14% CAGR, almost doubling it since 2017.

Source: Coca Cola

Coca-Cola brands are among the strongest and most recognized in the beverage market. It is also a company famous for being a compounding stock and growing dividends since the 1970s. This makes it a remarkably solid asset in a portfolio, one likely to reduce volatility and bring steady and growing returns, especially if investors reinvest the >3% yield they get from dividends.

3. Mondelez International, Inc.

finviz dynamic chart for  MDLZ

Mondelez is the leading company in the snack segment, with a global #1 position in biscuits, #2 in chocolate, and #3 in snack bars and cake & pastries. Regarding brands, the company offering includes Cadbury, 7 Days, Oreo, Milka, Toblerone, Tuc, Chips Ahoy, Cote d'Or,  Daim, Lu, Mikado, etc.

These core offerings have experienced strong growth over the last years, with an exceptional +10% in 2022. This was partially driven by double-digit growth in emerging markets, especially Latin America, at 14.1% CAGR.

Source: Mondelez

The company is a serial acquirer, with 9 acquisitions completed since 2018, adding $2.8B in annual revenues compared to 2022 total revenues of $31.4B.

Thanks to share repurchases and growing dividends, the total shareholder returns have been at an annualized 16.2% since 2018.

Source: Mondelez

Mondelez's offering is highly diversified, with each product occupying a dominant position in its specific niche. When many food and beverage companies want to diversify, Mondelez is doubling down on chocolate and sweet biscuits & snack bars.

So investors will want to assess properly if these highly addictive products are going to stay as popular as ever or if concerns about health could erode the popularity of the company's brands. A good guess could come from testing if they would be ready to give up their favorite Mondelez snack.

4. Monster Beverage Corporation (MNST)

finviz dynamic chart for  MNST

This stock is a legend in the financial markets, with “monstrous” annualized returns of 37.1% since its IPO in 1998, meaning that Monster beat the returns of Apple and Amazon, and $1,000 invested in 1998 would have turned into $2.6M by 2023, making it the most successful stock of the last 25 years.

The energy drink company has a strong position in its market, controlling 30.1% of the market, only dwarfed by Red Bull at 42.5%. In 2022, energy drinks comprised 14.9% of the total US beverage market.

Source: Monster

The company is strongly associated with sports, with the brand ambassadors including golfer Tiger Woods and Formula One driver Lewis Hamilton, as well as champions in skiing, MotoGP, Superbowl, Nascar, surfing, skateboarding, snowboarding, MMA, etc.

Monster is also a very active brand on social media, with 8M+ followers on Instagram, 3M+ subscribers on YouTube, and 25 million Facebook followers.

The company is also testing the waters in entering the alcoholic drink market with the launch of “The Beast,” a 6% hard seltzer alcohol drink that tastes like its iconic energy drink.

Monster's exceptional growth was carried out by the sudden emergence of energy drinks in the drink market in Western countries. This growth will slow down in the upcoming years, as most interested consumers already use energy drinks.

This does not mean that the growth of Monster the company will have to slow down. It has built very strong relations with its customers and has many possibilities to expand beyond the energy drink market, as the launch of “The Beast” illustrates. The identification of Monster with “cool” activities like street art and extreme sports could carry well into other segments, like hard alcohol, beers, etc…

5. Constellation Brands, Inc.

finviz dynamic chart for  STZ

Constellation Brands manages many drinks brands, with its most famous being flavored beer Modelo and Corona. The company also owns many wine brands as well as strong spirits.

Modelo is the #2 beer in the US, Corona #4, and Constellation is the 3rd largest supplier of wine to the US market and the 3rd in vodka.

Source: Constellation Brands

The beer business is among the best performing in the sector, with 9% CAGR growth in net sales and 39-40% operating margins, remarkably high for the industry. Most of the revenues come from the US wholesale markets.

