In this article, we will be taking a look at the 7 cheap food stocks to buy according to analysts.
The Resilience and Growth of the Fast Food Industry
Fast food companies are known for satisfying customers’ needs on many levels by providing quick service, being reasonably priced, and consistently creating new menu items. This global phenomenon is still growing today due to fast food chains’ capacity to appeal to a large consumer base, which has allowed them to expand globally and create enduring presences in international markets.
In the United States, in particular, a study by The Barbecue Lab found that over 83% of US households eat fast food at least once a week, and most Americans consume it one to three times a week. According to the report, many people believe that fast food is “relatively inexpensive compared to other dining options,” with over 32% of customers thinking this way about it. Despite popular belief, fast food is typically more expensive in real terms than home-cooked meals. Contrary to popular assumption, lower-class families do not rely on fast food because it is more affordable; rather, people with higher earnings tend to consume more fast food than people with lower incomes.
The food industry is essential and often seen as resilient during economic downturns since consumers must still purchase food despite cutting back on luxury items. It is one of the largest sectors globally, focusing on managing demand and competing effectively in logistics and supply chain management. A research report by Fortune Business Insights highlights the food processing market, valued at $2.3 trillion in 2021, projecting a growth rate of 10.6% annually, reaching an estimated $5.1 trillion by 2029. This strong growth is attributed to trends such as increased vegetarian diets, urban migration, rising online ordering, and higher disposable incomes for dining out.
Investing in the fast-food industry offers promising growth opportunities, but not all companies will outperform the market. McDonald’s Corporation and Domino’s Pizza, Inc. were highlighted as top performers in March 2023, with McDonald’s leading the QSR 50 Report for 2022 due to system-wide sales exceeding $112 billion and digital sales surpassing $18 billion. In early 2023, McDonald’s reported a nearly $20 billion sales growth, though Q4 2023 saw a slight dip with net revenues of $6.4 billion, below expectations. Despite this, sales at company-operated restaurants rose 12% year over year, thanks to the successful Accelerating the Arches strategy. Meanwhile, Domino’s is working to recover from two years of declining shares.
A selection of pet food ingredients being prepared in a kitchen for quality and safety testing.
Our Methodology
We gathered stocks for our list based on the consensus of financial media on their strong fundamentals. We further narrowed down on the basis of a p/e ratio below 25, since the p/e ratio in subindustries of the food industry hovers above it, and then finally checked out their analysts’ upside based on their opinions of whether these stocks are trading at a discount and picked those which are according to analysts and ranked them on upside.
“Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).”
Here is our list of the 7 cheap food stocks to buy according to analysts.
7. The Simply Good Foods Company (NASDAQ:SMPL)
Price Target Upside: 14.60%
Number of Hedge Fund Holders: 23
The Simply Good Foods Company (NASDAQ:SMPL) is a consumer-packaged food and beverage company that specializes in nutritious snacking products. Their core offerings include protein bars, ready-to-drink shakes, sweet and salty snacks, and confectionery products marketed under popular brands like Atkins, Quest, and SimplyProtein.
A significant catalyst for The Simply Good Foods Company (NASDAQ:SMPL) is its recent acquisition of OWYN (Only What You Need), a plant-based protein shake brand. This strategic move allows the company to tap into the growing plant-based market, diversifying its product offerings and potentially attracting a new customer base. The addition of OWYN is expected to contribute $25-30 million in net sales for the fiscal year 2024. Simply Good Foods is expanding its online sales, with 21% of Quest sales and 14% of Atkins sales now online. This digital growth offers a significant opportunity to reach a wider audience.
In Q3 2024, The Simply Good Foods Company (NASDAQ:SMPL) reported net sales of $334.8 million, a 3.1% YoY increase, driven by a 13% rise in Quest retail takeaway, particularly for salty snacks. Atkins saw a 5% decline due to shifting consumer preferences. Net income grew to $41.3 million, with EPS of $0.50, beating expectations. Lower ingredient and packaging costs helped improve earnings.
