People Are Eating More Plants. These Stocks Will Benefit. - Barron's

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Plant-based foods were gaining in popularity even before the pandemic.

Courtesy Beyond Meat

The coronavirus has led many people to refocus on their health, and eating more fruits and vegetables is one way to easily boost the immune system. The shift could be good news for a number of stocks.

There are many reasons to eat a partial or wholly plant-based diet. Consider the moral argument, given the overwhelming evidence of suffering on factory farms. There’s the environmental case as well, considering how damaging animal agriculture can be, a fact even meat-centric restaurants acknowledge.

(Just this week Restaurant Brands International’s (ticker: QSR) Burger King brand said (or rather sang) that it was trying to change cows’ diets so they produce less of the greenhouse gas methane.)

Yet the health argument is most likely to make healthier eating a priority for many people today, rather than a perpetual New Year’s resolution. In the age of Covid-19, strengthening the immune system is particularly motivating. And most people would welcome the idea of a longer, healthier life even without a pandemic.

While some pandemic-related restrictions are easing, people are likely to continue to eat at home more than they did precrisis. It’s a trend that Barron’s has argued is here to stay, and Credit Suisse has made the same call.

As people turn to cooking, many are preparing more healthful meals for themselves.Analyst Robert Moskow writes that a significant percentage of people have begun to eat healthier because of the pandemic, meaning there could be real upside for stocks well positioned for this consumption shift.

Americans could certainly use it. Now, most consumers eat fewer than half of the daily recommended 4.5 servings of fruit and vegetables.

Some 38% of adults are at risk of developing serious illnesses if they catch Covid-19, given their age or health conditions. As Moskow noted, if even a quarter of this vulnerable population boosted their vegetable intake to meet guidelines, that would result in a 10% boost to current fruit and vegetable consumption in the U.S. He believes that Conagra Brands (CAG), B&> Foods (BGS), Nomad Foods (NOMD), Danone (DANOY), and Beyond Meat (BYND) are the stocks that have the most to gain.

“Conagra and B&> operate the two biggest frozen vegetable brands in the U.S. and have grown the frozen category by innovating aggressively in plant-based meat and carbohydrate substitutes,” he wrote. “Nomad operates the biggest frozen vegetable brand in Europe and recently introduced a new plant-based meal brand Green Cuisine.”

Danone dominates the plant-based beverage business, and sports the leading brand in yogurt with probiotics. Beyond Meat, of course, is the market leader when it comes to faux meats.

McCormick (MKC), Nestle (NSRGY), and Campbell Soup (CBP) could get a bit of a lift as well, “McCormick’s Consumer sales have skyrocketed because people are cooking more for themselves and viewing it as a way to lead a healthier lifestyle,” Moscow said. “Nestle…is now making a concerted effort to expand more aggressively into plant-based meat substitutes.” And Campbell’s product portfolio features plenty of meals that are high in vegetables.

Kellogg (K) has been less successful in exploiting its fake-meat goldmine Morningstar Farms. There is the chance that its Incogmeato burger, which would go more head-to-head with Beyond Meat, could change that, but its launch has been delayed due to Covid-19.

Then there is Maple Leaf Foods (MFI.Canada), a Barron’s Roundtable pick that sells traditional proteins but is also beefing up its plant-based business—a way for investors to have their pork and eat it too.

While the number of vegetarians and vegans has held relatively steady in recent decades, at around 4%, there’s no doubt omnivores are getting more interested in meat and dairy alternatives. As Citigroup analyst Wendy Nichols writes, plant-based milk now makes up about 13% of the milk industry in the U.S.; if plant-based meat reached the same penetration in its category, that would lead to $35 billion in sales in the U.S. alone.

Yet plant-based companies are thinking internationally. This month, Beyond Meat announced its expansion into Brazil and China, two nations known to have a healthy appetite for the real thing.

Moreover, restaurants have an interest in adding these alternative protein options to their menus. At a time when fewer people are eating out, a new faux-meat sandwich may bring in sales from a new and valuable segment of the population. As BTIG’s Peter Saleh recently noted, Dunkin’ Brands (DNKN) launch of the Beyond breakfast sandwich in November attracted diners who were younger than its typical customer. A greater share than normal were female.

A chicken alternative—the hardest nut to crack—could arrive by year-end, Saleh believes. And given how faux-meat makers are scaling up at a time when protein prices are climbing, the price gap between real and faux chicken could shrink, or disappear.

That’s key. Saleh says “national recognition will be achieved when plant-based meat offerings achieve price parity with traditional proteins” as well as gaining acceptance outside of urban markets, another trend that is already underway. Restaurants like Dunkin—which he rates at Buy—could see an incremental benefit during an otherwise challenging time.

UBS analyst Steven Strycula estimates that Beyond Meat could potentially see $500 million in sales from partnerships with McDonald’s (MCD) and Starbucks (SBUX) combined. It is hardly chump change, even if Strycula thinks it’s already priced into the former’s stock.

Ultimately, there are plenty of ways to play the plant-based shift. It’s anything but bland and boring.

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