Constellation is also looking toward the future, where cannabis consumption will be as mainstream as beer drinking, with a 40% stake in cannabis company Canopy Growth. With buying in 2019, at the height of cannabis valuation, the deal has turned out poorly from a financial point of view, with Canopy Growth losing most of its market valuation since and #1B impairment.

Would this market turn around? It could provide a significant venue of growth for Constellation and a foot in the door of a market promising to become as large as the entire alcohol market in the US.

Constellation's strategy is focused on premium brands and capturing the higher-end market, commanding higher margins. So, where most drink and beverage companies have a focus on acquiring new brands, Constellation offers its shareholders highly profitable operations and premium brands with deepening market penetration, as well as optionality toward the cannabis market.

Like most luxury brands, this makes the company both more valuable and potentially more exposed to economic downturns.

6. The Kraft Heinz Company

finviz dynamic chart for  KHC

Another of Warren Buffett's large holdings, Kraft, is best known for its ketchup brand and includes many successful consumer brands like Caprisun, Jello, KoolAid, Mac & Cheese, and Philadelphia.

Source: Kraft

Most of the company business is in North America (77% of revenues). The company sees its largest opportunity in sauces (“taste elevation”) and easy meals like declinations of the classic “Mac & Cheese” and other tasty, easy-to-cook meals.

Since 2017, it has struggled with a high level of debt, reducing profitability and capacity for reinvestment. Focusing on “unhealthy” food also made it rather unpopular when meat-free products were all the rage in the markets.

This led the stock price to decline, leading to the company now having some of the lowest P/E ratios among its peers.

This situation has started to turn around, with Kraft experiencing a 4% organic growth year-to-year in Q2 2023 and a +12.9% growth of earnings per share. The international segment also grew by 13%.

The company is not expecting very strong revenue growth in the US but is also already priced as if no growth should be expected, ever. This makes Kraft a good stock for investors looking for a turnaround potential and a value stock. The almost 5% dividend yield at the time of writing of this article is also a good argument to add the stock to an income portfolio.

7. General Mills, Inc. (GIS)

finviz dynamic chart for  GIS

Starting from a flour mill in 1866, General Mills is now a giant food conglomerate managing no less than 46 brands with a focus on breakfast, cereals, and candies, of which the most famous include Cheerios, Cocoa Puffs, Annie's, and Lucky Charms.

It is present internationally with Haggen-Dasz and locally dominant brands like, for example, Old El Paso, the #1 Mexican food brand in France. The company is also active in the pet food market through its Blue Buffalo brand.

In 2023, the company is focusing its efforts on maintaining the brands and reducing costs, wary of inflation’s direct effect on margins and its indirect effect on consumer’s purchasing power.

Still, its management expects for 2024 a 3-4% growth in revenues and 4-6% growth in earnings per share, mostly from organic growth. This growth is partially driven by a growth of “at home” food, which seems to stabilize at a higher level than pre-pandemic.

Debt is not really a concern, with $2.6B in net earnings in 2023 for just $11.1B in net debt.

The relatively low growth is rather priced in, with the 2023 valuation of the stock reflecting little expectation for growth. This might be a mistake, as the company holds strong brands and demonstrated a low but steady growth rate of 4-6% despite a difficult inflationary environment.

So, it is possible that markets will reprice General Mills in the future, especially if more promising but riskier stocks fail to deliver on their growth promises.

8. Brown-Forman Corporation

finviz dynamic chart for  BF-B

Brown-Forman is a company managing multiple alcohol brands, of which the most famous is likely Jack Daniels. The portfolio, however, is much larger than that, with another 7 whiskey, 2 tequila, 1 rum, 1 vodka, 2 gins, 1 liquor, and 2 wine brands.

Source: Brown-Forman

The company is also building partnerships with Coca-Cola to create pre-mixed drinks, acknowledging what mixing consumers are already doing. These pre-mix drinks are also a source of growth, with consumers liking the brand often looking for a less strong drink and younger demographic more open to experimenting with new tastes.

