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Since my last update in late November, the Basic Food fund or “BFF” has turned in a solid performance, rising 6.4% from $214.13 to $227.91, versus a 1.2% drop in the DJIA. The fact that the BFF index did 760 basis points better than the overall market, cements the theory that low PE dividend stocks, in vital industries provide superior returns.
Component highlights:
CKE Restaurants (CKR): They are currently in the process of being acquired by the private equity firmThomas Lee Partners. The shares could still go 20% higher if a bidding war develops.
Great Atlantic and Pacific Tea Company (GAP): This one was the biggest loser of the group, prompted by a horrible earnings report. All is not lost as the company hired veteran grocery CEO Ron Marshall to tap into his extensive turnaround experience. BMO Capital issued an upgrade as a consequence, saying any change is a good change at this point . Action: Hold off buying, but consider the company’s GAJ senior bonds, yielding over 10%.
Winn-Dixie (NASDAQ:WINN): The iconic supermarket chain delivered better than expected second quarter results with earnings of 4 cents versus an expected loss of 15 cents. The market applauded the news by rewarding it with a 20% pop. Perennial bear Jeffries & Company subsequently upgraded the grocery purveyor from underperform to neutral. Action: Wait to buy--accumulate on strength, buy only if the shares trade over the area of $11.75.
Safeway (NYSE:SWY): The grocery powerhouse met earnings expectations, but was able to beat on the top line. Talk in its conference call that the company has reached pricing parity with its competitors put some zing in the shares as they reached a new 52 week high. Action: Don’t chase the shares, wait for a pullback to occur.
Supervalu, Inc. (NYSE:SVU): This one is on a roll since delivering solid third quarter results. Standpoint Research recently imitated research coverage with a buy rating. Action: Despite already seeing a 20% surge in the share price, SVU is still worth a look!
Kroger (NYSE:KR): The grocer is slated to announce 4th quarter results on March 9th, and earnings expectations of 33 cents and revenues of $17.7 billion appear to be on the light side. Action: Buy the shares for the upcoming earnings event--KR should easily beat its meager estimates.
Imperial Sugar (NASDAQ:IPSU): The sugar producer reported disappointing first quarter earnings because its Port Wentworth refinery ran at only 60% capacity. The news sent the shares into a tailspin, providing the opportunity for savvy investors to pick more up at bargain prices. There is some good news, as the company entered into a joint venture with PureCircle and also revealed its Wholesome Sweeteners joint venture is gaining steam, as its contribution to IPSU’s bottom line increased more than twofold, from $327,000 to $783,000. The company is expected to earn 28 cents on sales of $216 million when it reports second quarter results. Action: Buy, the company’s new refinery should be reaching full capacity soon and should enable the company to top earnings estimates.
Bridgford Foods (NASDAQ:BRID): The snack food purveyor recently received some good press form both the Motley Fool and SmartMoney on the attributes of owning the shares, although “fluff” pieces such as these make me wonder if BRID has in fact reached a top. The company also announced in its annual report that its signature Monkey Bread line saw a 16% sales gain in 2009. Action: Think about ringing the cash register on this one to book some profits--no one ever went broke taking profits.
Sara Lee (SLE): “Nobody doesn’t like Sara Lee” is an understatement at this juncture, as the company has recently become a “ darling” of Wall Street. Improving earnings, the sale of non food divisions and a big stock buyback commitment have pushed the shares 20% higher in February alone. Action: Wait for a 5% pullback before hitting the buy button. This one has gone up too far in too short of a time!
ConAgra (NYSE:CAG): The company recently affirmed its 2010 guidance of $1.73, and announced a $500 million stock buyback program to boot. The shares are in high gear, making new 52 week highs on a daily basis. Action: Get on this momentum train!!
Tyson Foods (NYSE:TSN): Three analyst upgrades last month coupled with a solid earnings report has catapulted these shares to new highs. Action: Go raid your checking account--this one is going to $20 by spring.
Flower Foods (NYSE:FLO): The shares are getting a little expensive at 18 times estimates and within 4% of their recent highs, although an insider purchase by an outside director on 2/16 ( He bought $75,000 worth) is indeed encouraging. Action: Take some profits.
Del Monte (DLM): The fresh fruit company (although they sell a ton of pet food) is slated to present at the Goldman Sach’s Consumer Retail Conference on March 9th. This event could help attract more buying interest. Action: Hold
Smithfield Foods (NYSE:SFD): This is a pure momentum play as the shares are on a real winning streak. With new highs being made every day, there is no overhead resistance in sight. Action: Don’t be afraid to average up, but be ready to hit the exit button if momentum starts to wane.

Bottom line: You can sleep better at night if you've invested in defensive issues like food stocks--this safe haven is comforting to say the least, as I strongly doubt we will discontinue the act of "eating" anytime soon.
Source: Food Stocks Provide Safe Haven in a Precarious Market