Three Food & Beverages Stocks Attracting Investors' Attention In Consumer Space

Summary

• Food and beverage (F&B) stocks have performed well during the pandemic crisis, thanks to its tag of essential commodities
• F&B also helped the Canadian inflation to return to a positive territory in June, indicating pent up customer demands and rise in sales
• Shift from crisis to a recovery mode in recent days has also contributed to the rise in share prices of companies operating in food and beverage sector

Share prices of food and beverage stocks, a part of retail and consumer essentials industries, have performed well in these pandemic times. Consumers’ rush to stockpile essential goods amid Canadian government’s lockdown measures has helped shares of industry bellwethers progress, even as the broader composite index posts a 6.2 percent year-to-date (YTD) decline. Customer’s shift to online shopping has also contributed to this growth.

Canada’s inflation returned to positive territory after the Consumer Price Index (CPI) grew 0.7 percent year-over-year in June, indicating a change in people’s mood. Data released by Statistics Canada show prices rebounded in five of the eight major constituents over a year, with food and shelter leading the gains. As the federal government eased lockdown measures, pent up customer demands contributed to uptick in essential items and consumer goods. The numbers suggest a slow and contained economic rebound.

Below, we present stocks of three large-cap companies, that are likely to be long-term players and post positive returns.

Restaurant Brands International Inc. (TSX:QSR)

The COVID-19 has been harsh for Restaurant Brands International (RBI), the owner of popular global fast food restaurant brands Tim Hortons, Burger King and Popeyes. The shares are down 8.8 percent this year as governments across the world implement strict lockdown measures and ensure social distancing.

However, the North American economy’s shift from “crisis mode to recovery mode” in the recent days has the company seeing an uptick in sales. Shares have jumped 3 percent in one month and gained over 14 percent in three months. The company also has the third highest YTD volume of share trades in consumer products and services segment, signaling continued investors’ interest. In its 2020 first quarter report, RBI had a liquidity position of US$ 2.5 billion. Brand Popeyes saw a sales growth of 32 percent led by its Chicken Sandwich. RBI posts over US$ 34 billion in annual sales.

Under pressure from climate groups, RBI is also incorporating a sustainable menu to cut down its contribution to global greenhouse gas emissions. To this end, Burger King has started selling Whopper sandwiches with reduced methane emissions beef. The company’s chains – including Burger King and Tim Hortons – have also introduced Beyond Meat's protein-based faux meat products.

Most of RBI’s revenues arise from franchise royalties, and distribution sales to these franchisees. It has over 27,000 restaurants across 100 countries and US territories.

Dollarama Inc. (DOL)

Shares of discount retail store chain Dollarama Inc are in a good space despite the pandemic-led market crash, thanks to the company’s status as the provider of essential goods amid the crisis. Stocks have advanced nearly 6 percent this year, even as the broader TSX declined 6.2 percent YTD. The company’s shares have gained 7.44 percent in last one month and 8.99 percent in three months, all indicators of a strong bottom-line.

It paid quarterly dividends of C$ 0.044 per share and holds current dividend yield of 0.367 percent. In the first quarter, the company’s sales grew by 2.0 percent and posted net earnings of C$ 86.1 million.

The value retailer operates through two wholly-owned subsidiaries of Dollarama L.P and Dollarama International Inc and has stores over 1,200 locations (as of February 2, 2020). In August 2019, the company acquired a 50.1 percent stake Latin American retail chain Dollarcity, which has stores in Colombia, Guatemala and El Salvador.

Dollarama’s core business focus remains on brick-and-mortar stores, despite the ongoing slump in foot traffic during the pandemic. The retailer is targeting 1,700 locations across Canada by 2027 and intends to increase the footprint of Dollarcity. Its online wing has also boomed during the pandemic phase.

Empire Company Limited (TSX: EMP.A)

Next up on our food and beverage stock segment is Empire Company Limited, the owner food retailing behemoth Sobeys Inc. The company gained 14 percent this year, its scrips advancing 7.28 percent in a month and 3.8 percent in three months. Empire shares have retuned over 85 percent over a decade’s time. It currently pays C$ 0.13 quarterly dividends and has 1.515 percent dividend yield.

Under the Sobeys Inc wing, the company operates multiple brands such as Sobeys, Safeway, Foodland, FreshCo, IGA, Thrifty Foods and Lawton's Drug Stores. It has 1,500 stores in nearly 10 provinces and multiple retail fuel locations. Sobeys Inc accounts for company's primary income.

The grocery chain has annual sales to the tune of C$ 26.6 billion. In its third-quarter summary, the company announced net earnings of C$ 123.7 million (compared to C$ 72.9 million last year) and 0.8 percent increase in same-store sales (excluding fuel).

Empire plans to invest C$ 2.1 billion over the next three years to build and upgrade stores, expand its e-commerce wing to achieve C$ 500 million in benefits through growing market share and building on cost and margin discipline. The company also has investments in corporate and real estates.