- Food for Thought
- Price Check in the Freezer Aisle
- AmeriCold Realty Trust (NYSE: COLD)
- The Only Game in Town
- Buy Cold, Sell Hot
While I love “hot stocks” like everyone else, this one will be hot because it’s so cold.
By design…
Let me step back for a second and talk about something we all have in common: buying groceries
(Editor’s Note: How has inflation impacted food prices? Inflation has pushed food prices 13% higher this year – August’s 13.5% was the highest inflation rate for groceries since March 1979.)
A visit to the grocery store used to bring me great joy. I love cooking and browsing the aisles for some magical new feast to create. It was a methodical, almost meditative experience. Then, COVID hit and turned a trip to the grocery store into something like lurching into a zombie apocalypse….
It changed the way most of us bought groceries. I’m not sure how often you ordered groceries online before the COVID crisis, but I bet you probably started doing it a lot more once we were all sequestered in our homes for over a year.
And you wouldn’t be alone: COVID-19 drove a mass amount of consumers online for their grocery purchases, and once you get used to the ease and convenience of it, pretty much everyone in the country will be sticking to it to some degree.
Food for Thought
According to the Food Marketing Institute, around 70% of grocery sales are expected to move online permanently in the years ahead. And all of that moving food around will be big for one industry that’s crucial in getting that food from warehouses to homes across the world…
Cold storage.
In the list of CNBC’s “Disruptors”, they bring up the very basis for my recommendation: Global food insecurity, a social crisis magnified by the pandemic, is not a result of the world lacking enough food.
Rather, the global food supply chain has struggled to move food to the right places via an efficient processing, storage, and transportation system without unnecessary and high levels of waste.
Nearly 25% of fruits and vegetables are lost globally, and the U.S. has among the highest level of food waste, amounting to what the World Bank estimates to be $2.5 trillion. Americans discard more food than any other country, nearly 40 million tons — or almost 40% of the entire U.S. food supply!
This is a solvable problem…
Price Check in the Freezer Aisle
We can start with the freezer aisle in your local grocery store. Frozen products are far less perishable than fresh ones – as long as they stay frozen.
(Editor’s Note: What are the top 5 worst foods to buy frozen – as voted by chefs? The worst foods to buy frozen are herbs, bread, broccoli, strawberries, and scallops.)
Financially speaking, frozen foods are currently on a steady uptrend. The frozen food industry – companies like Kraft Heinz, General Mills, and Unilever – is expected to grow from $252.19 billion in 2021 to $389.90 billion by 2030, according to a new report from Polaris Market Research.
Now, while you could invest in those companies mentioned above and do just fine, I want to focus on a ‘picks-and-shovels' play here. On a company that stores all of this frozen food across the country to be distributed in our freezer aisles.
Cold storage itself is not a new idea. The first cold storage company in the U.S., New Orleans Cold Storage, was founded in 1886. In their Disruptors article, CNBC was highlighting a company called Lineage Logistics, which has a global network of temperature-controlled cold-storage facilities for proteins, bakery products, dairy, and fruits and vegetables.
It also manages processing facilities and automated custom warehousing. It has developed some state-of-the-art technology that allows the company to maximize its warehouse system — including “blast-freezing” at temperatures as low as -25 to -35 degrees Fahrenheit on up to five million pounds of product a day at a single facility and using only 40%–50% of the time required in traditional blast-freeze operations.
It also runs the warehouses with what has been called Tetris-like efficiency.
Lineage Logistics owns 27.7% of the industry market share, but it isn’t publicly traded right now.
But you know what it is?
AmeriCold Realty Trust (NYSE: COLD)
AmeriCold is the world’s largest publicly traded REIT focused on the ownership, operation, acquisition, and development of temperature-controlled warehouses.
(Editor’s Note: What are REITs? REITs are Real Estate Investment Trusts, which are companies that own and typically operate income-producing real estate. That means any space that produces rent and money for the owners. You can read my entire report on the best REITs to buy.)
Based in Atlanta, Georgia, AmeriCold owns and operates 185 temperature-controlled warehouses with over one billion refrigerated cubic feet of storage in the United States, Australia, New Zealand, Canada, and Argentina. They have over 17% of the market share.
Americold’s facilities are an integral component of the supply chain connecting food producers, processors, distributors, and retailers to consumers. As they say, the company goes all the way “from farm to fork”:
Their strategically placed warehouses allow them to enjoy partners like Tyson Foods (NYSE: TSN), Perdue Farms, and Smithfield Foods, which, on average, have been with Americold for 35 years. That’s pretty loyal.
AmeriCold offers temperature-controlled warehouses and supply-chain logistics like “pick and pack,” where they mix and match products from the warehouse based on appropriate stock-keeping units (SKUs), so the deliveries are cost-effective and efficient.
Once packed, AmeriCold can take care of loading the trucks.
The company’s patented i-3PL Supply Chain Control is a one-stop source for real-time information on orders, inventory, and schedules. The technology allows customers real-time access to their orders and deliveries simply by looking at a smartphone.
Considering that supply-chains issues have plagued us over the past few years, this type of technology is more crucial than ever.
The Only Game in Town
AmeriCold is pretty much the only game in town if you want exposure to the cold storage space. It has proven to be very reliant over the years, pushing out dividends of around 4%. If properly reinvested into the company, it could provide a steady, compounding return in the years ahead.
That’s steady income for a company that will continue to be in high demand for its services.
Despite the supply chain and inflation issues dampening growth across the industry at large, Americold’s revenue has actually grown at a 19% annual rate over the past three years.
In the second quarter, AmeriCold announced:
- Total revenue increased 11.5% to $729.8 million.
- Total Net Operating Income (NOI) increased by 8.3% to $168.3 million.
- Core EBITDA increased 1.6% on an actual basis to $120.2 million., and increased 3.5% on a constant currency basis.
- Global Warehouse segment revenue increased 12.0% to $564.4 million.
- Global Warehouse segment NOI increased 4.6% to $151.0 million.
So they’ve been holding steady despite the odds against them. The stock, however, has been chilly this year.
As I mentioned, workers were quitting the food industry during the pandemic, and the supply chain was falling apart, so Americold's occupancy rate suffered. Since they are a REIT, the occupancy rate is everything: those are the companies paying Americold to house their food in warehouses all over the world. If Americold isn’t getting rent, they aren’t getting paid.
COLD’s stock has fallen alongside the broader market, posting a 25% loss for the year.
They hit a high of $33.52 at the beginning of the year but a low of $21.50. Today you can buy AmeriCold (NYSE: COLD) for a bargain price of ~$24.
And remember, the company sports a solid dividend yield of ~4%.
Buy Cold, Sell Hot
But as global food industry growth resumes, Americold should prosper, and today’s prices are attractive for a long-term position. In the short term, the holiday season drives higher volumes, and the COVID supply chain issues and inflation should continue to slow.
I wouldn’t be surprised if AmeriCold warms up over the next few months to push the stock back near those 52-week highs.
Americold is announcing third-quarter financial results after the market closes on Thursday. We’ll see if they show an uptick from Q2 numbers. We’ll certainly provide an update once those numbers come out.
Just like grocery shopping, you should always be looking for sales, and Americold certainly looks that way today.
Godspeed,
Jimmy Mengel
The Profit Sector
