We came across a bullish thesis on Conagra Brands, Inc. (CAG) on Value Investing Subreddit page by Isaac459. In this article, we will summarize the bulls’ thesis on CAG. Conagra Brands, Inc. (CAG)’s share was trading at $28.77 as of Nov 4th. CAG’s trailing and forward P/E were 28.21 and 10.98 respectively according to Yahoo Finance.
An aisle lined with shelves of fresh and frozen foods in a supermarket store.
Conagra Brands (CAG) specializes in snacks, refrigerated foods, and frozen meals, currently trading at a forward P/E ratio of just 11.2, significantly lower than its long-term median of 14.4. The stock experienced a notable drop following its Q2 earnings release, primarily due to manufacturing disruptions at Hebrew National during the summer. However, it’s crucial to recognize that management did not adjust their guidance, suggesting they view the disappointing second quarter as an isolated incident rather than a sign of ongoing troubles.
While revenue and earnings growth are currently stagnant, Conagra’s product lineup demonstrates resilience, particularly as it offers some of the most affordable prepared meal options on the market; for instance, Banquet’s complete frozen meals are priced at just $1.68. This affordability positions Conagra to benefit from potential shifts in consumer behavior, especially if middle and low-income consumers face reduced purchasing power. In such a scenario, sales volumes for CAG products are likely to rise, as they remain significantly cheaper alternatives to even the lowest-priced fast food options.
The broader economic context also plays a role, with federal debt reaching 120% of GDP, suggesting that austerity measures may be on the horizon following the upcoming election, regardless of its outcome. Even if direct cuts to the purchasing power of lower-income individuals do not occur, inflationary pressures might effectively erode their financial capabilities. Historically, in 2022 when inflation soared, Conagra achieved a total return of 18%, contrasting sharply with the -20% return of the Vanguard Total Stock Market ETF (VTI). Notably, CAG’s long-term correlation with VTI is only 0.1, indicating that it does not typically move in tandem with broader market trends, making it a potentially stabilizing force in a portfolio.
While the upside potential may not be as substantial as that of other stocks, Conagra presents an opportunity for enhanced resilience in investment portfolios, especially considering its current dividend yield of 4.8%. This combination of affordability, historical performance during inflationary periods, and a steady dividend makes CAG a compelling consideration for investors seeking stability in uncertain economic times.
Conagra Brands, Inc. (CAG) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 31 hedge fund portfolios held CAG at the end of the second quarter which was 23 in the previous quarter. While we acknowledge the risk and potential of CAG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CAG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.