When other brands reduce spending, Brown-Forman is increasing its advertising budget by 19% in Q1 2024. This is paying off, with sales growing by 7% CAGR in the last 5 years and operating income growing 6%. The company’s business is also growing quickly in emerging markets, with 13% growth in revenues in 2023.

Brown-Forman is a consolidated giant in strong alcohols while also expanding its most recognizable brands in light mixer drinks and building up its sales in emerging markets. This is somewhat reflected in the stock price, with strong expectations about long-term growth. This also means investors will want to monitor how well these expansion plans are going.

9. Tyson Foods, Inc.

finviz dynamic chart for  TSN

A segment of the food sector that is often less discussed than drinks and snacks is meat. This is partially because meat consumption has become a little bit unpopular if you care about ecology and global warming.

But the truth is that meat consumption is still strong and actually rising in most of the world, where growing incomes and a new emerging middle class are boosting consumption.

Tyson Foods is one of the world's largest meat packers, operating in an essentially oligopoly sector, allowing the meat packer to get the best possible price from ranchers, ensuring rather high margins.

Tyson is processing weekly 122,000 cattle, 395,000 pigs, 43 million chickens and making 56 million pounds of prepared food. Most of these sales are in the USA.

Source: Tyson

The company owns many of the most famous meat brands in the US and ranks #1 for many meat products, including hot dogs, nuggets, frozen meat, lunchmeat, sausage, etc…

Tyson is also working constantly on expanding its offer of pre-made meals, with a keen sense of evolving taste and the interest of consumers for convenience and easy-to-cook meals. Another factor was quickly rising feed prices, impacting especially the profitability of the pork and chicken segments.

In the last year, Tyson has seen its operating income plummet from $998M in Q2 2022 to just $179M a year later, a consequence of consumer cutting on expensive food products, first of it meat.

This has put some pressure on Tyson Foods' stock price as well. However, such moves are to be expected in the meat industry, which is famous for being highly cyclical. Tyson is experienced in navigating such downturns and has historically used them to acquire competitors with a less solid financial position at a low price.

So, an investment in Tyson Foods is a bet on the company's long history of expanding and dominating its market and the cyclical nature of the meat markets.

10. JBS S.A.

While meat producers worldwide are under pressure from rising feed costs and reduced consumer spending, some companies can be caught in market turmoil outside their control.

A good example is JBS, a massive meat producer in Brazil. The country as a whole has been out of favor with investors due to political turmoil between what is often internationally considered a far-right departing president and a socialist & corrupt new president. This led to extremely low valuation for all Brazilian companies, JBS included.

This pessimism ignores the massive cost and scale advantage of JBS in the domestic and international meat markets. This also ignores that JBS is far from just a Brazilian meat packer, with almost as many employees abroad as in Brazil, with the majority in the US.

JBS is the world's largest producer of beef and poultry and the second largest of pork. This makes JBS the largest food producer by revenues, above Nestle, despite a market capitalization at less than a 30th of Nestle.

Source: JBS

This results from a series of domestic and international acquisitions over the last 15 years, with JBS leading the charge in consolidating the meat industry.

JBS is active in other sectors, making it the #1 in aquaculture in Australia and 31 in prepared foods in the UK, Australia, and New Zealand.  It is also taking the risk of plant-based meat alternatives seriously, with large investments making it the largest Brazilian producer of plant-based meat and 3nd in Europe.

The stagnant stock price, back to the same level it was in 2011, does not reflect fully the returns for its shareholders. This is due to a generous dividend policy and high double-digit yields.

Investors might also look at JBS differently with the upcoming direct listing of the stock in the US stock exchange, with an IPO in the NYSE planned for the end of 2023 as a potential catalyst.

So, JBS is a good stock for investors willing to take risks with international exposure to Brazil and looking for high yields in an income portfolio. Thanks to very low valuation metrics like the P/E ratio, it will also attract value investors.

Jonathan is a former biochemist researcher who worked in genetic analysis and clinical trials. He is now a stock analyst and finance writer with a focus on innovation, market cycles and geopolitics in his publication 'The Eurasian Century".