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 The Kroger Co. (NYSE:KR) 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.
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A customer buying an item at a checkout counter in a grocery store.
The Kroger Co. (NYSE:KR)
Number of Hedge Funds Holders: 46
The Kroger Co. (NYSE:KR) operates a combination of food and drug stores, multi-department stores, marketplace stores, and price impact warehouses. The company also manufactures and processes food products for sale through stores and online channels. Founded in 1883, it offers processed beef, ham, chicken, and turkey products.
In recent times, the company brought in plant-based beef and bacon items in its stores, integrating plant-based options with traditional meat items. This move is a response to the growing shift in the market, wherein plant-based meat alternatives are highly demanded. As of 2024, the market for meat substitutes has reached a value of $10 billion and is poised to grow at a CAGR of roughly 9% from 2024 to 2029. Thus, Kroger’s entry into this market means it’s on track to realize profits from this segment in the future.
The Kroger Co. (NYSE:KR) reported total sales of $45.3 billion in the first quarter of fiscal 2024 compared to $45.2 billion for the same period last year. Excluding the fuel segment, sales increased by 0.6% in the quarter. It reported a decline of 7 basis points in the gross margin rate compared to the same period last year. The decline was mainly due to lower pharmacy margins and increased pricing investments. However, this was partially offset by a favorable product mix.
Moreover, the company also reported an increase of 22 basis points in general and administrative expenses. This increase was due to planned investments in associate wages and increased incentive plan costs. Kroger Co. (NYSE:KR) expressed intentions to invest in the business to drive long-term sustainable growth.
Rodney McMullan (Kroger’s CEO) stated:
“The long-term investments made by the company to strengthen and diversify the models have enabled it to manage economic cycles and deliver on full-year outlook. By delivering value for customers and investing in associates, Kroger is well positioned to generate attractive results for shareholders.”
Earlier in the year, The Kroger Co. (NYSE:KR) announced intentions to acquire Albertsons Companies, Inc. for a valuation of $24.6 billion. Albertsons Companies, Inc. (NYSE:ACI) generated $24.3 billion in revenue in Q1 2024. The acquisition can significantly boost the Kroger Co.’s earnings. However, the merger has faced scrutiny from the Federal Trade Commission, which believes it could reduce competition and raise grocery prices. The case is now headed to federal court. Hence, investors must keep an eye out for this.
In anticipation of this merger being finalized, the stock’s share price of the stock has followed an upward trajectory, rising by 16% since the start of the year. Additionally, 46 hedge funds tracked by Insider Monkey have invested $4 billion in the company at the end of Q2 2024, placing it among the top 7 beef stocks to buy.
Overall, KR ranks 3rd on our list of best beef stocks to buy now. While we acknowledge the potential for KR 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.
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Disclosure: None. This article is originally published at Insider Monkey.
