BANK OF AMERICA: Buy these 6 food stocks best-positioned for stay-at-home Halloween celebrations as towns curb trick-or-treating

  • Halloween is set to look a bit different this year, as COVID-19 cases surge to their highest-ever levels in the US.
  • Here are 6 stocks to buy that won't be spooked by the pandemic, according to Bank of America.
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How are Halloween traditions like trick-or-treating and costume parties going to look in the midst of America's biggest COVID-19 outbreak since the pandemic began?

For food and beverage manufacturers — and their shareholders — it's a spooky question.

Fortunately for them, even as some townships scale back trick-or-treating plans and the CDC recommends against crowded parties, demand is still expected to be robust as consumers move to celebrate in other ways.

Though 28% of consumers say they do not plan to celebrate Halloween due to COVID-19, smaller at-home celebrations are expected to play a more prominent role, according to recent data from Bank of America and Survey Monkey. Twenty-five percent of consumers say they plan to celebrate at home.

"Over the past few weeks, we have fielded numerous queries from investors regarding risk of a Halloween sales slump," Bryan Spillane, a research analyst at Bank of America, said in the note.

"Our net takeaway is that consumers will likely find unique and safe ways to celebrate Halloween while still purchasing Halloween treats," he added.

Still, trick-or-treating doesn't seem to have completely lost its appeal, despite the risk it poses of spreading COVID-19.

Twenty-one percent said they still plan to trick-or-treat, down from 29% last year, Bank of America data showed. According to data from The Hershey Company, 48% of consumers say they will be handing out candy to trick-or-treaters, the note said.

But with the move toward more at-home celebrations than normal, Bank of America said snacks and baking will see a boost. 

All of this in mind, they said the following six stocks — listed below with commentary from Spillane and his team on upside and downside risks — are well-positioned for Halloween sales.

1. Conagra Brands, Inc.

Ticker: CAG

Commentary: "Upside risks are: "Key categories (Frozen Foods and Snacks ) accelerate and center brands (Hunt's, Chef Boyardee, Duncan Hines) stabilize."

"Downside risks: Competition from branded and private label players intensifies causing Conagra to need to step-up marketing investments and cause the Conagra to miss its multi-year profit and de-leveraging objectives."

Source: Bank of America

 

2. General Mills

Ticker: GIS

Commentary: "Upside risks to our PO [price objective] are improvement in fundamentals for domestic food categories, particularly better-than-expected volumes in center-of-store categories as well as upside to market share gains for Blue Buffalo."

"Downside risks to our PO are consumers trading down to private label, higher-than- expected commodity cost inflation, stalled momentum in pet food and weaker-than- expected sales in international/emerging markets."

Source: Bank of America

 

3. Kraft Heinz Company

Ticker: KHC

Commentary: "Upside risks to our PO: 1) at home consumption continues to remain elevated above expectations, 2) foodservice recovers at a faster rate, 3) new strategy will be funded with cost savings and 4) balance sheet repair can be accelerated with the help of divestitures at attractive valuations."

"Downside risks to our PO: 1) scope and complexity of change, 2) potential that sales and market share gains will revert back to pre-COVID-19 levels, 3) fluctuations in commodity costs and currencies could cause earnings volatility."

Source: Bank of America

 

4. Mondelez International

Ticker: MDLZ

Commentary: "Upside risks: Revenue growth accelerates beyond category growth."

"Downside risks: 1) Foreign exchange could be a bigger headwind than anticipated, 2) Potential increases in input costs primarily in confections, and 3) Weaker than expected demand due to shifting consumer preferences."

Source: Bank of America

 

5. PepsiCo

Ticker: PEP

Commentary: "Upside risks to our PO: 1) Low to moderate FX headwinds. 2) Rebase initiatives put the business in a better position for growth. 3) Improving volume/price/mix in soft drinks."

"Downside risks to our PO: 1) FX becomes a larger headwind than expected. 2) North American Beverages struggles to grow without advertising spending in FY20. 3) Frito Lay North America has difficulty comping price increases from last year. 4) Uncertainty about sugar taxes."

Source: Bank of America

 

6. The Hershey Company

Ticker: HSY

Commentary: "Upside risks to our PO are: 1) better core brand performance due to brand support and SKU rationalization, 2) incremental cost savings, 3) accretive M&A."

"Downside risks to our PO are: 1) higher than expected consumer demand elasticity to price increases, 2) weak growth on innovation, 3) increased commodity and freight inflation."

Source: Bank of America

 

Note: To celebrate Halloween safely, the CDC recommends activities like carving pumpkins outdoors, virtual costume contests, house decorating, and a Halloween movie night or scavenger hunt with members of your household.

Get the latest Bank of America stock price here.

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