Stocks bounced back Monday, after a pretty miserable Friday that spelled the end to a three-day rally in the markets. Curiously, three of the biggest winners today are all packaged-food companies:
- Campbell Soup (NYSE:CPB), shares of which closed up 5.3%
- Hershey (NYSE:HSY), up 5.4%
- And Coca-Cola (NYSE:KO), up 5.8%.
Why are these three stocks all up so strongly today?
There doesn't appear to be any stock-specific news on any of them. That being said, there may be one bigger trend that's benefiting all three. Consider what these companies make:
Canned soup. Canned soda. Shelf-stable chocolate.
All three of these goods seem like the kinds of things that folks might buy to put on the shelf and wait out a long quarantine at home. And as you've probably heard by now, on Sunday, President Trump announced that he is extending the federal government's recommendation to maintain social distancing for another 30 days, through the end of April.
In other words, we're all going to be in a long quarantine at home, or at least a longer one than the president promised two weeks ago.
In a situation like this, you're probably thinking (and it sure looks like other investors are thinking it) that shares of companies like Campbell Soup, Hershey, and Coca-Cola are good ones to own. Still, I must caution you:
At present prices, Hershey stock is selling for about 23.9 times earnings. Coke's a bit cheaper (20.6 times earnings), but still not "cheap" in a market where the S&P 500 is selling for less than 20 times. Of the three stocks, Campbell seems the best bargain at just 9.2 times trailing profits (with a 3.2% dividend yield to boot). But assuming this pandemic ends at some point, do you really want to come out of it owning shares of a soup company?
Before the coronavirus hit, Campbell was reporting negative sales growth, versus sales up 4% at Hershey and up 16% at Coke. If Campbell stock is selling for a whole lot cheaper than other food stocks right now, there's probably a reason for that.