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Investors raising their noses at food companies

Investors seem to remain unsatisfied with any food company these days.

General Mills GIS 0.42%

We reported great results on Thursday. Net sales for the quarter ended November 29 were up 7% year-on-year. This was driven by 18% sales growth in both the pet food segment and North American food and baking, including brands such as Progresso Soup and Pillsbury Biscuits. Earnings per share, up 17% to $ 1.11, was 97 cents, well beyond analysts’ expectations, according to FactSet.

Still, stock prices were slightly higher in Thursday morning trading.Campbell soup last weekof

CPB 0.10%

After reporting similarly strong numbers, stock prices fell. Investors refuse to believe that good times will continue as Americans begin to commute again, restaurants are fully reopened, and more meals are consumed again outside the home.

For months, food companies have provided well-founded cases in which at least some of the increase in sales is sustained. They claim that families who have invested in new kitchen equipment and learned new cooking techniques are likely to continue cooking. Still, investors are not convinced. General Mills has risen about 10% so far this year, compared to a 15% rise in the S & P 500. Campbell is down about 5%.

At a conference call Thursday, General Mills CEO Jeff Harmening stepped up discussions, pointing out real-world evidence from two countries where the worst of the pandemic had already passed: China and Australia. did. General Mills owns the Chinese frozen dumpling brand Wanchai Ferry, which continues to grow double-digit sales five or six months after the domestic blockade ended, he said.

“Consumers’ diets never return to their previous state,” he said.

Investor skepticism about food stocks is beginning to make them look like a complete bargain when compared to other pandemic winners such as Clorox and Procter & Gamble.,

According to FactSet, they are trading on 25x and 24x futures returns, respectively. In contrast, General Mills is 16x more profitable in futures and Campbell is only 15x more profitable. Still, after a pandemic, soup and baking mix sales are likely to continue to grow, as well as disinfecting wipes and toilet paper.

Will the coronavirus pandemic make a long-term change in the way we buy food? To better understand the challenges facing grocery stores, WSJ’s Alexander Hotz spoke with industry insiders, shopkeepers and Wal-Mart executives.

Food stocks also offer better payments for those looking for income in a zero-rate world. Yields for General Mills and Campbell are 3.4% and 3.1%, respectively, compared to 2.2% and 2.3% for Clorox and P & G.

Groceries are becoming one of the rare and valuable things on the market today. Investors should consider returning to the table.

Write to Aaron back aaron.back@wsj.com

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Investors raising their noses at food companies

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