Kraft Heinz and 4 Other Food Stocks to Buy in 2021 – Barron’s

Analyst John Baumgartner writes that food stocks have been trading at a discount to other staples, as investors “continue to price in a return to structural decline (or at least a lack of growth) following an expected ‘one-hit wonder’ benefit from COVID in 2020.” Others worry that rising bond yields may hurt stocks that entice shareholders with high dividend payouts. Yet he argues that the sector’s “underlying execution remains far better than the Street gives credit,” and that food stocks will remain stronger for longer in 2021.

While mass vaccination remains months away, many investors worry that consumers will be quick to resume their old habits of dining out, which would hurt packaged-food makers, and many consensus estimates bake in sales declines. There are reasons, however, to believe that may not be the case: With 15% of U.S. restaurants closed, many potentially permanently, and the rise of long-term work from home, at-home food spending will remain strong, Baumgartner argues.

He also says analysts are underestimating 2022 sales and profits for some of the biggest packaged-food players—estimates that he is “highly confident …will be beaten.” He thinks new management teams and product innovation will help fuel ongoing strength for the companies that the market isn’t pricing in.

Baumgartner’s top picks for 2021 are

Mondelez International

(MDLZ), which is seeing global growth but a low valuation;

Simply Good Foods

(SMPL) and

Nomad Foods

(NOMD), which are in the early innings of growth; and

General Mills

(GIS) and

Kraft Heinz

(KHC), two companies whose “growth is anything but flat.”

Write to Teresa Rivas at teresa.rivas@barrons.com