The food market serves up plenty of opportunity for investors.
Bank of America estimates that the global food solutions market will be a $300 billion opportunity for investors by 2025. Advancements in plant-based protein, food delivery, farming, food ingredients, protein processors and animal health are just some of the many areas ripe for innovation. Unfortunately, Bank of America analysts say the valuations of popular future food stocks such as Beyond Meat (ticker: BYND) and GrubHub (GRUB) are extremely stretched at current levels. Still, plenty of future food stocks are trading at reasonable valuations for the long term. Here are seven future food stocks to buy, according to Bank of America.
Elanco Animal Health (ELAN)
Elanco Animal Health is one of the world’s largest producers of animal medicines and vaccines and has diversified exposure to different species, product classes and geographies. Food safety/animal health is one of eight future food megatrends Bank of America is watching. Elanco not only has significant exposure to livestock health but also should benefit from an increase in demand for pet medicine, especially in emerging markets, says analyst Michael Ryskin. Elanco’s recent acquisition of Bayer Animal Health should also help boost margins. Bank of America has a “buy” rating and $28 price target for ELAN stock.
IDEXX Laboratories (IDXX)
IDEXX Laboratories is a diagnostics and information technology company focused on pet and livestock health, as well as water and milk safety. Ryskin says IDEXX is well-positioned to deliver outsize growth. The stock trades at a valuation premium to many peers, but Ryskin says that premium is deserved, given IDEXX’s industry-leading commercial partnerships and potential for new product launches. Ryskin is anticipating a V-shaped recovery in the companion animal market. Bank of America has a “buy” rating and $440 price target for IDXX stock.
BRF SA (BRFS)
BRF is one of the largest protein processors in the world, with a 20% market share in poultry and operations in 110 countries. Protein processors/production is another of the eight future food themes, and BRF is a top stock pick for analyst Isabella Simonato. BRF shares are down about 55% year to date because of pandemic disruptions, but Simonato says the company’s cash flow is extremely impressive, particularly in Brazil and Asia. Simonato also says the stock is cheap relative to its historic valuation range. Bank of America has a “buy” rating and $4.50 price target for BRFS stock.
Kroger Co. (KR)
Food retail is another key theme in the future food trade. Retailers like Kroger are changing the way they source, sell and deliver food. Kroger is planning to launch a digital marketplace of grocery offerings via a partnership with e-commerce company Mirakl. Mirakl specializes in business-to-consumer and business-to-business marketplaces. Analyst Robert Ohmes says Kroger Ship will boost profitability, and the fall launch of the digital ecosystem is perfect, given that the pandemic has made online grocery shopping more important than ever. Bank of America has a “buy” rating and $42 price target for KR stock.
Amazon let investors know it was serious about innovating the food space when it paid $13.4 billion in 2017 for Whole Foods. Since then, Amazon has focused on integrating its online sales model and Whole Foods’ brick-and-mortar model to create an omnichannel ecosystem that can rival leading competitor Walmart. Ohmes says Amazon is still investing heavily to challenge Walmart as the U.S. grocery leader. Amazon recently expanded its grocery delivery capacity by 60% and integrated Amazon Fresh into its standard Prime membership. Bank of America has a “buy” rating and $3,560 price target for AMZN stock.
Walmart recently partnered with Instacart to offer same-day delivery in a handful of test markets in Oklahoma and California. The Instacart partnership comes after Walmart delayed the launch of its Walmart+ subscription service in early August. Ohmes says Walmart is gaining U.S. grocery market share during the pandemic, and the stock has bullish catalysts ahead. Walmart’s pickup and delivery rates are more than four times higher than they were before the health crisis, and Ohmes says Walmart’s store profitability is improving thanks to elevated grocery demand. Bank of America has a “buy” rating and $150 target for WMT stock.
Dover Corp. (DOV)
Dover manufactures industrial products, including refrigeration and food equipment. Food equipment and agricultural machinery are two of Bank of America’s future food themes, and Dover is exposed to both. Analyst Andrew Obin says Dover’s auto, industrial automation and industrial pumps markets are improving, and the company’s recently reinstated 2020 earnings-per-share guidance of between $5 and $5.25 gives investors much-needed visibility in a challenging environment. Dover is a compelling value, trading at just 22.4 times the low end of its EPS guidance. Bank of America has a “buy” rating and $122 price target for DOV stock.
Food stocks for the future:
— Elanco Animal Health (ELAN)
— IDEXX Laboratories (IDXX)
— BRF SA (BRFS)
— Kroger Co. (KR)
— Amazon.com (AMZN)
— Walmart (WMT)
— Dover Corp. (DOV)
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