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Are These 3 Food Stocks Good Long-Term Investments?

Thanks to the inelastic demand and growing e-commerce market, the food industry has showcased remarkable resilience and stability over the past year. In this piece, we look at why Nestlé S.A. (NSRGY), Ajinomoto Co. (AJINY), and Fresh Del Monte Produce (FDP) could be rewarding long-term assets for your portfolio. Read on…

Regardless of the market tantrums and rising prices, the food industry enjoys high-profit margins due to the inelastic demand for its offerings. In this article, I have assessed three fundamentally sound food stocks, Nestlé S.A. (NSRGY), Ajinomoto Co., Inc. (AJINY), and Fresh Del Monte Produce Inc. (FDP), to substantiate why they are worth buying for the long term.

The food industry is witnessing remarkable growth driven by shifting consumer preferences, the rapid rise of e-commerce, and the surging demand for healthier and more sustainable food choices. According to Statista, the U.S. food market revenue will reach $974.30 billion in 2023 and grow at a 3.8% CAGR until 2028.

With online ordering, home delivery, and take outs becoming the new norm, the market companies have expanded significantly. Online grocery sales in the U.S. are expected to hit $185.60 billion in 2023, registering an 18.7% growth from the previous year.

Moreover, the packaged food market is thriving due to continuous product innovation catering to changing lifestyles and the increasing popularity of plant-based and organic foods. The market is projected to reach $3.69 trillion by 2028, exhibiting a CAGR of 8.1%.

The solid growth prospects of the industry and its defensive nature make the featured food stocks wise additions to your portfolio for above-average long-term returns.

That said, let us now dig deeper into the fundamentals of the featured stocks:

Nestlé S.A. (NSRGY)

Headquartered in Vevey, Switzerland, NSRGY is one of the world’s top food and beverage companies. The company’s products include milk, chocolate, confectionery, bottled water, coffee, creamer, food seasoning, and pet foods. NSRGY’s operational segments include Zone Americas (AMS), Zone Europe, Middle East, and North Africa (EMENA), Zone Asia, Oceania, sub-Saharan Africa (AOA), Nestle Waters, Nestle Nutrition, and Other businesses.

On July 27, based on the solid performance in the first half of the year, the company upgraded its organic sales growth guidance to a range of 7% to 8%. The underlying trading operating profit margin is expected to be between 17.0% and 17.5%, while its underlying EPS is anticipated to increase between 6% and 10%.

On May 3, NSRGY inaugurated the Institute of Agricultural Sciences to advance sustainable food systems by delivering science-based solutions in agriculture.

At the inauguration, Paul Bulcke, NSRGY’s Chairman, said, “To continue providing people with tasty, nutritious and affordable foods, we need to transition together to a more sustainable food system. The new institute will strengthen our expertise and use our global network to support farming communities and protect our planet.”

NSRGY’s sales increased marginally year-over-year to CHF46.29 billion ($52.80 billion) for the six months ended June 30, 2023. The underlying trading operating profit (UTOP) grew 2.9% from the year-ago value to CHF 7.90 billion ($9.02 billion). The company’s profit for the period and EPS amounted to CHF5.79 billion ($6.59 billion) and CHF2.12, representing an increase of 7.1% and 10.4% year-over-year, respectively.

Also, its operating cash flow stood at CHF 5.74 billion ($6.55 billion), up 45.9% from the prior-year period. In addition, its free cash flow improved by 132.5% year-over-year to CHF 3.42 billion ($3.90 billion).

Analysts expect NSRGY’s EPS and revenue to increase 10.2% and 6.9% year-over-year to $5.72 and $109.10 billion, respectively, for the fiscal year 2023 (ending December 31). Its EPS is expected to increase by 8.9% over the next five years.

The stock has gained 3.7% over the past nine months to close the last trading session at $118.50.

NSRGY’s POWR Ratings reflect this robust outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

NSRGY has a B grade for Growth, Stability, and Quality. It is ranked #18 out of 79 stocks in the B-rated Food Makers industry.

Beyond what we stated above, we also have NSRGY’s Value, Momentum, and Sentiment rating. Get all NSRGY ratings here.

