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3 Stocks You Should Buy Until You're Blue in The Face

With the Fed’s third consecutive 75 bps rate hike unlikely to be the last one in its battle against inflation, the odds of the economy sliding into a recession are increasing. Amid an uncertain market outlook, investors should seek shelter in sectors well-positioned to survive the inflationary environment based on inelastic demand. Hence, it may be the best time to load up fundamentally strong food stocks General Mills (GIS), Kellogg (K), and Flower Foods (FLO). Read on...

Last week, the Federal Reserve announced its third consecutive interest rate hike of 75 basis points to tame sky-high inflation. The central bank officials are now predicting the key rate to end this year at a range of 4.25% to 4.5%, up from the previously projected range of 3.25% to 3.5% in June. With the Fed keen on persisting with its hawkish stance, it seems unlikely that the economy will achieve a soft landing and markets will return to stability anytime soon.

According to Steve Hanke, a professor of applied economics at Johns Hopkins University, the probability of a recession has just shot up to 80%. He blamed the central bank for rising inflation and worsening the economic situation. “If they continue the quantitative tightening and move that growth rate and M2 (money supply) into negative territory, it’ll be severe,” he added.

Amid this market backdrop, the best stocks to buy for a relative recession-proof portfolio are the ones that belong to businesses that enjoy inelastic demand by fulfilling consumers’ basic needs. Demand for food remains steady despite the challenging macro environment. According to a report by Grand View Research, the packaged food market size is expected to grow at a CAGR of 4.8% by 2030.

Thus, it would be wise to invest in fundamentally solid food stocks, General Mills, Inc. (GIS), Kellogg Company (K), and Flowers Foods, Inc. (FLO), for stable returns in uncertain market conditions.

General Mills, Inc. (GIS)

GIS is involved in the manufacturing and marketing of consumer foods globally. The company operates through four segments: North America Retail; International; Pet; and Convenience Store & Foodservice.

On July 5, 2022, GIS announced the completion of the sale of its Helper main meals and Suddenly Salad side dishes businesses to Eagle Family Foods Group in a cash transaction valued at approximately $610 million. This sale is expected to free up capital to be reallocated in alignment with the company’s strategic objectives.

In May, GIS decided to sell its stake in a joint venture in Israel, which principally marketed dough products under the Pillsbury brand. The sale was consistent with the company’s overall business strategy and other strategic sales, including the proposed sale of its European dough business.

For the fiscal 2023 first quarter, ended August 28, 2022, GIS reported net sales of $4.72 billion, up 3.9% year-over-year. During the same period, adjusted operating profit and adjusted net earnings attributable to GIS increased 7.6% and 10.5% year-over-year to $881.2 million and $671.1 million. This resulted in adjusted earnings of $1.11 per share for the quarter, up 12.1% from the previous-year period.

Analysts expect GIS to report revenue and EPS of $19.56 billion and $4.10 for the fiscal year 2023 (ending May 2023), up 3% and 4% year-over-year, respectively. Both metrics are expected to keep growing over the next two fiscals.

The stock has gained 23.3% over the past six months and 31.3% over the past year to close the last trading session at $79.17.

The fundamental strength of GIS is reflected in its overall POWR Ratings of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

GIS also has a B grade for Quality. In the B-rated Food Makers industry, it is ranked #25 of 86 stocks.

Beyond what we’ve stated above, we have also given GIS grades for Growth, Value, Momentum, Stability, and Sentiment. Get all GIS ratings here.

Kellogg Company (K)

K has manufactured snacks and convenience foods in 21 countries and marketed its products in 180 countries. The Company’s segments include North America; Europe; Latin America; and AMEA (Asia Middle East Africa).

On June 21, K announced that its board of directors had approved its plan to separate its North American cereal and plant-based foods businesses via tax-free spin-offs, resulting in three independent public companies: Global Snacking Co., North America Cereal Co., and Plant Co. The company expects this move to unlock value, create more significant focus, and build on its current momentum.

For the second quarter of fiscal 2022 ended July 2, 2022, K net sales increased 8.7% year-over-year to $3.86 billion. The company’s adjusted operating profit increased 6.4% year-over-year to $529 million. Also, its adjusted quarterly EPS increased 3.5% year-over-year to $1.18.

Analysts expect K’s revenue for the third quarter to increase 4.4% year-over-year to $3.78 billion. The company's revenue is expected to grow by 5.1% from the previous year to $14.90 billion for fiscal 2022. Both revenue and EPS are expected to increase over the next two fiscals. Moreover, K has an impressive earnings surprise history; it surpassed Street EPS estimates in each of the trailing four quarters.

K’s shares have gained 12.9% year-to-date to close the last trading session at $73.04.

K’s POWR Ratings reflect its stable prospects. The company’s overall B rating translates to Buy in our proprietary rating system. The stock also has a grade of B for Quality. K is ranked #21 among 86 stocks in the B-rated Food Makers industry.

Beyond what we’ve stated above, we have also given K grades for Growth, Value, Momentum, Stability, and Sentiment. Get all K ratings here.

Flowers Foods, Inc. (FLO)

FLO is involved in the production and marketing of packaged bakery foods. The company offers fresh bread, buns, rolls, snack cakes, tortillas, frozen bread, and rolls. Its portfolio includes brands such as Nature’s Own, Dave’s Killer Bread (DKB), Wonder, Canyon Bakehouse, Tastykake, and Mrs. Freshley’s.

On July 12, FLO announced its investment in Base Culture, a fast-growing brand that offers gluten-free and grain-free sliced bread and other baked goods. It would help FLO align itself better with the needs and demands of health-conscious consumers.

For the fiscal 2022 second quarter ended July 16, 2022, FLO’s sales increased 11% year-over-year to $1.13 billion. The company’s total assets stood at $3.34 billion as of July 16, 2022, compared to $3.25 billion on January 1, 2022.

Analysts expect FLO’s revenue to increase 10.9% year-over-year to $4.81 billion, while its EPS is expected to increase 3% year-over-year to $1.28 in 2022. Both metrics are expected to keep growing over the next two fiscals.

FLO has gained 1.8% over the past six months and 9.1% over the past year to close the last trading session at $25.44.

It’s no surprise that FLO has an overall POWR Ratings of A, equating to a Strong Buy in our proprietary rating system. In addition, it has an A grade for Growth and a B for Quality.

FLO is ranked #4 of 86 stocks in the same industry. Click here for the additional ratings for FLO (Value, Momentum, Stability, and Sentiment).

GIS shares were trading at $78.86 per share on Monday afternoon, down $0.31 (-0.39%). Year-to-date, GIS has gained 19.63%, versus a -22.11% rise in the benchmark S&P 500 index during the same period.

About the Author: Santanu Roy

Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.


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