Food Stocks Soar in Flight to Safety

Food stocks posted dramatic gains in Tuesday’s session, reacting to supply chain disruptions and shelter-in-place orders that will greatly increase the American appetite for home cooking. A flight to safety is driving the uptick as well, with these dividend-paying equities often outperforming growth issues during periods of economic contraction. Look for this trend to continue in coming weeks, even after we get some good news about infection rates.

This is a stock picker’s market despite the rally, with a group of perennial laggards bringing up the rear. Kraft Heinz Company (DIFFERENT) falls squarely in this category, struggling near an all-time low after a string of bad management decisions undermined profits for the company’s iconic brands. Don’t be fooled by the 6.68% forward dividend yield because the company has no choice but to offer a ridiculously high rate to keep from losing ground more quickly.

Campbell Soup Company (CPB) has emerged as a big winner in America’s growing isolation ward, with canned goods flying off the supermarket shelves when customers can find them. The company is also engaged in a multi-year reorganization plan, shedding debt and unprofitable lines of business at a rapid pace. Investors took notice of the change well before the current crisis began, lifting the stock to a 52-week high. It currently pays a 2.60% forward dividend yield.

A brutal decline ended at a six-year low in 2009, giving way to a healthy advance that reached resistance at the 1998 high near $63 in 2016. Sellers reloaded positions at that level, triggering a downtrend that posted a seven-year low in the first quarter of 2019. The stock turned higher into 2020 and stalled near $50, ahead of an early March earnings report that triggered a breakout. It is now gyrating in the low $50s, building steam for continued upside into the 2016 peak.

PepsiCo, Inc. (PEP) is winning the soda wars with Dow component The Coca-Cola Company (IS), at least from a technical viewpoint, with Pepsi holding support at a 10-year trendline while its rival has broken down to a two-year low. A diverse product line and excellent execution has kept the stock on the fast track for years, rewarding shareholders with superior returns. It currently pays an impressive 3.38% forward dividend yield.

A downtrend settled at a four-year low in March 2009, ahead of a recovery wave that broke out above the 2008 high at $79.79 in 2013. The subsequent uptrend entered a rising channel in 2014, grinding out a series of new highs, interspersed with periodic channel breakdowns. The stock mounted the rising trendline just before the outbreak, while the downdraft into March is now approaching support that has signaled major lows in 2009, 2011, 2015, and 2018.

Hormel Foods Corporation (HRL) pays a 1.92% forward dividend yield. This safe haven issue offers the twin benefit of a hot market sector and a multi-year price chart that is now forecasting much higher prices. It is also a sign of the times that loading up on canned meats and peanut butter has become more valuable to the American consumer than owning an iPhone, Air Jordans, or a Model 3 sedan.

The stock has been a solid performer for years, grinding higher in a slow but steady uptrend that resumed in 2009 after a sell-off to a six-year low. The rally topped out in the mid-$40s in the first quarter of 2016, yielding a rounded correction that found support near $30 at the end of 2017. Price action since that time has filled out a multi-year cup and handle pattern that has now completed a month-long V-shaped pattern, erasing February losses. A breakout should open the door to the mid-$60s.

The Bottom Line

Food stocks are attracting impressive buying interest during the pandemic, with customers loading up on household staples to weather the storm.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.