Investing in high-quality, cheap shares is a proven strategy for unlocking impressive returns. And so far in 2026, there’s one FTSE business demonstrating that perfectly.
The UK’s flagship index is already off to a solid start, climbing by almost 5% since the start of January. Yet Premier Foods (LSE:PFD) has delivered almost three times these gains, continuing its multi-year recovery.
So should I be considering it for my portfolio?
A transformational turnaround
While the Premier Foods name may not sound familiar, its products and brands can be found in almost every household in Britain. This is the company behind supermarket favourites including Mr Kipling, Ambrosia, Sharwood’s and Batchelors, among many others.
For over a decade, the business was viewed by many institutional investors as a ‘zombie stock’, seemingly going nowhere. And to be fair, that was a pretty accurate description with an overleveraged balance sheet and a troubling pension deficit that crippled investments in growth initiatives.
But with new leadership taking over, the business has undergone a remarkable turnaround. Debt’s falling, the pension deficit’s fixed, and growth’s accelerating. The firm has even begun acquiring new brands through bolt-on acquisitions as well as ramping up efforts to penetrate new international markets in Australia and North America.
Yet, even after all this impressive progress and chunky share price returns, the price-to-earnings ratio remains unusually cheap, at just 12.9 versus the current industry average of roughly 20.
Seeing a defensive compounder with a mended balance sheet that’s hiked its dividend for four years in a row at an average annualised rate of 29%, all while trading at a discount, is a pretty rare combination. And it’s why Premier Foods is among my favourite under-the-radar picks right now.
What to watch
As impressive as Premier Foods has been in the last few years, most of the financial improvement has so far stemmed from initial restructuring efforts and balance sheet deleveraging. There’s no denying it’s been impressive to watch, considering the countless previous failed attempts.
However, moving forward, the company will have to prove its ability to deliver both top- and bottom-line gains. And while there are some early signs of this happening through its premiumisation strategy, growth’s still currently in the low single digits.
A big threat undoubtedly comes from supermarkets’ own-brand ranges. With many consumers feeling a financial pinch, these cheaper alternatives to branded products are becoming increasingly popular, putting pressure on producers like Premier Foods. And it’s the same story outside the UK, where competition’s only getting fiercer.
The bottom line
A boring business with low growth doesn’t exactly trigger much excitement, and it helps explain why the shares continue to trade at a cheap valuation — even after delivering impressive operational improvements.
But in my experience, boring’s often best. And with the firm’s latest bolt-on acquisitions performing better than expected, defensive investors may want to consider adding this hidden gem to their portfolios. I know I certainly am.
