The COVID pandemic has caused headwinds for some companies and tailwinds for others. Overall, many staple consumer goods companies that focus on food have done well and offer good opportunities for savvy investors, especially during the first lockdowns around the world in early spring.
On the other hand, food and beverage companies that also rely on leisure activities such as restaurants and cinemas have seen some of their revenues fall. Likewise, retailers, especially those not necessarily considered essential businesses, have taken a hit to their earnings and their stock prices.
In recent weeks we discussed that focus on food, agricultural products, worldwide, and listed in the UK FTSE indices, as well as their US counterparts.
Today we extend the discussion to another member with global operations, Associated British Foods (LON :), (OTC :), to see if the stocks are suitable for long-term portfolios.
Diversified Business
Associated British Foods, which has diversified business operations, is controlled by the founders' descendants. Over the past decade, ABF shares have risen more than 100%, or a compound annual growth rate (CAGR) of more than 7.5%. However, stocks have fallen 34% since the start of the year.
On November 3, Associated British Foods reported annual results for FY20 for the year ended September 12, which were £ 13.94 billion (or $ 18.19), down 12% year-on-year. But pre-tax profit was £ 686 million, down 40% ($ 895 million).
Five segments contribute to sales: Grocery, Sugar, Agriculture, Retail, Ingredients. The decline in sales and profit was mainly due to the closure of Primark clothing and lifestyle stores during the year. With further lockdowns in the UK imminent in November, Primark's revenues are likely to be negatively impacted again.
On the other hand, the other segments, especially groceries and sugar, have performed strongly. Many readers around the world are likely familiar with several of the company's brands, including Jordans, Dorset, Ryvita, Twinings, and Ovaltine.
In the UK, The Silver Spoon Company markets sugar and sugar alternatives. The Allied Mills operations manufacture well-known brands such as Burgen, Allinson, Sunblest and Kingsmill.
AC Food Companies is another company that specializes in food ingredients and operates in North America. Some of the US-based products include mazola corn oil, karo corn syrup, and the corn starch brand Argo. Readers in Mexico are likely familiar with the Capullo cooking oil and Inca shortening brand.
Finally, investors in Australia and New Mexico might know that George Weston Foods produces brands such as Burgen, Tip Top breads, Don deli products and KR Castlemaine meat.
The announcements of the results of FY20 showed that in order to save money, top executives said they would accept salary cuts and that the group would not pay an interim dividend.
CEO George Weston said:
" Our food businesses delivered an adjusted operating profit increase of 26%, driven by high demand and improved productivity. After a three-month shutdown, Primark delivered robust performance … We saved the people and cash to face the challenges ahead and we invest for the future. "
Yesterday the ABF share closed at 1,728p. ($ 22.53 for US-domiciled stocks). Forward P / E and P / S ratios are at 13.76 and 0.85 respectively. Opposite investors who are also looking for value may want to put the stock on their radar.
We think most of the bad news is already priced into the stock price.
Bottom Line
Investors looking for large cap stocks who have not had a great year so far in 2020 can choose from a number of additional stocks in both the UK and the US. For example, the shares of another FTSE 100 member, Compass Group (LON :), (OTC 🙂 a multinational contract catering company, are down nearly 45% since the start of the year (YTD). The company operates in nearly four dozen countries and employs approximately 600,000 people.
The forward P / E and P / S ratios of CPG are 25.51 and 0.68. The current stock price of 1.089p. ($ 14.38 for US stocks) supports a 2.5% dividend yield. We believe that those who invest money in the group during the latter part of the year can expect attractive returns in 2021.
Stateside, shares of Coca-Cola (NYSE 🙂 and Yum! The brands (NYSE 🙂 are down approximately 10% and 4% YTD, respectively. Finally, the shares of Mondelez International (NASDAQ 🙂 and PepsiCo (NASDAQ 🙂 have remained roughly the same in 2020 so far. Long-term shareholders in all four companies would also be entitled to respectable dividends.
