Canadian food prices are increasing at faster rates than the overall consumer inflation rate. Food inflation at 10.4% for January 2023 printed a new 40-year record, even as the Consumer Price Index (CPI) slowed to an inflation rate of 5.9%. The food market remains heated, and food stocks could outperform the broader TSX in 2023. Loblaw Companies (TSX: L) and Maple Leaf Foods (TSX: MFI) are two interesting Canadian food stocks to buy in March.
Food inflation has remained above the 10% per annum mark since September 2022. Consumers feel the pinch. However, some food producers and distributors might be having their best days. Investors looking for the hottest sectors to add to their “shopping” baskets for 2023 should check out Canadian food producers and marketers. This staple sector has been able to pass rising costs to consumers and maintain (or grow) margins. Investment and retirement portfolios could enjoy a piece of the outperforming food stocks’ pie this month.
Let’s take a closer look.
Loblaw Companies
Loblaw Companies, as Canada’s largest grocery store operator, has become the face of food inflation. The company’s recession-resilient value brands, especially the No Name family of cheaply priced foods, are among the go-to household products as inflation bites consumers’ pockets. Management lifted a three-month compassionate price freeze on about 1,500 No Name products last month to protect its margins. More revenue growth could be on the way as the company maintains healthy margins during the food market turbulence.
The $38-billion food market giant boasts 2,400 store outlets accessible to over 90% of Canadians who live within a 10-kilometer radius of a Loblaw store. It’s most likely that Loblaw will report another good quarter as it charges more for its products and passes down rising costs to loyal, increasingly value-conscious consumers.
Loblaw recently reported 6.3% year-over-year growth in annual revenue to $56.5 billion in 2022 and an 18.4% increase in adjusted diluted net earnings to $2.3 billion. Share repurchases augmented the results. Adjusted net earnings per share increased 22% year over year. Loblaw’s share count declined by 10.9 million shares during the past year, and is down nearly 15% over the past five years. Long-term investors enjoy a greater share in Loblaw stock, without lifting a finger – one key attribute that investing legend Warren Buffett loves.
Loblaw stock is slightly down 2.4% so far this year, allowing new investors to find good entry points for long-term positions in a proven recession-proof business.
Maple Leaf Foods
Packaged meat products giant Maple Leaf Foods is one of the food stocks on steroids in 2023. Maple Leaf stock has rallied by 15% year to date. Investors could book more quick gains as MFI stock picks up valuation recovery momentum. The market seems to be warming up to the food stock’s future prospects as it turns around its operations after some years of slumber.
The $3.4 billion meat production and packaging company is a popular household name, an attribute that should remain intact as Maple Leaf makes inroads into the alternative meat products market through acquisitions of plant-based “meat” protein innovators.
The company is scheduled to release its fourth-quarter and full-year results for 2022 this week. Management strongly believes Maple Leaf can achieve a targeted 14%–16% adjusted earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA) margin target by 2023. The key margin was 6.2% during the third quarter of last year.
Market analysts seem to believe the turnaround narrative. Normalized net income growth estimates of 630% year-over-year growth and an emphatic return to positive free cash flow generation in 2023 are the big highlights of bullish analyst sentiment on MFI stock for 2023 and beyond. The company last generated positive free cash flow in 2018.
Following an eight-year dividend growth streak, the food stock’s common stock dividend has grown by 54% over the past five years. The latest MFI stock quarterly dividend yields 2.8%. MFI stock may be a dividend growth play to watch.
