If you are the type of investor who likes to buy certain stocks when everyone else is selling them, then you will probably find Beyond Meat(NASDAQ: BYND) and Hormel Foods(NYSE: HRL) interesting. The problem with investing when there is so-called "blood in the streets," however, is making sure that you're not buying a company facing a very real risk of dying. With that backdrop, deciding whether to buy Beyond Meat or Hormel is quite simple.
Beyond Meat just isn't making any money
Beyond Meat came to the attention of Wall Street as one of the first stand-alone companies to sell meat alternatives. Its products quickly became a hit among consumers and restaurants, which are always trying to draw in customers with hot new products. But, like all fads, the allure of Beyond Meat's health-conscious and vegan-friendly products eventually waned. For example, in 2023, the company's U.S. consumer volume declined 26.4%, while volume in the food service channel dropped an even steeper 30.2%.
Image source: Getty Images.
The good news from 2023 is that volume grew massively in foreign markets, with consumer volume outside the United States up 3.5% and food service volume rising a huge 59.6%. Still, those gains didn't fully offset the U.S. decline, leaving the company's overall volume down by 8.1% for the year. It is also important to note that in many foreign markets Beyond Meat is a new product. If the demand trends in those markets follow the U.S. example, the future is not going to be bright.
Simply put, Beyond Meat is a troubled business. And it has yet to make a consistent profit. As the trailing-12-month EPS chart below shows, it almost broke into the black on a trailing basis back in 2020. Still, recent earnings results have been nothing short of abysmal. In 2023, the company lost $5.23 per share, which was actually an improvement! In 2022, the loss was $5.75 per share.
To be fair, the company is trying to turn things around. Cost-cutting and product innovation, among other things, are on the table. But until Beyond Meat is reliably profitable, only the most aggressive investors should consider it, because there's a real possibility that it just doesn't have a sustainable business model. Most will be better off investing elsewhere.
Hormel has problems, but it is consistently profitable
Hormel is a much older company than Beyond Meat. In fact, it is a Dividend King, with 58 years of annual dividend increases behind it. Beyond Meat couldn't even consider paying a dividend given its weak financial results. And that's exactly the reason why most investors will be better off buying Hormel today despite the fact that it is facing headwinds of its own.
To get the bad news out up front, Hormel has had a harder time than its peers in passing its rising costs on to consumers. Avian flu has been a big problem for the company's turkey operations. It bought Planters just as the nut segment of the snacking market was starting to weaken. And China's recovery from COVID-19 lockdowns has been a big drag on its foreign growth plans.
These are all very real problems that investors need to monitor. And collectively, they seem pretty scary. But if you take each of them individually, they are likely to be solved in time. Hormel has a long history of successfully navigating the consumer staples market. Indeed, this Dividend King has muddled through hard times before over the last half-century and still managed to continue rewarding investors. It seems reasonable to give the company the benefit of the doubt this time around.
In fact, even with the headwinds it faced, Hormel managed to earn $1.45 per share in fiscal 2023. And it is worth noting that the fiscal first quarter of 2024 saw volumes increase across all of its major lines of business, which hints that management is slowly starting to steer the ship in the right direction.
Hormel's outlook is better
At the end of the day, Beyond Meat is something of a one-trick pony, and that trick doesn't look very good.
Hormel is much larger and more diversified. The larger company will probably survive this rough patch, while Beyond Meat’s problems are more serious and could potentially drive it out of business.
Hormel's near-term headwinds could actually be setting up a value opportunity for long-term dividend investors, because the stock's 3.3% dividend yield is near the highest levels in the company's history. Furthermore, Hormel increased its dividend by roughly 3% in January, a clear sign that management is confident about the future even as it deals with its current troubles.
So if you're choosing between these two food stocks, Hormel appears to be the more prudent choice. Beyond Meat just can't match its attractive dividend yield and long history of financial resilience.
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Reuben Gregg Brewer has positions in Hormel Foods. The Motley Fool has positions in and recommends Beyond Meat. The Motley Fool has a disclosure policy.
