Why I am adding more Nomad Foods
A couple months ago I wrote an article “an opportunity arises in food stocks.” Since that time it has been a mixed bag of returns. Tyson Foods has broadly outperformed the S&P 500 while Treehouse Foods crushed it because they were acquired by Investindustrial at a substantial premium of 38% to the trading price. One of the cold storage REITs I wrote about, Americold, has seen activists attack and now are in talks with private equity to sell-off their international assets with Seth Klarman’s Baupost fund, one of the most successful value funds ever, taking a substantial stake in the REIT according to the latest 13F filings. I am increasing intrigued by the poor performance of ‘big food’ companies like Kraft-Heinz, General Mills or Campbell’s Soup. Even larger alcohol companies like Diageo and Molson Coors are in the doghouse. All of these products are or ‘were’ consumer staples. The narrative that consumers are transitioning away from these companies seems questionable, as I looked closer at the products in my own home and found several made by Kraft Heinz (Peanut butter, Philadelphia Cream Cheese and Ketchup) while my child’s Goldfish crackers are in fact made by Campbell’’s Soup. We own two boxes of General Mills cereal and have been eating it for years. I consider myself as someone relatively health coconscious who avoids foods with high saturate fats or sodium. Can it be possible that other households who care less about healthy eating have cupboards without these consumer staples. It seems highly unlikely despite a powerful narrative.
Why food stocks are underperforming:
Narrative about Ozempic/weight loss drugs are spreading like wildfire
Concerns about the impact of SNAP reductions on the US food trade
Consumer weakness resulting in more cautionary spending
Concerns about the growth of private label competition
Narratives that consumers are shifting towards healthy food habits
Other market components hogging capital due to outperformance
Higher treasury bond yields making dividend paying stocks less attractive
A sluggish year with numerous food companies reporting lower EBITDA
Inflationary impacts, higher wage growth has reduced margins
Counter narrative to the bear case:74% of America’s have no plans to consider weight loss drugs; of those who do take them, an astonishing 52% develop nausea and 34.3% diaherra. [Source]
SNAP (Supplemental Nutrition Assistant Program) cuts are spread out over a decade long period. A federal judge forced Trump to resume paying benefits to ‘hostile’ states during the government shutdown. [Source]
We are likely tethering near a recession as the Fed responds to rising unemployment which may mark a turning point in a macro cycle
Private label is not new. Larger food companies have largely reduced pricing to compete and margins tend to be higher because of scale.
Broader market weakness could push investors into underperforming defensives
Some food companies are projecting a return to positive EBITDA growth in 2026
Inflation is down. Unemployment and wage growth are both under pressure which is positive for employee retention and hiring.
In general, when I look at food companies, the majority of them are trading at
