Hormel Foods' Lower Returns than the Vanguard S&P 500 Index ETF

Hormel Foods own several iconic brands shown in the images below.  

Source: Hormel Foods Corporation

Hormel Foods (HRL) has averaged a lower monthly return than the Vanguard S&P 500 Index ETF (VOO). The company has averaged a monthly return of 46 basis points compared to 105 basis points for the Vanguard S&P 500 Index ETF (Exhibits 1& 2).     

Exhibit 1:

Source: Data Provided by IEX Cloud, Author Calculations using Microsoft Excel

Exhibit 2:

Source: Data Provided by IEX Cloud, Author Calculations using Microsoft Excel

A linear regression of the monthly returns of the Vanguard S&P 500 Index ETF and Hormel Foods yields a beta of 0.237.  

Here's the output from the linear regression model created using RStudio:

Call:

lm(formula = HRL_Monthly_Return ~ VOO_Monthly_Return, data = VOOandHRL)

Residuals:

      Min        1Q    Median        3Q       Max 

-0.102639 -0.023972 -0.001719  0.022192  0.166993 

Coefficients:

                   Estimate Std. Error t value Pr(>|t|)

(Intercept)        0.002084   0.008249   0.253    0.802

VOO_Monthly_Return 0.237144   0.143102   1.657    0.105

Residual standard error: 0.0538 on 42 degrees of freedom

Multiple R-squared:  0.06137, Adjusted R-squared:  0.03902 

F-statistic: 2.746 on 1 and 42 DF,  p-value: 0.1049

The p-value of 0.1 indicates that the relationship is insignificant at the 95% confidence interval.

Between June 2019 and January 2023, the monthly returns of the Vanguard S&P 500 Index ETF and Hormel Foods had a positive correlation of 0.24. But between September 2020 and August 2021, the correlation was a negative 0.13 (Exhibit: 3). This was when stocks such as Apple, Microsoft, Amazon, and Tesla went on an epic, once-in-a-lifetime run into the trillion-dollar club in terms of market capitalization. Consumer staples stocks such as Hormel Foods went out of favor during this period, dropping 10.8%. 

Exhibit 3:

Source: Data Provided by IEX Cloud, Author Calculations using Microsoft Excel and RStudio

Hormel Foods may be the perfect stock to own during a bear market. Its low volatility and, at times, negative correlation with the S&P 500 Index means it performs well when the markets perform poorly.