Given the stock's particularly poor performance since the middle of last year, it's easy to presume the worst for Campbell Soup (CPB -0.19%). Aside from pandemic-related disruptions and the sheer logistical hurdles linked to COVID-19, the food outfit is now grappling with the worst inflation seen in decades. It's no real surprise that shares are trading around 20% lower than where they spent most of 2021, and that's even with the 10% bounce from November's lows.

For investors who can look further than a year back or a year into the future, though, this weakness is ultimately an opportunity to dive into a resilient name at a great price.

A woman wearing a sweater looks down and smells a bowl of soup while standing in her kitchen

Image source: Getty Images.

Two realities the market is missing

Yes, this is the same Campbell Soup that fell short of the previous quarter's revenue estimates as consumers ventured into restaurants, and then warned investors that profit margin rates for the quarter currently underway would be crimped by cost increases. Earnings for that first fiscal quarter rolled in better than expected, to be fair, but still fell from $1.01 per share a year earlier to $0.89 per share this time around. Analysts are calling for yet another year-over-year profit decline during the quarter that will end this month, with inflation still taking its toll.

The stock's rallied back somewhat since that report. Investors initially chose to see the glass as half full rather than half empty. Much of that recovery has been given back in just the past few days, though, as investors reconsider the foreseeable future.

Chart showing fall in Campbell's price since July 2021.

CPB data by YCharts

The thing is, the market's looking past a couple of key details that bolster the bullish argument here.

One of those details is the transitory nature of the inflation that's currently rattling the economy. Yes, the use of the term "transitory" has been ridiculed of late, as the food price increases we've seen thus far have lingered for a long while; some consumers are starting to feel they're permanent.

Except nothing cures rampant inflation quite like rampant inflation itself. Production capacity will increase, but as is often the case, perhaps it will increase too much. In the meantime consumers will adjust their grocery budgets to maximize the benefit of their spending, potentially undermining demand for premium brands like Campbell and its Prego spaghetti sauce, V8 juices, and more.

Rising fuel prices will eventually be curbed as well, lowering Campbell's ballooning freight costs as a result.

When will these price increases abate? Nobody knows for sure. That's the frustration. But the U.S. Energy Information Administration anticipates that the nationwide average price for a gallon of diesel fuel will drift from 2021's average of $3.29 per gallon to $3.33 in 2022 before sliding to $3.27 per gallon in 2023. Food commodity prices are expected to persist at current prices for a while into this year, but the World Bank predicts that "agricultural prices are expected to decline modestly in 2022 and 2023, following a projected 22 percent increase in 2021, as supply conditions improve."

In other words, relief for consumers and consumer staples companies is in sight, and perhaps sooner than most expect.

The other mostly missed detail supporting an investment in Campbell Soup stock sooner than later is that it and other food companies are actually better equipped to handle inflation than they're getting credit for.

This is difficult to see in the numbers from Campbell's most recently reported quarter. As was noted, in addition to inflationary factors, consumers are eating at home less and eating at restaurants more. The company's consumer staples peers are confirming the industry's pricing resiliency, though. J. M. Smucker (SJM 0.24%) saw its most recent quarterly sales rise 8% despite higher prices, with the top and bottom lines both topping estimates.

Ditto for Hormel Foods' (HRL -0.27%) fiscal fourth quarter, of which CEO Jim Snee commented: "Compared to pre-pandemic levels in 2019, all channels grew by over 25%, driven by strong demand and pricing action in almost every category." Fellow consumer staples outfit Procter & Gamble (PG 0.13%) also conceded in its fiscal second-quarter numbers posted a week ago that half of its organic sales growth came from more unit deliveries, while the other half came from price hikes. The latter could have upended the former. But it didn't.

Simply put, consumer goods companies are successfully passing along their higher costs to consumers themselves. People still have to eat, bathe, and clean.

Campbell Soup stock's weakness isn't apt to last

This reality isn't presently being priced into Campbell Soup stock. Then again, who could blame investors? The economic echoes of the initial wave of the pandemic are still ringing, while the second, omicron-driven wave rips around the world. Inflation is a hot button, as well as a hot topic for the media. It's all sinking into the psyches of investors who are just looking for a little clarity.

Whatever the reason, the end result is a cheap stock of a company that's doing better than many presume it should be doing at this time. CPB shares are modestly valued at only 15 times this year's projected per-share earnings, and the stock's pullback from mid-2021 has left the dividend yield at 3.4%. That's one of the strongest yields among large caps within the consumer staples sector. And it's also an easily affordable one. The annualized dividend payout of $1.48 per share is roughly half the $2.90 worth of per-share profits analysts are currently modeling.

Chart showing how Campbell's revenue and earnings are projected to grow every year through 2025, driving dividends higher.

Data source: Thomson Reuters. Chart by author.

The market's not seeing this mistake now, mostly because there's so much distracting noise, much of which has nothing to do with Campbell Soup itself. As hysteria subsides and leveler heads start to prevail again, however, look for investors to see and then start correcting their mistake.