Trots1905
The consumer staples sector had a strong year with the S&P 500 Index trailing even the Consumer Staples Select Sector SPDR ETF (NYSEARCA:XLP) and Invesco Dynamic Food & Beverage ETF (PBJ) via a wide margin as investors take a more defensive position. 
Looking into 2023, some investors are pushing back on valuations that have exceeded historical standards.
Mizuho Securities said it agreed with caution on staples in general, but also considered EPS risks largely constrained given strong pricing power and moderate inflation.
Analyst John Baumgartner and team note: “This could keep the team range-bound (and poised for relative outperformance) while the broader market grapples with possibility of additional negative EPS adjustment and negative surprises from inflation and rate hikes.” The company remains largely wary of discretionary spending and believes an early turnaround away from consumer staples could be costly.
In the food sector, Mizuho Securities selected Kraft Heinz (DIFFERENT) is the top large-cap option, Mondelez International (MDLZ) was the top large-cap growth pick and named Simply Good Foods (SMPL) and the BellRing Brand (BRBR) from the SMID growth portfolio. The most cautious company for Hain Celestial (TWO N) and Outside Meat (BYND).
Bank of America also thinks the food sector has the potential to expand thanks to its outperformance in 2022, but is sifting through to see which names can raise prices further. Key topics for investors to watch include the impact of reduced consumer transactions, the possibility of gross margin expansion if inflation declines, positive scenarios, capital allocation dynamics and M&A/divestment activities. Analyst Bryan Spillance and team see a strong setup for PepsiCo (PEP), Mondelez International (MDLZ) and Hershey (HSY).
The biggest increase in food stocks in the past 52 weeks is Lamb Weston (LW) +58%, WestRock Coffee (WEST) +42%, SunOpta (STKL) +35%, Campbell Soup (CPB) +29% and Post Holdings (PARCEL) +27%.
Some of the highest dividend yields found in the food sector are with B&G Foods (BGS) 12.98%, Calavo Growers (CVGW) 4.57% and Danone SA (OTCQX:DANOY) 3.83%.
The food reserve with the highest Seeking Quantum Alpha Rating is the Lancaster Colony (LANC), MamaMancini Corporation (MMMB), Cal-Maine Foods (CALMED), Nomadic food (NOMD), and Lifeway Foods (LWAY).
What to see: Consumer price index reports for December and the next few months will help investors see which foods are ending up in moderate prices and which are seeing rising prices. The combination of reduced consumer transactions and still strong price elasticity is likely to set up some food companies for the upcoming quarters. Read Alpha’s Catalyst Search to find out Preview of next week’s major events including the CPI release.