Simply Good Foods reported a $208.7 million cash balance, driven by a 50% increase in cash from operations. The company used reserves for the OWYN acquisition and plans to reduce its $490 million term loan to achieve a 1.25x net debt-to-EBITDA ratio. A 3.56% stock rise is linked to optimism around the OWYN deal, while a 13.65% YTD decline is tied to rising cocoa prices. Future performance is expected to improve with synergies from the April 2024 OWYN acquisition.
As of Q2 2024, 23 hedge funds held a combined $192 million investment in the stock, showing continued bullish sentiment, according to Insider Monkey. The stock also holds a Moderate Buy rating. Analysts have set a 12-month price target of $40.00 for Simply Good Foods, reflecting a 17.96% increase from the current price of $33.91.
6. Sysco Corporation (NYSE:SYY)
Price Target Upside: 14.70%
Number of Hedge Fund Holders: 37
Sysco Corporation (NYSE:SYY) is a Texas-based company that markets and distributes food and related products, including frozen items, fruits, vegetables, and dairy. It also supplies non-food products like paper goods, restaurant equipment, and cleaning supplies. Sysco serves schools, hotels, restaurants, and caterers through its U.S. and international foodservice segments.
As the largest food distributor in the world, Sysco Corporation (NYSE:SYY) leverages its massive scale to offer an unparalleled selection of over 500,000 quality products. In Q4 2024, Sysco Corporation reported an EPS of $1.39, slightly beating expectations of $1.38, with net sales of $20.56 billion. Despite lower food traffic, Sysco increased its volume by 3.5%, exceeding growth targets, driven by relocating its Asian food operations to a new distribution center in Allentown, Pennsylvania, to expand in the Northeast Asian market.
Sysco Corporation (NYSE:SYY)’s annual revenue reached $79 billion, a 3.3% growth from fiscal 2023. SYGMA, its sub-brand, saw a 5% increase in case volume from Q3 to Q4, driven by new contracts and strong year-over-year performance. Sysco reported 4.2% year-over-year gross profit growth, driven by strategic sourcing and product innovation. Corporate expenses decreased by 10% due to improved efficiencies. The company ended the year with $11.3 billion in net debt and $3.5 million in liquidity, with no major debt maturing until 2027. Sysco generated $3 billion in operating cash flow and $2.2 billion in free cash flow, enabling a $0.51 quarterly dividend.
Sysco expects adjusted EPS growth of 6% to 7% in the upcoming fiscal year, despite non-operational factors like a higher tax rate and increased interest expenses impacting growth. The company’s strong performance has boosted its share price by 8% year-to-date. Additionally, 37 hedge funds have invested a total of $884.3 million in Sysco.
5. Darden Restaurants, Inc. (NYSE:DRI)
Price Target Upside: 14.93%
Number of Hedge Fund Holders: 27
Darden Restaurants, Inc. (NYSE:DRI) is a full-service restaurant company that owns and operates popular dining chains across North America. The company’s portfolio includes well-known brands such as Olive Garden, LongHorn Steakhouse, Cheddar’s Scratch Kitchen, and The Capital Grille. Darden’s business model focuses on creating memorable dining experiences through its over 2,000 restaurants, employing about 190,000 team members and serving around 420 million guests annually.
Darden Restaurants, Inc. (NYSE:DRI) reported a 6.8% increase in sales for Q4 2023, reaching $2.96 billion, driven by a 55.91% rise in its dining segment. The company exceeded analyst expectations with an EPS of $2.65, compared to the estimated $2.60. As a result, Darden declared a quarterly cash dividend of $1.40 per share, up 6.9% from the previous quarter. The company also opened 80 new Ruth’s Chris Steakhouse locations and 37 additional restaurants, contributing to its increased profitability and sales.
As of Q2 2024, 27 hedge fund holders held stakes in the stock as tracked by the Insider Monkey database. Out of these 27 stakeholders, the largest was Millennium Management held the largest shares worth about $142,429,647. The stock holds a Moderate Buy rating based on 24 Wall Street analysts. Analysts have set an average 12-month price target of $182.21 for Darden Restaurants, with forecasts ranging from a low of $136.00 to a high of $205.00. This average indicates a potential 16.26% increase from the current price of $156.72.
