- Despite lagging the S&P 500, food stocks had a strong year in 2013. We believe investors should remain selective in their allocation of capital by placing a greater emphasis on stock picking.
- Overall, in terms of themes for our packaged food/beverage coverage universe in 2014, we expect sluggish but gradually improving food volume trends, increased promotional intensity (funded by easing commodity costs and retailers fighting for traffic share) and a relatively active M&A environment.
- Accordingly, we prefer companies with solid organic growth prospects [Green Mountain Coffee Roasters (GMCR); Amira Nature Foods (ANFI); J & J Snack Foods Corp. (JJSF)], exposure to declining commodity costs [GMCR; Hormel Foods (HRL); The J.M. Smucker Company (SJM); Flowers Foods, Inc. (FLO)], exposure to company specific margin enhancing opportunities [FLO; GMCR, ConAgra Foods (CAG)] and ability to benefit from accretive M&A (SJM, JJSF and CAG).
- On the non-branded part of our coverage universe, Ingredion (INGR) is our top pick followed by Tyson Foods (TSN) and Dean Foods (DF).
Investors should stay selective on packaged food stocks - KeyBanc
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