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).
Ingredion (INGR +0.4%) shares turn positive after the board authorizes a new 4M share repurchase program expiring in 2018. The authorization comes after Ingredion completed its previous 5M share program in Q4, with 2.5M shares repurchased during the quarter alone.
If fully executed, the program would decrease shares outstanding by 5.2%.