I spend a great deal of my time in developing countries. Once a week or so, I call my mother as “proof of life”. Today our conversation turned to food and its relative cost here in the Philippines as compared to the USA. I realized immediately that prices here are much higher. Understandable for imported food, but I’m talking about food in general. Prices are high! On average, 30% higher than we pay at home for eggs, milk, bread, tomatoes, carrots and potatoes.
Well, you get the idea and I got the idea to look at food related stocks. Today’s main course consists of two companies in the major diversified food industry, two side dishes, one of farm products producer and one of meat products manufacturer, all washed down with a dairy product maker. We’ll also look at a competing menu items to try and identify buy ideas.
Hot off the grill is H.J. Heinz Company (HNZ), a large cap trading today at $52.65. There is much to like about this food giant. It provides a solid 3.50% dividend, spiced up with a 36.69% return on equity. Each of its 34,800 employees delivers $27,961 to the bottom line. It is the very soul of stability, with a 0.55 beta. Its 17.49 price/earnings ratio is mildly disconcerting but overall; this is a great dish, comfort food for the portfolio. The critics (analysts) are just mildly impressed, giving it a less than enthusiastic nod.
Dole Food Company (NYSE:DOLE), on the other hand, rates slightly higher with the critics, why I cannot fathom. This small cap has 37,600 employees each of which took $247 from the bottom line. Dole lost $9.27 million dollars in the trailing 12 months. Dole has a price to book of 1.02 and delivered a negative return on equity of 0.53%. The clear choice for me is today’s special, H.J. Heinz Company.
Also competing for the diner’s attentions is Kraft Food Company (KFT). Kraft is trading today at $35.18 per serving. This large cap is well received by the critics and rates higher with them than any we have discussed so far. Kraft has a more palatable price to book of 1.62, a decent return on equity of 9.07% and generous serving of twelve month trailing net profit; $3.24 billion to be exact. Seasoned with a 3.20% dividend yield and garnished with a 0.52 beta, what’s not to like!
Contrast this with the UK’s colossal Unilever plc (NYSE:UL), offered up at $33.22 a plate. This dish seems to have everything going for it. A savory sweet dividend yield of 3.70% paired up nicely with a beta of 0.72, a combination that is sure to delight the even the most discriminating palate. Each of its 167,000 employees serves up $36,707 in net profit. The return on equity is a healthy 33.14%. English cuisine is not highly touted, but these are dishes I would not hesitate to sample.
How about a side of Archer Daniels Midland Company (NYSE:ADM)? This tasty treat will set you back $29.05 but here’s what you get. Contributing to the flavor of the dish are 30,000 dedicated employees, each bringing $71,667 to the table. This large cap is widely favored among diners and about 50% of the critics. Topped off with a dividend yield of 2.20% and a dash of 1.06 price to book, it is a treat made tastier still by a dollop of 0.36 beta.
You might also like Bunge Limited (BU). Sounds British, but it is a well established US firm in business since 1818. This mid cap is favored by the critics and at $61.18 a bowl is just too pricey for my taste. It is a good dish, but not on a par with ADM. The dish is stingy with the topping having a dividend yield of 1.50%, which translates to a dividend payout ratio of just 15%. The return on equity is weak as well standing at 8.24%. The price to book (1.76), while sweet, doesn’t tickle the taste buds enough to make me part with my money. Bunge may want to consider a new head chef. Anyone can see the unexploited potential here.
Next up are 2 meat dishes, Tyson Foods, Inc. (NYSE:TSN) and Hormel Foods Corp. (NYSE:HRL). If you like chicken, you’ll love TSN. This mid cap offers a solid recipe for success. It has a return on equity of 15.66%, a price to book of 1.27, a beta of 0.86, an attractive price earnings ratio of 8.48, and a price earnings growth ratio of 1.36. TSN is priced at $19.33 and well-liked by the critics.
If there is anything bland about this dish it has to be the dividend yield of 0.60%. The chef could do better for his investors as demonstrated by the payout ratio of 7.00%. Hormel, also a mid cap, is priced at $29.51 and does not enjoy the same rave reviews. I think this is largely because the stock is near its 52 week high. I believe there is greater potential here, especially in view of the recent free trade agreement with South Korea. Even pre-agreement exports to South Korea were strong, with year over year growth of 35%. This portends great things for Hormel, post agreement.
The 1.70% dividend yield is a plus. Hormel boasts a 19.43% return on equity, a 0.32 beta, and a staff that is 17% of Tyson’s. Each Hormel employee contributes $24,641 to net income compared to the Tyson employee who contributes $7,530. I believe both companies are poised for additional growth. Personally, I’d go with Hormel because if the anticipated growth doesn’t materialize, I still have a dividend that is almost 3 times Tyson’s offering.
We’ll have milk with that. Enter Dean Foods Company (NYSE:DF) and Synutra International, Inc. (NASDAQ:SYUT) priced at $10.07 and $7.02 respectively. The critics are firmly on the fence with Dean and understandably so. Trailing twelve month earnings are in negative territory to the tune of 26.22 million. Dean Foods got a bump when David Tepper’s Appaloosa Management took a 7.35% stake in late 2010.
However, the losses continue and when you see that $3.2 billion, about one half the company assets, consist of “goodwill” well, that curdles it for me. Synutra International looks even worse, in my opinion. The critics rate it a strong buy but this is the opinion of 1 person and I am very, very skeptical. That said, all the fundamentals for Synutra are bleak, from the negative 62.91% return on equity to the beta of 2.24. I think I’ll order a beer and leave these in the fridge!
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.