The U.S. economy is likely expanding significantly, as the Federal Reserve is now predicting that the economy will grow by a strong, seasonally adjusted, annualized rate of 2.9% above inflation during the current quarter. Still, the U.S. unemployment rate surged to 4.3% in July — up from 4.1% in June. The savings rate tumbled to 3.4% of after-tax income in June 2024 from 4.8% during the same period a year earlier.
Further, multiple, major companies, including Disney (NYSE:DIS), Macy’s (NYSE:M), and Amazon (NASDAQ:AMZN), are reporting that many consumers are reducing their spending.
In the current environment, buying food stocks is a good idea, since everyone has to eat in order to live. As a result, many food companies should be more resilient to reduced consumer spending trends than other types of firms that get most of their revenue from consumers. Here are three top food stocks to buy that should deliver strong returns despite the rocky consumer spending environment.
El Pollo Loco (LOCO)
In a smart marketing move that has apparently impressed the Street, El Pollo Loco has hired popular TikTok influencer Yuri Lamasbella to promote its Double Chopped Salads. The marketing campaign featuring the influencer, who has 4.7 million TikTok followers and 3 million Instagram followers, will feature “compelling content creation, mouth-watering food photography and strategic branding” by Lamasbella, El Pollo Loco reported.
I’ve long believed that the company would eventually benefit from its combination of tasty, healthy food, appeal for those like Mexican food, and affordability. Lamasbella’s hiring by El Pollo may finally get many members of Generation Z to try the brand for the first time, and many of them will likely remain loyal to it.
The firm hired Liz Williams as its CEO in March, and the brand was already performing well under her leadership before Lamasbella’s hiring. Specifically, its systemwide comparable restaurant sales climbed 4.5% last quarter versus the same period a year earlier last quarter while its income from operations advanced to $12.3 million from $10.9 million in Q2 of 2023.
Given El Pollo’s strong performance last quarter and its hiring of Lamasbella, I view it as one of the best food stocks to buy.
Costco (COST)
Of course, Costco (NASDAQ:COST) sells a great deal of food, and the retailer could get a big boost if consumers generally eat more at home and less at restaurants.
Additionally, on July 2, investment bank Stifel reported that Costco and Amazon combined accounted for 23% of the growth of the U.S. grocery sector from 2019 to 2023. “The companies benefited from a ‘strong value proposition and convenience,’ along with their spending on loyalty programs and digital offerings,” Stifel wrote. During the period, Costco gained market share from multiple competitors, including drug stores and traditional grocery outlets.
Last month, Costco’s comparable store sales increased by an impressive 5.2% versus July of 2023.
Investor’s Business Daily gives COST stock a very high Composite Rating of 91 out of 99 and ranks it first in the Retail-Major Discount Chains category. Moreover, the shares have a Relative Strength score of 92, indicating that they have performed very well over the past year.
Given Costco’s many positive attributes, it is one of the best food stocks to buy.
Freshpet (FRPT)
Of course, pets have to eat, too, and most pet owners want to give their companions high-quality, healthy food. As a result, Freshpet (NASDAQ:FRPT), which provides “natural fresh meals and treats for dogs and cats” in the U.S., should continue to post strong financial results even if consumer spending growth markedly slows.
Last quarter, the retailer’s sales soared 28% versus the same period a year earlier while its EBITDA, excluding certain items, jumped to $35.1 million from $9 million in Q2 of 2023. Moreover, the firm increased its full-year sales guidance to at least $965 million from at least $950 million and hiked its adjusted EBITDA outlook to at least $140 million from at least $120 million.
Further, the company noted that it had penetrated 12.8 million households at the end of Q2, up 2% versus the same period a year earlier. Freshpet believes that its products will be purchased by an impressive 20 million households in 2027.
Analysts, on average, expect the firm’s earnings per share to jump to $1.16 next year from 71 cents this year.
On the date of publication, Larry Ramer owned a long position in AMZN and his wife owned a long position in LOCO. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
