The food industry is expected to thrive despite the tense macroeconomic backdrop. As food stocks tend to prove great defensive options amid recessionary fears, investors could consider buying fundamentally strong, budget-friendly food stocks Saputo (SAPIF), Want Want China (WWNTY), and Industrias Bachoco (IBA) now. Read on.
The likelihood of a recession this year is soaring due to the recent bank failures and the Fed’s rate hikes to bring inflation down to the target level of 2%. Amid this uncertain backdrop, investors can seek refuge in food stocks that could be recession-proof safe havens.
So, we think buying budget-friendly food stocks Saputo Inc. (SAPIF), Want Want China Holdings Limited (WWNTY), and Industrias Bachoco, S.A.B. de C.V. (IBA) could be wise now.
The food market is witnessing robust growth. According to Statista, food market revenue is expected to reach $9.43 trillion in 2023 and grow by 6.2% annually until 2027.
Moreover, quick-service and fast-food restaurants have grown in popularity in recent years. The quick-service restaurant and fast food market will grow at a CAGR of 5.60% until 2030.
In addition, the growing food automation market provides safety while increasing profitability for food firms. Robotics, the Internet of Things (IoT), data analytics, digital twins, artificial intelligence, and other advanced automation technologies are taking center stage in the industry.
It is not surprising that the worldwide food automation market is expected to reach $15.10 billion by 2030, growing at a CAGR of 4.9%.
Let’s discuss the stocks mentioned above in detail.
Saputo Inc. (SAPIF)
Headquartered in Montreal, Canada, SAPIF produces, markets, and distributes dairy products in Canada, the United States, Argentina, Australia, and the United Kingdom.
SAPIF’s forward Price/Sales of 0.85x is 23.2% lower than the industry average of 1.10x. Its forward EV/Sales multiple of 1.07 is 37.2% lower than the industry average of 1.71.
SAPIF’s trailing-12-month asset turnover ratio of 1.24x is 44% higher than the industry average of 0.86x.
For the third quarter that ended December 31, 2022, SAPIF’s revenues came in at C$4.59 billion ($3.44 billion), up 17.6% year-over-year. Its adjusted EBITDA increased 38.2% year-over-year to C$445 million ($333.94 million).
Also, its adjusted net earnings came in at C$221 million ($165.84 million), up 59% year-over-year. In comparison, its adjusted EPS increased 60.6% year-over-year to $0.53.
Analysts expect SAPIF’s revenue to increase 16.9% year-over-year to $13.18 billion in 2023. Its EPS is expected to grow 45.5% year-over-year to $1.28 in 2023. It surpassed EPS estimates in three of four trailing quarters. SAPIF’s shares have gained 13.1% over the past six month to close the last trading session at $26.12.
SAPIF’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
SAPIF has an A grade for Stability and a B for Growth. Within the B-rated Food Makers industry, it is ranked #19 out of 81 stocks. Click here for the additional POWR Ratings for Growth, Stability, Sentiment, and Momentum for SAPIF.
Want Want China Holdings Limited (WWNTY)
Headquartered in Kowloon Bay, Hong Kong, WWNTY is an investment holding company manufactures, distributes, and sells food and beverages. The company operates through four segments: Rice Crackers; Dairy Products and Beverages; Snack Foods; and Other Products.
WWNTY’s forward EV/EBITDA of 8.78x is 28% lower than the industry average of 12.20x. Its forward EV/EBIT multiple of 10.34 is 32.4% lower than the industry average of 15.29.
WWNTY’s trailing-12-month gross profit and EBITDA margins of 42.94% and 22.78% are 36.5% and 112.6% higher than the industry averages of 31.46% and 10.72%, respectively.
WWNTY’s total current liabilities came in at RMB8.62 billion ($1.26 billion) for the period that ended September 30, 2022, compared to RMB9.25 billion ($1.35 billion) for the period that ended December 31, 2022. Also, its total liabilities came in at RMB12.03 billion ($1.76 billion), compared to RMB13.15 billion ($1.92 billion) for the same period.
Street expects WWNTY’s revenue to increase 6% year-over-year to $3.64 billion in 2024. WWNTY’s shares have declined marginally intraday to close the last trading session at $31.62.
It’s no surprise that WWNTY has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Stability and a B grade for Quality. It is ranked #15 in the same industry.
Beyond what is stated above, we’ve also rated WWNTY for Growth, Value, Momentum, and Sentiment. Get all WWNTY ratings here.
Industrias Bachoco, S.A.B. de C.V. (IBA)
Headquartered in Celaya, Mexico, IBA is a subsidiary of Robinson Bours Family Trust. The company, through its subsidiaries, operates as a poultry producer in Mexico and the United States. The company operates in two segments, Poultry and Others.
IBA’s forward EV/Sales of 0.40x is 76.7% lower than the industry average of 1.71x. Its forward Price/Sales multiple of 0.53 is 51.7% lower than the industry average of 1.10.
IBA’s trailing-12-month ROTA of 8.52x is 104.2% higher than the 4.17x industry average. Its trailing-12-month ROTC of 9.72% is 53.6% higher than the 6.33% industry average.
For the fiscal fourth quarter ended December 31, 2022, IBA’s net sales increased 11.2% year-over-year to $1.21 billion. Its total current assets came in at $2.05 billion for the period that ended December 31, 2022, compared to $1.85 billion for the period that ended December 31, 2021.
Also, its total current liabilities came in at $541.20 million, compared to $618.40 million for the same period.
IBA’s revenue is expected to increase 6.5% and marginally year-over-year to $5.24 billion in 2023. Its EPS is expected to come in at $6.03 for 2023. It has surpassed EPS estimates in three of trailing quarters. Over the past nine months, the stock has gained 47.1% to close the last trading session at $59.79.
IBA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. It is ranked #17 in the same industry. It has a B for Stability and Sentiment. To see additional IBA’s rating for Growth, Value, Momentum, and Quality, click here.
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SAPIF shares were unchanged in premarket trading Monday. Year-to-date, SAPIF has gained 5.54%, versus a 8.26% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master’s degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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