The highest inflation in decades is hitting consumers and rippling through the food industry, from farm equipment to packaged food, grocers, and restaurants.
At-home food costs climbed 8.6% and out-of-home costs rose 6.8% in February from a year ago. Wholesale prices are up even more, signaling continued inflation at supermarkets and restaurants. The producer price index for food was up 13.4% in the year ended in February, with grains and the beef and veal category rising 20% or more.
In reacting to the surge in food costs, Wall Street has stuck with its usual playbook. Businesses like restaurants and packaged-food companies that are absorbing price increases have been hit, while farm-equipment makers, supermarkets, and food processors are seen as beneficiaries.
So, which stocks look best now?
Investors may want to consider depressed restaurant stocks like
Brinker International (ticker: EAT),
Bloomin’ Brands (BLMN), and
Starbucks (SBUX). Valuations in the sector have come down, with
Brinker and Bloomin’ trading around nine times projected 2022 earnings.
Hershey (HSY) remains the class of the food industry, while slower-growth companies like
General Mills (GIS), and
Conagra Brands (CAG), which have dividend yields of more than 3%, amount to alternatives to bonds.
Hostess Brands (TWNK) is one of the better growth stories in the group, thanks to the popularity of Twinkies (hence the ticker) and successful product innovations like mini Bundt cakes.
A strong U.S. farm economy helps
Deere (DE), the top producer of agricultural equipment, and
Bunge (BNGE), a leading agribusiness company, stands to benefit from wider “crush margins,” or profit on turning crops like soybeans into oil.
Higher food inflation tends to bolster…