Food stocks have lived up to their safehaven billing amid recent turmoil, falling a mild 12% vs. the S&P's 38% drop. Some think shares - which now trade at multiples similar to those of growth stocks like Coca-Cola (NYSE:KO) and PepsiCo (NYSE:PEP) - look expensive. Barron's, which went bullish on food companies in February, remains so.
Food companies are benefiting from economic woes as Americans eat at home more often. Balance sheets are strong, and falling commodity prices are a plus. The knock on the group is that it has a boring profit outlook; analysts see annual earnings-per-share gains of 5% to 9%. The good news: The companies have delivered decent earnings, while other industry groups have struggled to do so.
Still, not all food stocks are equally tasty, Barron's says.
- Nestle (OTCPK:NSRGY) - the world's largest food firm has trailed the pack, with shares down 17% since February. But with broad international exposure to water, baby food, ice cream and pet food, the prospects look good. One analyst has a 12-month price target of $54 (vs. a current $38).
- Kellogg (NYSE:K) - it recently said it sees EPS in the upper end of its guidance, and forecasts high-single-digit growth in 2009. Bulls see shares ($48) in the high-50s. Kellogg also offers a secure 4% dividend yield.
- Campbell Soup (NYSE:CPB) - at 17x 2009e earnings, it looks expensive, especially given its long-term profit growth outlook of mid- to high-single digits.
- Hershey (NYSE:HSY) - at $36, it's trading for 36x 2008e profits, and faces a formidable rival in the Mars/Wrigley combo. While seen as a takeover target, its controlling trust hasn't shown any interest in selling.
Here's David Hunkar's overview of the 10 largest global food produces.
Nielsen (via Paul Kedrosky) breaks down food products into the recession-proof and recession-vulnerable.