Instead Of Conagra (CAG), Go For These 3 Sizzling Food Stocks

With headwinds like rising commodity and freight costs, several players in the Zacks Food-Miscellaneous industry have not been in their best shape. Additionally, the food space is rife with stiff competition, compelling companies to invest more on promotions. Such aspects have caused the Food – Miscellaneous industry to crumble nearly 16% in a year compared with the S&P 500’s decline of 5.2%. The industry is currently ranked among the bottom 32% out of more than 250 Zacks industries.

Well Conagra Brands, Inc. (NYSE:CAG) is one of the weak links in this space, bearing the brunt of the aforementioned hurdles. This Zacks Rank #4 (Sell) company’s shares have plunged 43% in the past year. Let’s take a closer look at the aspects affecting this renowned food company. On the contrary, let’s also discuss three food stocks that look promising, courtesy of well-chalked strategic measures that have enabled them to stay afloat amid tough industry conditions.

What Spoiled the Broth for Conagra?

Escalated input costs are a threat to Conagra and are likely to persist in the near term. Although the company’s adjusted gross margin improved year over year in the second quarter of fiscal 2019, the company continued to be under pressure from input cost inflation of 2.9%. Notably, the company witnessed a rise in transportation and warehousing expenses. Moreover, higher costs of packaging and certain ingredients also weighed on gross margin. Going ahead, the company anticipates input cost inflation to be 3-3.2% in fiscal 2019. The company plans to continue increasing retailer and marketing investments, which may further weigh on profits.

Apart from this, sales in the Foodservice segment have been witnessing year-over-year declines for four straight quarters due to soft volumes. Well, the company’s focus on its value-over-volume strategy has been hurting sales in the segment for some time among other factors. Persistent impacts from these aspects are a worry. To top it, Conagra’s international presence keeps it exposed to the risk of adverse currency fluctuations. In fact, we note that currency headwinds hurt sales growth in the International segment by 410 basis points in the second quarter.

Clearly, these factors have made industry experts hesitant about Conagra. To turnaround matters, the company is adopting portfolio refinement by acquiring high-margin generating businesses, while divesting the less profitable ones.

Are There any Attractive Picks in the Food Space?

While there is no denying that companies in the Food-Miscellaneous industry are reeling under escalating costs, endeavors such as innovation, buyouts and expansion in the natural food products arena are helping some of the players to stay firm. These companies have also been diverting their attention toward cost optimization. That said, let’s take a look at some of the lucrative picks in the industry.

3 Sizzling Food Picks

We have zeroed in on three stocks from the food space that hold substantial growth potential. Each of these stocks currently carry a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

McCormick & Company, Incorporated (NYSE:MKC) , a renowned name in spices and seasonings, has gained as much as 20.4% in a year. Recently, the company came out with fourth-quarter fiscal 2018 results, with the top and the bottom line improving year on year. The quarterly performance gained from pricing actions, new product offerings and strength in the company’s base business. Further, the company is on track with growth-oriented plans like the Comprehensive Continuous Improvement to enhance profits as well as efforts to rationalize portfolio. Further, we note that the company has an estimated long-term earnings growth rate of 9%.

Investors can also count on Lamb Weston Holdings, Inc. (NYSE:LW) , which boasts stellar bottom-line surprise history. Encouragingly, this frozen potato products supplier’s shares have rallied 21.8% in a year. Markedly, following its spin-off from Conagra Brands, the company has been delivering positive earnings and sales surprise. Moreover, the company’s potential is reflected in its encouraging outlook for fiscal 2019 and long-term growth rate of 12%.

Nomad Foods Limited (NYSE:NOMD) also looks promising. The stock has increased close to 5.1% in the past year. The company has long-term growth rate of 11% and its earnings beat the Zacks Consensus Estimate by average of 11.4% in the trailing four quarters.

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