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3 Stocks to Hedge Against Inflation

Despite the Fed’s aggressive rate hikes to slow consumer spending and tame inflation, rising prices show no signs of slowing down. Food stocks tend to fare better than others amid an inflationary environment, thanks to the inelastic demand for their products. So, we think investing in fundamentally strong stocks The Kroger (KR), Kellogg (K), and Pilgrim’s Pride Corporation (PPC) can help hedge your portfolio from inflation. Keep reading...

The Federal Reserve is expected to continue pushing up interest rates as it tries to bring down persistently high inflation with the general idea of slowing consumer demand and easing inflationary pressure. The reduced demand usually translates to job or income loss, which becomes the primary pain during a recession. Inflation is still running around its highest level in more than 40 years.

Food stocks, which fall under the consumer staples sector, tend to perform relatively well during inflation due to the inelastic demand for these products. Moreover, the higher costs from inflation can easily be passed on to the consumer. The food index rose 0.8% for September and is up 11.2% from its year-ago value.

On top of it, the food market is expected to grow annually by 6.7% over 2022-2027, and the market is projected to witness a volume growth of 4.9% in 2023.

Therefore, we think fundamentally strong stocks The Kroger Co. (KR), Kellogg Company (K), and Pilgrim’s Pride Corporation (PPC) might help hedge your portfolio amid the soaring inflation.

The Kroger Co. (KR)

KR operates as a retailer in the United States. The company operates combination food and drug stores, multi-department stores, marketplace stores, and price-impact warehouses.

On October 18, KR announced the official opening of its newest Customer Fulfillment Center in Romulus, Michigan, which will leverage advanced robotics technology and creative solutions to redefine the customer experience for customers in the greater Detroit area. The expansion should help drive up the company’s revenue stream over time.

On October 14, KR and Albertsons Companies (ACI) announced that they have entered into a definitive agreement under which the companies will merge, aiming to expand the customer reach and improve proximity to deliver fresh and affordable food to approximately 85 million households with a premier omnichannel experience. The company expects this collaboration to drive profitable growth and sustainable value for all its shareholders.

On September 15, KR declared a quarterly dividend of 26 cents per share to be paid to shareholders on December 1, 2022. The company has 15 years of consecutive dividend growth.

KR’s sales increased 9.3% year-over-year to $34.64 billion in the fiscal second quarter ending August 13. Its operating profit increased 13.7% year-over-year to $954 million. The company’s adjusted EBITDA grew 10.9% from the year-ago value to $7.63 billion, while its adjusted EPS improved 12.5% year-over-year to $0.90.

Street expects KR’s revenue for the fiscal year ending January 2023 to come in at $148.32 billion, indicating an increase of 7.6% year-over-year. The company’s EPS is expected to grow 10.9% year-over-year to $4.08 in the same year. Additionally, as the company surpassed the consensus EPS estimates in each of the trailing four quarters, it has an impressive earnings surprise history.

KR has gained 11% over the past year to close the last trading session at $44.77. The stock has gained 4.2% over the past five days.

It is no surprise that KR has an overall rating of A, translating to Strong Buy in our POWR Ratings system.

KR’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has a B grade in Growth, Value, and Quality. Out of the 38 stocks in the A-rated Grocery/Big Box Retailers industry, KR is ranked #9.

In addition to the POWR Ratings grades just highlighted, you can see KR ratings for Sentiment, Momentum, and Stability here.

Kellogg Company (K)

K manufactures snacks and convenience foods in 21 countries and markets its products in 180 countries. Its principal products include crackers, crisps, savory snacks, toaster pastries, cereal bars, granola bars and bites, ready-to-eat cereals, frozen waffles, veggie foods, and noodles.

On July 29, K declared a dividend of $0.59 per share on the common stock of the company, indicating a 2% increase, payable on September 15, 2022.

K’s net sale came in at $3.86 billion for the second quarter that ended July 2, 2022, up 8.7% year-over-year. The company’s adjusted operating profit increased 6.4% year-over-year to $529 million, and its adjusted EPS rose 3.5% year-over-year to $1.18.

K’s revenue is expected to increase 3.5% year-over-year to $3.54 billion in its fiscal fourth quarter ending December 2022. Similarly, its EPS is likely to gain 5.1% year-over-year to $0.87 in the same quarter. Moreover, the company has surpassed its EPS estimates in each of its trailing four quarters, which is impressive.

Over the past year, the stock has gained 20% to close the last trading session at $74.09. K has gained 15% year-to-date.

It is no surprise that K has an overall B rating that equates to a Buy in our POWR Ratings system.

K also has a B grade for Stability and Quality and is ranked #19 out of 85 stocks in the Food Makers industry.

Beyond what is stated above, we’ve also rated K for Value, Growth, and Momentum. To see more of K’s POWR Ratings, click here.

Pilgrim’s Pride Corporation (PPC) 

PPC produces, processes, markets, and distributes fresh, frozen, and value-added chicken and pork products to retailers, distributors, and food-service operators worldwide. The company offers its products under several brands.

On September 15, PPC announced that it was soliciting consent from the holders of each of its 4.250% sustainability-linked senior notes due 2031 and 3.500% senior notes due 2032, each issued by PPC to certain proposed amendments as set forth to the indentures governing each series of notes.  

During the second quarter that ended June 26, 2022, PPC’s net sales increased 27.3% year-over-year to $4.63 billion. Its adjusted EBITDA rose 67.7% from its prior-year quarter to $623.30 million, while its EPS grew 320.6% year-over-year to $1.50. 

Analysts expect PPC’s revenue to increase 17.1% year-over-year to $17.30 billion for the fiscal year ending December 2022. The company’s EPS is expected to grow 68.3% year-over-year to $3.84 for the same quarter. Additionally, PPC has surpassed its EPS estimates in three of the trailing four quarters.  

PPC has gained 3.3% in the past five days to close its last trading session at $22.45. 

PPC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our rating system. 

PPC also has an A grade for Growth and a B for Stability and Quality. It is ranked #9 in the Food Makers industry.

To see additional POWR Ratings for Value, Sentiment, and Momentum for PPC, click here.

KR shares were unchanged in premarket trading Wednesday. Year-to-date, KR has gained 0.31%, versus a -18.79% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.


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