By Teresa Rivas

Packaged-food stocks have been left on the shelf recently -- and it doesn't look like investor appetite is likely to change anytime soon.

The Consumer Analyst Group of New York (CAGNY) is holding its annual conference this week, showcasing updates from staples companies across the board. It got off to a poor start on Tuesday, when the stocks of its two initial participants, General Mills and Conagra Brands, fell after their presentations, the latter notching its worst percentage decrease in nearly three years in intraday trading.

The problem is that "big food" was already "limping into CAGNY," as Evercore ISI analyst David Palmer put it in a note Tuesday.

That's because people are simply buying less branded packaged food: Their sales are still trailing overall food sales -- not only at traditional supermarkets but also when including data from Amazon.com and Costco Wholesale. Inflation-squeezed shoppers are doing without, trading down to private labels, or buying more alternatives like fresh bakery and produce items (though perhaps not eggs, which have only continued to climb in price, and some stores have purchasing limits).

Little wonder, then, that the stocks have stagnated. Over the past year, the S&P 500 index is up some 23%, while the Consumer Staples Select Sector SPDR exchange-traded fund is up just 9%. Some of that is to be expected at a time when Big Tech has driven market gains and still-high interest rates present a challenge to generous dividend-paying stocks.

Still, the problems appear deeper than that. The average packaged-food stock is down around 3% since the start of 2025, with some big names like Kraft Heinz, General Mills, Conagra, and Campbell's down more than that. Barron's recently noted that Berkshire Hathaway is losing money on its $9 billion Kraft stake. In fact, we said that founder Warren Buffett's comments on staples in the mid-'90s marked the top for some of those companies.

Then there's the uncertainty out of Washington. Tariffs remain a moving target, while Department of Health and Human Services Secretary Robert F. Kennedy Jr. had previously promised to shake up the food industry. Add in potential reduced demand due to GLP-1 weight-loss drugs, and the picture gets murkier.

"We are just slightly positive on fundamentals as we seem to be finding a bottom, but have not yet shown actual real growth," notes Truist analyst Ki Bin Kim.

There are a few silver linings, he notes: Comparisons get easier in the second half of this year, and Kroger recently said that its premium customers are showing signs of reverting to more normal spending patterns.

Nonetheless, despite being cheap and potentially at or near a low point, food stocks "need a catalyst," writes Palmer. Without any meaningful sign that sales trends are improving, it will be hard for them to make progress, at least through the first half of the year.

Investors should be selective. Palmer likes Mondelez International, given Americans' increased snacking and the fact that the company can still grow 2026 earnings even with high cocoa prices -- consensus estimates call for 9% earnings-per-share growth. Post Holdings is another analyst favorite: Nearly-two thirds of those tracked by FactSet are bullish and expect double-digit EPS growth in 2026, helped in part by its private-label food business.

Other bargains can be hard to find. A company like protein shake maker BellRing Brands -- which has outperformed food, staples, and the broader market over the past year -- is trading well above its five-year average at 32 times. Its expected double-digit earnings growth this year and next stands in contrast to the industry -- and therefore can command a premium.

Of course, people still need to eat. That's what once made food stocks such steady performers. But investors should beware of catching a falling butter knife.

Write to Teresa Rivas at teresa.rivas@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

February 19, 2025 01:00 ET (06:00 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.