The Best Canadian Food Stocks in March 2023

Canadian food prices are rising faster than the overall consumer inflation rate. Food inflation of 10.4% for January 2023 set a new 40-year record, although the consumer price index (CPI) slowed to an inflation rate of 5.9%. The grocery market remains hot and grocery stocks could outperform the broader TSX in 2023. Loblaw Company (TSX:L) and Maple Leaf Foods (TSX:MFI) are two interesting Canadian food stocks to buy in March.

Food inflation has been above the 10% pa mark since September 2022. Consumers feel the crisis. However, some food manufacturers and retailers may be having their best days. Investors looking for the hottest sectors to add to their “shopping baskets” for 2023 should look to Canadian food producers and marketers. This staple sector has been able to pass rising costs on to consumers and maintain (or increase) margins. Investment and retirement portfolios could get a slice of the outperforming grocery stock pie this month.

Let’s take a closer look.

Loblaw Company

Loblaw Companies, Canada’s largest grocery store operator, has become the face of grocery inflation. The company’s recession-resistant value brands, particularly the No name Family of budget groceries are among the most popular household products as inflation bites consumers’ pockets. Management lifted a three-month price freeze on about 1,500 unbranded products last month to protect its margins. More revenue growth could be on the way as the company maintains healthy margins during the grocery market turmoil.

The $38 billion grocery giant has 2,400 stores accessible to over 90% of Canadians living within 10 kilometers of a Loblaw store. It’s highly likely that Loblaw will report another good quarter as it charges more for its products and passes rising costs on to loyal, increasingly value-conscious consumers.

Loblaw recently reported annual revenue growth of 6.3% year over year to $56.5 billion in 2022 and an 18.4% increase in adjusted diluted net income to $2.3 billion. Share buybacks boosted results. Adjusted net earnings per share increased 22% year over year. Loblaw’s share count fell 10.9 million shares last year and is down nearly 15% over the past five years. Long-term investors enjoy a larger stake in Loblaw stock without lifting a finger — a key trait investment legend Warren Buffett loves.

Loblaw stock is down modestly 2.4% so far this year, allowing new investors to find good entry points for long-term positions in a proven recession-proof company.

Maple Leaf Foods

Packaged meat giant Maple Leaf Foods is one of the steroid food stocks of 2023. Shares of Maple Leaf are up 15% year-to-date. Investors could book faster gains as MFI stocks gain momentum for valuations to recover. The market appears to be warming up to the future outlook for food stocks as they resume trading after a few years of dormancy.

The $3.4 billion meat production and packaging company is a popular household name, an attribute that should remain intact as Maple Leaf enters the alternative meat market through acquisitions of innovators in plant-based “meat” proteins meat products.

The company is expected to report its fourth-quarter and full-year 2022 results this week. Management has a strong belief that Maple Leaf can achieve adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) of 14% to 16% through 2023. The key margin was 6.2% in the third quarter of last year.

Market analysts seem to believe the turnaround narrative. Normalized net income growth estimates of 630% year-on-year growth and a firm return to positive free cash flow generation in 2023 are major highlights of bullish analyst sentiment on MFI stocks for 2023 and beyond. The company last generated positive free cash flow in 2018.

After an eight-year streak of dividend growth, the grocery stock’s common stock dividend is up 54% over the past five years. The most recent quarterly dividend yield for MFI stocks is 2.8%. MFI stocks could be a dividend growth game to watch.