Despite pundits' worries about inflation due to excessive government debt, price increases have been tame for years. In fact, the Bureau of Labor Statistics recently reported that for 2014, the Consumer Price Index increased by only 0.8% before seasonal adjustment.
However, just as not all children in a family are equally well behaved, not all segments of the economy show the same well-behaved nature in terms of inflation. Consumers feel this. They may read about low inflation, but when they buy items that need to be replenished frequently, they feel a bite in their wallets.
Electronics and other household items continue to drop in price, but that mainstay of life, food, has been a bit of a problem child. Food costs rose 3.4% in 2014. Jeremy Grantham, top strategist at GMO, who called both the tech crash of the early 2000s and the housing bubble a few years later, believes climate change and population growth will put strains on the food supply for years to come and may lead to food shortages. And therefore higher prices.
If food prices continue to grow, some companies will benefit. Sanderson Farms (SAFM) is one. A fully integrated poultry processing company, it is the third-largest poultry producer in the country.
Joel Greenblatt is a noted Wall Street strategist, which is why I chose him as one of a dozen or so gurus to rely on when I am choosing stocks. Years ago, I took the strategies of these highly successful strategists and computerized their strategies, and the one I based on the writings of Greenblatt is squawking loudly in favor of Sanderson. Only two variables are used by the Greenblatt strategy -- earnings yield and return on total capital, and based on these, a company is given a ranking from among the thousands of companies that are publicly traded. Sanderson earns the enviable position of ranking No. 16 from among all of these stocks.
While we are talking about chickens and Greenblatt, you might also look at Pilgrim's Pride (PPC), the second-largest chicken producer in the world. My Greenblatt-based strategy ranks Pilgrim's a solid 25 from among all stocks.
Consumer-products mainstay Kellogg (K) is another food company worth considering. This cereal maker is liked by my Warren Buffett-based strategy because it holds a strong market position, has earnings per share that have increased in nine of the past 10 years, low debt and an average return on equity over the past decade of 43.2%. In addition, the strategy expects the stock to provide a 15% annual rate of return during the next 10 years.
Food is an essential, and the demand for food in the coming years is likely to benefit a number of companies. These three companies are both good financial performers today, and have plenty of potential to perform well in the future.