In light of Campbell Soup's purchase of snack brand Snyder's-Lance and Hershey's deal to buy the parent company of SkinnyPop, CNBC's Jim Cramer wanted to revisit the food space.
The unexpected strength is "not just [in] the pantry," the "Mad Money" host said. "This miraculous supermarket strength extends even to other parts of the frozen food aisle, which seemed like a wasteland not that long ago. In particular, Conagra [Brands] suddenly seems to be very much on the mend and I think that this stock could have a lot more room to run."
Shares of Conagra, the company behind Chef Boyardee, Hebrew National, Reddi-Whip and Orville Redenbacher, had trouble picking up steam for most of 2017.
After CEO Sean Connolly took the helm of Conagra in early 2015 and began a company-wide turnaround, selling its slowing private label business and spinning off its commercial food service arm, the stock climbed to a peak of $41 a share by March of this year.
But even cost cuts, efficiency improvements and strategic acquisitions couldn't stop the stock from freefalling to $32 a share by the end of August as part of a wholesale decline in the then-out-of-style packaged food space.
"After stinking up the joint for most of the year, Conagra has quickly become one of the most attractive names in the whole food group — witness the three upgrades this stock has caught since the end of October," Cramer said. "In the last four months, the stock has vaulted from $32 just to under $38, which is a substantial move for a $15 billion food company."
Since Conagra's late-September earnings report, the company's outlook has been improving. Sales of refrigerated and frozen foods saw a 2 percent boost and margins continued to expand, making Conagra more profitable even though it saw a 5 percent sales decline.
On the post-earnings conference call, Connolly spoke to the "dramatic" improvement in single-serve frozen meal sales, a nod to the growing popularity of inexpensive, convenient food options.
Shares of Conagra now trade at 18 times next year's earnings estimates — still fairly inexpensive from Cramer's perspective.
"That said, Conagra reports on Thursday morning and I can't blame anyone for wanting to be cautious here," he said. "I'm optimistic, and I think you can put a small position on beforehand, but if you'd prefer to wait and see, well, you have my blessing."
Still, Cramer liked Conagra's long-term outlook, particularly for takeovers. Since Connolly seems to be open to making strategic acquisitions, the "Mad Money" host offered two suggestions.
Shares of B&G Foods, the $2.25 billion company behind B&G Pickles, Green Giant frozen vegetables and Pirate's Booty, have been struggling, down from its $50 peak to just over $35 as of Monday's close.
Pinnacle Foods and Conagra have already considered a deal, but Pinnacle's stock has fallen from $66 to $57 and change since the talks ended because of price disagreements. Cramer said that the company behind Birds Eye frozen vegetables and Smart Balance could reconsider.
"The bottom line? The packaged food group is suddenly back in style, and the freezer aisles, of all places, are starting to get pretty hot," the "Mad Money" host said. "I think Conagra's the smartest way to play it, but if you really want to speculate on a takeover, I could see them — or someone else — snapping up either Pinnacle or that pastiche of brands that is B&G Foods."