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Institutions Investing in Overlooked Consumer Staples

Consumer staples names have underperformed in the past year due to tough comps and changing consumer habits. However, these stocks are now trading at significant discounts to their historical prices and offer deep-value and high yields. While they may not have a strong growth outlook, they do offer steady business, improved profitability, dividend coverage, and distribution growth that surpasses the broader market.

Despite the possibility of these stocks remaining at current lows or even trending lower, there is a catalyst for upward movement. Institutions are buying stocks like Medifast, Archer-Daniels-Midland, and Kraft Heinz, and analysts predict that they will move higher. Assuming these businesses continue to perform as expected, their share prices should appreciate over time while providing market-beating yields.

Medifast has been impacted by the decline in the weight loss supplement and management market due to the introduction of new weight loss drugs. However, its business is normalizing above 2019 levels, which bodes well for its dividend coverage. The company’s dividend coverage is running at roughly 2 times the payout, and the payout ratio is about 50% of the full-year outlook. Furthermore, Medifast’s cash position has almost doubled compared to last year, and it has no interest-bearing debt. This positions the company to continue increasing its dividend in the future.

Archer-Daniels-Midland acts as a middleman between farmers and consumer food manufacturers, handling and processing agricultural commodities. The stock trades at nearly 11 times its earnings, offering value relative to its sector and the broader market. It also provides a 2.35% yield. Institutions own about 78% of the stock and have been buying it consistently for the past four quarters. Analysts anticipate that the stock will move higher by more than 25%.

Kraft Heinz experienced a correction within a trading range this year and hit the bottom of the range in Q3. This coincided with increased institutional activity and a rebound in the stock price. Institutions have been buying Kraft Heinz for the past seven quarters, owning about 75% of the stock. Analysts have trimmed their price targets for Kraft Heinz this year but still expect it to move up by approximately 22%. The upcoming Q3 earnings report could serve as a catalyst for further market momentum.

Overall, these overlooked consumer staples stocks present an opportunity for institutional investors to find value and potentially earn market-beating yields. Medifast, Archer-Daniels-Midland, and Kraft Heinz are examples of stocks that institutions are investing in, with analysts predicting that their share prices will appreciate in the future.

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