As uncertainties weigh on the markets, food stocks are becoming all the more appealing. When it comes to defensive investing, a mix of passive income, capital gains potential, and excellent value for money sweeten the deal.
Today we’ll take a look at a classic consumer staples play that ticks all of these boxes while giving investors access to the growing trend in alternative protein.
A defensive stock at a deep discount
Maple Leaf Foods (TSX:MFI) mixes name brands familiar in Canadian households with plant protein and non-antibiotic raised meats. As such, it’s a diversified play on sustainable proteins, making for a classic defensive pick for consumer staples exposure in a low-risk passive income portfolio. The stock got chewed up last year, opening up an appetizing value opportunity.
Maple Leaf Foods could be looking at 24% capital gains in five years, though total shareholder returns could be in the over 30% range. Its 2.35% dividend yield, extreme discount against future cash flow potential (more than 95%), and expected annual growth in income (around 24%) make for an exciting speculative play for a cheap, defensive food stock.
Bite into some meat-free upside
With alternative protein looking set to go mainstream in the near future, stacking shares in relevant businesses could see a TSX stock portfolio pick up some considerable upside in the coming years.
Major fast food outlets are already garnishing their menus with meat-free choices, such as the addition of Impossible Whoppers to Burger King menus, and Denny’s commitment to Beyond Burgers.
With a growing taste for alternative protein among the public and a burgeoning trend in ethical investing, a mainstream meatless menu could be a recipe for upside in the coming years.
While there have certainly been hiccups along the way, such as Beyond Meat’s midweek dip of 4.3% as investors digested the news that Tim Hortons was binning Beyond Burgers, long term this is a trend to watch.
Indeed, the Tim Hortons news may not matter much to Beyond Meat, which is nevertheless up 50% year on year and recently partnered up with Snoop Dogg.
The latest meat-free celebrity endorsement sees the Beyond D-O-Double-G breakfast sandwich hitting Dunkin stores. And going forward, the iconic Tim Hortons, owned by Restaurant Brands International, could return to plant-based proteins in the future.
Combining Beyond Meat with Restaurant Brands International and Maple Leaf Foods is a strong power-play for consumer staples that covers a broad range of strategies.
It’s also a play for a potential recession, an economic possibility made stronger daily by a plethora of market stressors. From a potential credit bubble to the worrisome novel coronavirus outbreak, a downturn is not off the table.
The bottom line
Buying defensive dividend stocks is a strong play right now given the unusual amount of uncertainty rattling the markets. Adding alternative protein to a portfolio is also a smart move for a mix of the classic defence of a consumer staples stock with the high-growth of the green economy driven by ethical considerations, growing climate awareness, and long-term cost efficiencies.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.