MRU:CC - Investing in Canada's Food Industry: Top Stocks to Watch in June 2023
2023-06-15 09:00:00 ET
The food industry is Canada’s second-largest sector and is likely to grow further in the upcoming decade. Companies part of this industry make, sell, or package food products and experience stable demand across market cycles.
Consumer staple stocks are also recession resistant, making them top bets amid a volatile and uncertain macro environment. Here are three such TSX food stocks to watch out for in June 2023.
Metro stock
One of the largest companies in Canada, Metro ( TSX:MRU ) operates 950 stores and 650 pharmacies. Valued at a market cap of $16 billion, Metro also pays investors an annual dividend of $1.21 per share, indicating a yield of 1.7%. Metro stock is up 260% in the last 10 years, easily outpacing the TSX index .
In the fiscal second quarter (Q2) of 2023, Metro increased sales by 6.6% to $4.55 billion. While food-store sales grew 5.8%, pharmacy same-store sales grew 7.3%. Despite a higher pricing environment, Metro’s adjusted net earnings were up 10% at $225.4 million.
Analysts expect adjusted earnings to grow by 10.3% annually in the next five years. Priced at 16.2 times forward earnings, Metro stock is trading at a discount of 15% to consensus price targets.
Maple Leaf Foods stock
A company operating in the packaged meat space, Maple Leaf Foods ( TSX:MFI ) exports products to more than 20 countries that include the U.S. and Japan.
It is one of the world’s largest food processors of hog meat and recently diversified its revenue stream to include plant-based meat products as well.
Maple Leaf reported revenue of $1.17 billion in Q1, an increase of 4.3% year over year, while its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin stood at 6.4%.
Sales for meat products grew $1.14 billion, a rise of 5% year over year, while an adjusted EBITDA margin of 7.6%. Plant-based meat sales stood at $37.4 million, and this segment remains unprofitable, with an EBITDA loss of $12 million.
MFI stock offers a dividend yield of 3.2% and is priced at 13.5 times 2024 earnings.
Loblaw stock
The final TSX food stock on my list is Loblaw ( TSX:L ), a popular Canadian retailer. Armed with a banner of 22 different stores, it is also the country’s largest supermarket chain.
In addition to food items, Loblaw sells other consumer products, such as pharmaceuticals, clothes, and automotive goods.
It is a discount retailer making it ideal for shoppers looking for lower-priced products. Additionally, a generous rewards program results in higher customer retention rates.
Valued at a market cap of $37.6 billion, Loblaw pays shareholders a tasty dividend yield of 1.53%. Priced at 16 times forward earnings, the TSX stock is trading at a discount of 20% to consensus price target estimates.
Loblaw is a perfect stock to hedge against a market downturn, as it offers consumer staple products while providing discounts for premium brand shoppers.
In the last 10 years, Loblaw stock has surged 244% after accounting for dividends. In this period, the TSX index has gained 131%.
The above-mentioned TSX food stocks should perform well in the near term, especially if inflation remains elevated.
The post Investing in Canada’s Food Industry: Top Stocks to Watch in June 2023 appeared first on The Motley Fool Canada .
Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .
2023