Hungry for cheaper dinners and for investing ideas? TD Cowen has some food for thought.

The investment firms’ analysts who track the big food companies are broadly expecting “a difficult year” for them, with their stocks rising mid-single-digit percent “at best.”

Analysts Robert Moskow, Jacob Aiken-Phillips, and Jacob Henry see the industry benefiting as the costs of raw materials drop. But they also say that wholesale pricing for foods will decline overall because consumers and retailers will pressure the producers to use those cost savings to reduce selling prices.

Last year, food companies launched sales promotions more frequently than they had in 2022 but didn’t lower prices enough, the analysts say.

Now, the analysts wrote, “Walmart and Kroger sound increasingly dissatisfied with the volume lifts, and they are facing rising pressure” as discounters like Aldi and Save-A-Lot expand.

That means that the big food companies will speed up their promotional activity in the first half. “ConAgra  (CAG) – Get Free Report and General Mills have already moved in this direction,” they wrote.

Read on to see what food stocks will most benefit from this trend.

TD Cowen analyst estimates below consensus

Taking all this into account, the TD Cowen earnings estimates for the foods companies are below the Wall Street consensus on 10 of the 17 companies the analysts follow.

They see a risk of stock-price declines at companies that sell a lot to low-income consumers, that have “structurally challenged” brands, and “weak pricing power.” These include Conagra, B&G,  (BGS) – Get Free Report WK Kellogg  (KLG) – Get Free Report, and meat-alternative producer Beyond Meat.  (BYND) – Get Free Report

“We are long-term cautious on Kraft Heinz  (KHC,) – Get Free Report but we believe they can achieve the low end of their sales algorithm in 2024 due to exposure to faster growing International markets and food service,” the analysts wrote.

Investors are increasingly interested in what the TD Cowen analysts called two “long-term value creators,” candy icon Hershey  (HSY) – Get Free Report and spice specialist McCormick, the analysts write. But they expect “company-specific challenges to linger well into 2024.”

TD Cowen’s top food-industry picks

So which companies are TD Cowen’s analysts looking at as strong performers? They mentioned three highest-conviction outperform names, Freshpet,  (FRPT) – Get Free Report Oreos and Chips Ahoy parent Mondelez, and Lamb Weston  (LW) – Get Free Report. “All three have above-peer tailwinds to their revenue growth, high visibility, and effective execution,” the analysts said.

And “we remain positive on jams-and-jellies stalwart Smucker  (SJM) – Get Free Report but we would like to hear more color on the strategic plan for Hostess.”

The analysts also see a number of big companies growing through acquisitions. They say this might deter investors who are concerned about increasing debt loads.

Which companies are nosing around for acquisitions? “General Mills,  (GIS) – Get Free Report Hershey, and Mondelez  (MDLZ) – Get Free Report each look poised for another deal,” they said. 

“McCormick  (MKC) – Get Free Report sounds eager, but [the] balance sheet is a limiting factor.”

And TD Cowen ranks outperform two small-cap names, pet-products maker Freshpet and snacks specialist Utz Brands  (UTZ) – Get Free Report, “which we think would fit well in a larger company’s portfolio.”

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