Ajinomoto Co., Inc. (AJINY)

AJINY is a Tokyo-based company engaged in seasonings, processed foods, frozen foods, healthcare, and other businesses globally. Its offerings include sauces, instant noodles, frozen products, coffee beverages, umami seasonings, amino acids for pharmaceuticals and foods, etc.

On June 30, AJINY acquired an additional 25% stake in Ajinomoto Genexine Co. Ltd. (AGX) and became the sole owner of its joint venture company in Korea. The company will serve as the core development and manufacturing base for AJINY’s cell culture media business, further strengthening its global development and manufacturing organization.

Following the acquisition of AGX shares, AJINY and Genexine Inc. would continue to explore potential collaboration in the biopharmaceutical field, leveraging the technologies and expertise of both parties.

AJINY’s sales increased 5.6% year-over-year to ¥339.52 billion ($2.34 billion) in the first quarter (ended June 30, 2023). Its gross profit grew 5.6% from the prior-year quarter to ¥124.09 billion ($854.75 million), while its business profit rose 5.7% from the year-ago value to ¥42.85 billion ($295.18 million). The company’s net profit and EPS increased marginally year-over-year to ¥29.63 billion ($204.11 million) and ¥51.75, respectively.

Street expects AJINY’s revenue to increase 10.2% year-over-year in the current quarter (ending September 2023) to $2.54 billion. For the fiscal year 2023, its revenue is projected to reach $10.28 billion, registering a substantial increase of 403.1% from the prior-year period.

Over the past year, the stock has gained 44.5% to close the last trading session at $40.29.

AJINY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

It has an A grade for Stability and a B for Quality. Within the Food Makers industry, it is ranked #17. Click here to see the additional ratings for AJINY (Growth, Value, Momentum, and Sentiment).

Fresh Del Monte Produce Inc. (FDP)

FDP is a global distributor of fresh and fresh-cut fruits and vegetables across North America, Europe, Asia, and beyond. It operates through three segments: Fresh and Value-Added Products, Banana, and Other Products and Services.

On August 9, the company partnered with Flowspace, a software platform and distribution network powering e-commerce logistics and fulfillment, to add 30 of Tricont Logistics’ temperature-controlled storage facilities to its expansive fulfillment network. Tricont Trucking and Tricont Logistics is FDP’s third-party trucking and logistics company.

Together Tricont and Flowspace would offer brands the full-service fulfillment solution needed to power digital commerce growth and ensure efficient, convenient delivery to their customers.

Commenting on this, Ziad Nabulsi, FDP’s Senior Vice President of North America Operations, said, “We believe Flowspace’s technology designed to facilitate e-commerce and retail fulfillment will help us continue expanding our Tricont Logistics business to be able to offer our best-in-class logistics services to more customers.”

For the fiscal second quarter that ended June 30, 2023, FDP’s net sales amounted to $1.18 billion, while its gross profit increased 44.7% year-over-year to $116.80 million. Its non-GAAP operating income improved 113.3% from the year-ago value to $67.90 million. The company’s adjusted net income and non-GAAP EPS came in at $46.20 million and $0.96, representing an increase of 123.2% from the prior-year quarter.

The consensus revenue estimate of $4.44 billion for the fiscal year 2023 (ending December 31) represents a marginal increase year-over-year. The consensus EPS estimate of $2.38 for the current year indicates a 20.6% improvement year-over-year. The company has an impressive surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.

FDP’s shares have gained 4.9% over the past month and 3.1% year-to-date to close the last trading session at $27.01.

Unsurprisingly, FDP has an overall rating of B, equating to a Buy in our proprietary rating system. It has a B grade for Value, Stability, and Sentiment. FDP is ranked #19 among 79 stocks in the same industry.

In addition to the POWR Ratings we’ve stated above, we also have FDP’s Growth, Momentum, and Quality ratings. Get all FDP ratings here.

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NSRGY shares fell $0.76 (-0.64%) in premarket trading Tuesday. Year-to-date, NSRGY has gained 5.00%, versus a 17.27% rise in the benchmark S&P 500 index during the same period.

About the Author: Shweta Kumari

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.


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