We recently published a list of 7 Best Beef Stocks to Buy Now. In this article, we are going to take a look at where Hormel Foods Corporation (NYSE:HRL) stands against other best beef stocks to buy now.

Global Beef Market

The beef industry encompasses various activities, including cattle farming, meat processing, distribution, and retail. The global beef market size was valued at $436.60 billion in 2023. It is projected to grow from $459.87 billion in 2024 to $656 billion by 2032, exhibiting a CAGR of 5.52%, according to Fortune Business Insights. The demand for protein, particularly sourced from animals, has consistently been high because of high global meat consumption.

According to OECD-FAO Agricultural Outlook (2021-2030), the global consumption of meat proteins is projected to grow 14% by 2030. In recent years, the demand for branded products has increased significantly. With the increase in disposable income, the market has seen substantial growth in demand for premium, high-quality beef, labeled as Certified Angus Beef, USDA Choice, USDA Natural, and others.

Consumers today are more health conscious, seeking nutritious, low-calorie foods which has significantly impacted the beef market. Moreover, people are becoming increasingly aware of the health risks associated with meat products containing growth-enhancing hormones. This is driving the demand for natural meat products. Analysts predict the global organic beef market will surge from $18.79 billion in 2024 to $31.28 billion by 2031, according to Research and Markets.

The beef industry’s activity has been high in the first half of 2024. Australia, one of the biggest players in the industry, saw its production soaring, with weekly cattle slaughter numbers around 140,000 heads, which is 20% higher than the five-year average. Furthermore, the country’s beef exports reached an all-time high of 129,998 metric tons, according to Newshub. However, the rising inflation is impacting the overall beef consumption. In Argentina, beef consumption is down by 16% this year so far, mainly driven by 300% inflation in the country.

U.S. Beef Market

The beef industry plays an important role in the United States, both economically and culturally. As a key part of the agriculture sector, the industry has a substantial impact on the country’s economy. The United States is one of the largest producers of beef, with a well-established cattle industry. As reported in our previous article on the 10 best beef stocks to buy, Angus, Hereford, and Holstein are notable breeds of cattle raised in the various regions of the United States.

As such, the U.S. beef industry is projected to grow from $108.14 billion in 2024 to $157.36 billion in 2032, according to Fortune Business Insights. Despite minor fluctuations, overall U.S. beef production has remained stable over the past years. As of November 2023, total fresh beef sales were reported at $31 billion for the trailing twelve-month period.

The U.S. beef industry faces a shrinking cattle supply, with the smallest herd since 1951. Moreover, the decline in replacement heifers is also signaling a slowdown in the herd contraction. The continued marketing of heifers has been a major factor in the contraction of cattle inventory. All U.S. beef cattle inventory reached 28.2 million head, as of January 2024. This is a reduction of 2%, or 700,000 heads, on a YoY basis. This trend is driven by drought and high input costs, which have compelled farmers to market more heifers than usual. Yet, the smaller reduction in replacement heifers indicates that herd contraction will slow down.

Nevertheless, the number of cattle on feed remains elevated, which is up by 2% from 2023. This means the current demand is being met as of now, keeping beef prices stable. However, the smaller calf crop and declining replacement heifers indicate supply disruptions in the future. Furthermore, the beef price will go up significantly in late 2024 and 2025 due to potential supply shortages. As of July 2024, the price of all fresh beef already hit $8 per pound – an all-time high.

With this, let’s now move to our list of 7 Best Beef Stocks to Buy Now.

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 strategy selects 14 small-cap and large-cap stocks every quarter and has delivered a 275% return since May 2014, beating its benchmark by 150 percentage points (see more details here).

Hormel Foods Corporation (NYSE:HRL)

Number of Hedge Funds Holders: 31

Hormel Foods Corporation (NYSE:HRL) develops, processes, and distributes various meats, nuts, and other food products. It delivers these products to retail, deli, food service, and commercial customers in the United States and internationally. The company provides different items including fresh meats, frozen items, refrigerated meal solutions, nutritional food supplements, and several other products. Notable brands in its portfolio include Applegate Naturals, Herbivorous Butcher, and Happy Little Plants.

Hormel Foods Corporation (NYSE:HRL) reported quarterly sales of $2.9 billion in Q2 2024. Increased sales were driven by products like snack nuts, lean ground turkey, premium sliced lunchmeat, and guacamole. The volume and net sales growth were primarily driven by strong performance in bacon and premium prepared proteins.

However, Hormel Foods Corporation (NYSE:HRL) struggled in the turkey segment due to lower volumes and reduced prices for whole-bird turkeys, which impacted its earnings. The company’s retail segment has been hampered by the uncertain consumer sentiment and pressure from whole bird turkey dynamics. The retail component of the company witnessed a 29 million pounds decline in sales, of which two-thirds was the result of sluggish sales across whole bird turkeys. This also had an adverse impact on the value-added meats vertical segment. The company expects the earnings pressure, inflicted by this setback, to continue.

Nevertheless, the company reported a 3% increase in gross profit in the second quarter, primarily due to supply chain movements and gains from modernization efforts. Along with gross profit, the gross profit margins increased by 90 basis points to 17.4% in the second quarter.

Hormel Foods Corporation (NYSE:HRL) reported an increase in operating cash flow during the first half of the year due to higher interest income. As a result, year-to-date cash flow from operations amounted to $640 million.  It also declared the 383rd consecutive quarterly dividend at a rate of $1.13 per share. However, the company is expecting adjusted earnings diluted per share for the third quarter to be lower than the second quarter. The major factors are ongoing challenges with whole turkey and disruptions in Suffolk production.

In addition to dividend payments, Hormel Foods Corporation (NYSE:HRL) invested $60 million in capital projects during the second quarter. The largest projects of the quarter included investment in a new order for the cash system and packaging projects for planters. Moreover, it ended the quarter with $1.5 billion in cash, which it will use to pay off its $950 million note.

In the recent Global Impact Report, the company announced that it reduced product packaging by 1.7 million pounds by optimizing packaging design and improving shipping efficiencies.

In light of the financial results and strategic decisions of Hormel Foods Corporation (NYSE:HRL), 31 hedge funds have invested $713.9 million in the company at the end of Q2 2024, as per Insider Monkey’s database, placing it among the top 7 beef stocks to buy.

Overall, HRL ranks 7th on our list of best beef stocks to buy now. While we acknowledge the potential for HRL to grow, 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 NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.

Disclosure: None. This article is originally published at Insider Monkey.