Top 5 Undervalued F&B Stocks to Invest in for 2024
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Many consumer brand stocks have shown mixed performances. For instance, Deckers Outdoor is up 43%, while Nike and Lululemon have declined by 42% and 33%, respectively, year-to-date. In the restaurant sector, Chipotle Mexican Grill has risen 37%, whereas McDonald's has dropped by 15% over the same period.
Overall, many established brands have struggled, whereas newer, younger brands with more growth potential have excelled. Today, I want to focus on food brands—companies whose products you may consume daily, fostering a strong affinity.
These brands have been around for a long time, enjoying substantial brand equity and global reach. Despite this, they are currently trading at undervalued prices, presenting potential opportunities for investors.
Two main reasons contribute to their undervaluation. First, inflation. Rising energy, ingredient, and transport costs have impacted these brands. While passing on cost increases to consumers is possible for these big brands, many consumers have become more cost-conscious, opting for cheaper alternatives. This challenge is widely acknowledged by management.
Second, the effectiveness of weight-loss drugs in reducing calorie intake by 20% to 30% has led to lower food consumption, impacting revenue growth for food brands. This factor currently affects share prices more than business fundamentals. Despite the decline in share prices, these businesses have been reporting revenue growth. It's important to note that not everyone will be on weight-loss drugs, so the impact may not be as widespread as feared.
Therefore, there may indeed be an opportunity to invest in established food brands during this period of uncertainty. Below is a list of five famous food brands that are currently undervalued.
#1 Mondelez (MDLZ)
What do Cadbury, Oreo, Ritz, Halls, and Toblerone have in common? They all belong to Mondelez. And that’s just the tip of the iceberg; there are many more brands under its umbrella.
If you enjoy some of these brands, holding a stock like Mondelez might be less of a challenge. As one of the major chocolate brands globally, Mondelez was impacted by the spike in cocoa prices. The good news is that the price increase was short-lived. Mondelez has secured its cocoa supplies through 2025, and prices have since fallen about 35% from their peak, making them more manageable.
Mondelez holds the top spot in the sweet biscuits category (cookies) with a 16% share of the worldwide segment, according to Euromonitor. Additionally, Mondelez controls more than 19% of the savory biscuit (crackers), and holds an 11% share in chocolate, just behind Mars/Wrigley’s 13%.
Mondelez benefits from both strong branding and economies of scale. Branding allows Mondelez to offer its products at premium prices, while economies of scale reduce costs. This combination results in a healthy net profit margin in the low teens. The company's extensive partnerships with retailers worldwide enhance distribution, brand awareness, and product availability, helping Mondelez push more sales and keep new competitors off the shelves.
In its 1Q24 results, Mondelez reported a 4.2% year-on-year revenue growth. While this isn't spectacular, it is a positive indicator. I estimate the fair price for Mondelez to be around $69, with the share price at the time of writing at $66, suggesting a slight undervaluation.