It's easy to forget now, but at one point last year, produce-maker Dole (DOLE 1.30%) enjoyed a brief time in the Sun as a meme stock. Dole never reached the same level of meme stock notoriety as the likes of Gamestop or AMC Entertainment Holdings, but it did receive a WallStreetBets write-up discussing how a potential banana shortage caused by a new fungus could drive the stock higher -- and the shares briefly rallied afterwards.
Alas, any excitement seems to have dried up long ago as the stock is down some 50% from its 52-week high, and it looks all but forgotten by the meme stock community. But look closer and Dole is actually a sensible investment on its own merits, and it doesn't need a new super fungus or a social media mob to rise over the long run.
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Searching for a home
After merging with Total Produce in 2021, Dole reentered the public market as the world's largest fresh produce company. The stock fell 9% on the day of its debut, after already going public at the lower end of its expected price range.
It seems like this unwanted status as a "broken IPO" and its brief foray into meme stock territory has caused Dole to become lost in the shuffle with the market. But here's where Dole should fit right in -- as a value stock.
Dole is in the discount aisle
The shares are now well below their $16 IPO pirce and down 43% year to date. The stock has fallen because the company is fighting inflation across various key inputs, ranging from ocean and land freight to fertilizer and labor costs. Rising interest rates and a strong dollar haven't helped matters, as half of Dole's business is outside of the United States.
But after this sell-off, the shares are starting to look like a bargain. Consider its forward earnings estimates. It is valued at just six times next year's earnings, which means the stock trades at a considerable discount to the broader market and to peers like avocado producer Mission Produce and vegetable and fruit grower Fresh Del Monte Produce, which are valued at 18 and 13 times forward earnings, respectively.
Interestingly, while Dole has a smaller market capitalization than both of these companies, it is a larger company with much higher revenue than both. Last year, Dole brought in $8.8 billion in sales while Mission and Del Monte generated revenue of $1.04 billion and $4.37 billion, respectively.
In addition to its attractive valuation, Dole shares also pay out an enticing dividend. After implementing a dividend of $0.08 during the most recent quarter, the shares now yield 4.2% on an annualized basis.
Top banana
In addition to its attractive valuation, Dole has a lot to offer. For one thing, it has appeal as the world's largest fresh produce company. Fresh fruit and vegetables are a staple of diets worldwide and an important part of staying healthy, which gives Dole a defensive quality. The company sells 300 products in 80 different countries, giving it worldwide scale.
Dole may be the largest company in the industry, but its nearly $9 billion in revenue is just a drop in the bucket in what is estimated to be a $349 billion industry worldwide. This means that the industry is fragmented and that there is plenty of room for Dole to utilize its size and scale to grow. While this market isn't expanding at breakneck speed, it is nevertheless expected to grow at a slow but steady 2.7% compound annual rate through 2025.
Dole's growth strategy is to build on its position as the market leader for bananas in the United States while growing the category internationally and gaining market share in high-growth markets like avocados, blueberries, and value-added salads.
Finally, I also like that the company owns 109,000 acres of farmland around the world, which adds to its margin of safety as an investment and could give it more optionality in the future.
Is Dole stock a buy?
Dole is the market leader in a defensive and resilient industry. The stock looks attractive with a rock-bottom valuation and a dividend yield north of 4%. Dole should benefit as some of the cost pressures that have soared over the past year like freight and fertilizer begin to normalize, and its strategy of expanding in lucrative markets like blueberries and avocados should bear fruit over time.
Overall, Dole looks like a solid, inexpensive buy with a nice margin of safety.
