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2 glorious food stocks to spice up your portfolio

Image: Greggs. Fair use.

Food glorious food can make a glorious investment. The following two companies could both fill a hole in your portfolio.

Pie in the sky

High street bakery chain Greggs (LSE: GRG) has been on a roll lately, its share price doubling in the last three years, although growth has been cooling. The slowdown has largely been pinned on post-Brexit uncertainty, and with food inflation rising but wages stagnating, Greggs has a lot on its plate.

Management also has to keep up with changing food fashion, as people increasingly look for healthier alternatives to hot bacon butties and sausage rolls (or at least pretend to do so). Management is pressing on with its strategy of transforming the company into a food-on-the-go retailer, offering products for instant consumption rather than take-home bakery options, to cash in on today’s snacking and lunch-at-your-desk culture.

Eat up

That means diversifying into salads, soups, yoghurt, porridge, fruit pots and freshly ground coffee, cutting back on fat, salt and sugar, and sharpening up some of its stores. It also means fighting for attention in an increasingly crowded marketplace, while shedding its sausage roll and doughnut image without losing too many of its loyal customers.

Revenues rose 7% last year to £894.2m with like-for-like sales up 4.2%. The dividend was hiked 8.4% to 31p a share. However, management is concerned about the consumer outlook, as well as rising food and labour costs. Earnings per share (EPS) growth is cooling, down to just 1% this calendar year, before rising 7% next year. Trading at 17.4 times earnings Greggs isn’t exactly a bargain, but still worth a bite.

Kitchen devils

The Restaurant Group (LSE: RTN) has had a tough time since the company’s share price topped 700p in late 2015. Today it trades at roughly half that value, just 347p. The £697m company, which owns Frankie and Benny’s, Garfunkel’s, Coast to Coast, Chiquita and Joe’s Kitchen, has been hit by stiff competition, ill-timed price hikes, and the rise in the minimum wage.

It runs more than 500 restaurants and pubs in the UK’s casual dining sector, selling more than 43m meals every year. It also operates a concessions business which trades from airports, railway stations and shopping centres. As if that wasn’t enough, it is also looking to double in size over the next decade. Hmmm… what did I say about a saturated market?

Taste for adventure

The Restaurant Group endured a mixed 2016, reporting a challenging year for its leisure brands, offset by stronger performance from pubs and concessions. Total revenue rose 3.7% to £710.7m, although like-for-like sales fell 3.9%. EPS fell 19% in the year to 31 January 2017, and are forecast to drop another 18% this calendar year, but this could offer a tempting entry point. Things should pick up in 2018, with a forecast 8% rise in EPS. 

This is a turnaround play so you may need to be patient as management looks to build “a leaner, faster and more focused organisation.” On the plus side, it trades at just 12.7 times earnings and yields 4.6%. If that wasn’t enough to tickle your tastebuds, investors holding more than 250 shares can also claim a 25% discount at its restaurants.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.