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3 Food Stocks to Buy in May

By Will Ebiefung – May 27, 2020 at 9:15AM

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Are you hungry for market-beating returns? Put these companies on your investment menu.

Food is a necessity, and with the global population growing by more than 200,000 every day, there are more mouths to feed than ever. This suggests the food industry will continue its growth trajectory over the long term. In the near term, the coronavirus pandemic has created unique challenges and opportunities for many companies in this crucial sector, and that's something investors in the food sector need keep an eye on.

Three food companies, in particular, have shown that they can thrive in this difficult environment while delivering market-beating returns during the good times and the bad. The first pick, Hormel Foods (HRL 1.51%), is a food processor that has increased its dividend for more than 54 years running. Next is Beyond Meat (BYND 9.50%), a plant-based meat-substitute producer with the potential for real long-term growth. And finally, we have Domino's Pizza (DPZ 4.48%), a multinational pizza chain focused on delivery that is thriving in this time of social distancing.

Woman cutting stack of money on a plate.

Image source: Getty Images.

1. Hormel Foods

Known for iconic brands like Spam and Jennie-O Turkey, Hormel Foods has fed American consumers for more than 100 years. In addition to its packaged brands, the company also operates a food service business and meat processing plants as part of its supply chain.

American meat processors have been under pressure due to COVID-19 outbreaks, but the government's activation of the Defense Production Act ensures that these plants will stay open throughout the pandemic. Proposed legislation called the Protecting Protein Production and Consumer Access Act of 2020 aims to shield companies like Hormel from potential legal liability in case of worker infection.

Regardless of the challenges, Hormel stock has held up well during the coronavirus pandemic, with shares up 2.2% year to date compared to a 6.8% decline in the S&P 500. The company's second-quarter earnings report also shows that the company is capable of weathering the coronavirus pandemic. Sales rose by around 1% year over year, from $2.36 billion to $2.38 billion, with growth driven by grocery products and Jennie-O Turkey Store, which saw year over year sales grow by 8% and 12%, respectively.

2. Beyond Meat

Beyond Meat is arguably the leading public company in the plant-based protein industry, and it is riding a wave of interest in meat substitutes that some see as healthier and more morally acceptable than their animal-flesh counterparts. The stock has held up well during the coronavirus pandemic, with shares soaring nearly 76% year to date. And it has plenty of room for continued growth because of its soaring revenue and push toward profitability.

The company reported first-quarter earnings on May 12, and the results were a slam dunk. Revenue grew by a staggering 141.4% from $40.21 million to $97.07 million, while gross profit margin expanded from 27% of sales to 39% of sales. The margin improvements led to a net income of $1.81 million compared to a loss of $6.6 million in the prior-year period.

Beyond Meat still has some compelling catalysts to drive growth over the long term. The substitute-meat brand is quickly rising to national prominence through partnerships with restaurants like Starbucks and Yum! Brands' KFC. This could lead to increased consumer recognition in grocery stores, which will further drive sales.

3. Domino's Pizza

Global pizza sales are booming, with the market projected to grow at a compound annual growth rate (CAGR) of 11% over the next five years. And with the coronavirus pandemic potentially boosting demand for food delivery, Domino's Pizza is sitting pretty on both a near-term and long-term basis. The stock has soared about 23.9% year to date, and the company looks set to continue outperforming the market because of its pandemic-resistant business model.

Domino's total revenue grew by 4.4% in the first quarter, from $835.96 million to $873.10 million, while EPS soared 40% from $2.20 to $3.07 year over year. U.S. company-owned store sales fell in the period, but franchise fees, supply chain, and international royalties made up the difference.

Domino's franchise-based business model helps it pass on much of its operational risk to the franchises while maintaining cash flow from its royalties and supply chain sales, making the company somewhat resistant to shocks in the economy.

Much of Domino's long-term growth will come from its expansion into developing markets. The company has established market leadership in India, beating out American rivals like Papa Johns and Yum! Brands' Pizza Hut. And it plans to rapidly expand its presence in China, a pizza market expected to grow at a CAGR of 22% annually.

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool recommends Beyond Meat, Inc. and Domino's Pizza. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Domino's Pizza, Inc. Stock Quote
Domino's Pizza, Inc.
$330.61 (4.48%) $14.17
Hormel Foods Corporation Stock Quote
Hormel Foods Corporation
$46.90 (1.51%) $0.70
Beyond Meat Stock Quote
Beyond Meat
$15.91 (9.50%) $1.38

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