The Food Stock Boom Isn’t Over Yet By Teresa Rivas Updated June 12, 2020 10:08 pm ET / Original June 12, 2020 8:43 pm ET Order Reprints Print Article Campbell Brands, Conagra Brands, and General Mills remain some of the most appealing of the big packaged-food players. Justin Sullivan/Getty Images Text size For every amateur chef touting a perfect sourdough on social media, there are plenty of lumpy loaves and burned crusts that never make the cut but still taste delicious. And that’s good news for packaged-food companies like Conagra Brands and General Mills,because it means eating at home may not end even when coronavirus-related lockdowns do. We’re clearly not at that point yet, even if for a moment, it felt like we had reached it. That helped push food stocks like Campbell Soup(ticker: CPB) and Conagra (CAG) well off their recent highs.Those hopes came grinding to a halt Thursday, however, with the worst selloff since March as all of the stocks in the S&P 500—save Kroger(KR)—finished lower. It was a good reminder that coronavirus risks remain and that food stocks deserve a seat at the table. Pessimists probably need little convincing. Even after May’s positive payrolls surprise, the unemployment rate remains well into the double digits, and trends aren’t pointing to a sharp recovery. And while consumer confidence has risen faster than expected, a majority of Americans are anticipating more bad times ahead. Any return to dining out in recent weeks was likely fueled by government stimulus checks, and those will be running out soon. Packaged-food companies are preparing for it. They “generally appear to be planning for a deeper and/or longer global recession than the overall market seems to be pricing in (certainly prior to Thursday),” noted Deutsche Bank analyst Steve Powers. He’s bullish on the stocks, as “many companies believe that we have yet to see the true economic impact from Covid-19 disruption—which may become apparent as benefits from stimulus checks wane, and as broader emerging market impacts take root.” Newsletter Sign-up This Week's Magazine This weekly email offers a full list of stories and other features in this week's magazine. Saturday mornings ET. SUBSCRIBE If you’re inclined to believe that all the good news is priced into the market, then food stocks deserve a place in your portfolio. But even if you’re an optimist, there’s an argument to be made for food stocks. One powerful reason: the experimentation factor. On days when we can’t leave the house, a new brand of pizza may be our biggest source of excitement—and may be longer-lasting than some suspect, even among younger Americans. “Gen Z and millennial consumers were trying cereal and frozen entrees for the first time in a while,” writes Evercore ISI analyst David Palmer. “Furthermore, this trial and repeat was particularly high for key brands of General Mills in cereal and Conagra Brands in frozen.” Habit is a powerful force, and those forged during the crisis may have staying power—to the benefit of packaged-food companies that attract and retain new consumers. And that’s exactly what’s taking place today, argues J.P. Morgan analyst Ken Goldman. He recently surveyed shoppers about whether they are trying new packaged foods and liking them enough to become repeat customers. Previously, he had been a food-at-home skeptic, but the results changed his mind. More than two-thirds of his respondents tried new packaged-food categories during lockdown, and 96% said that the products met or exceeded their expectations. Nearly half said they planned to buy a little or a lot more packaged food in the future. “[They show] more trial, more enthusiasm, and greater buying intentions across packaged food than we expected,” Goldman writes. READ MORE TRADER The Dow Fell 1505 Points for the Week. Why Investors Shouldn’t Fret. Barron’spreviously argued that investors should buy into the group, given their valuation and ability to hold up better that other stocks through the crisis. Four of the five we recommended—Campbell Soup, Conagra, General Mills (GIS), and Kraft Heinz(KHC)—have outperformed the S&P 500 year to date; Kellogg(K) is the only laggard. Of those, Campbell, Conagra, and General Mills remain some of the most appealing of the big packaged-food players: They are the biggest, second-biggest, and fourth-biggest winners, respectively, in terms of one-year sales growth, and all three are in the cheapest half of the group on a forward price/earnings basis, changing hands at 17 times or less. While the intensity and duration of a second wave of Covid-19 remains a wild card, one thing is clear—we’re all chefs now. Write toTeresa Rivas at teresa.rivas@barrons.com https://www.barrons.com/articles/the-food-stock-boom-isnt-over-yet-51592009001?mod=RTA