At the risk of stating the obvious, we all have to eat. This makes food-oriented stocks suitable for just about any investment portfolio. Bedrock, middle-of-the-road stocks like these help balance the more volatile or cyclical stocks in which we often invest.
Three food stocks look especially appetizing at the moment. I chose these with help from computerized guru strategies I designed, based on the writings of some of Wall Street's greatest thinkers. I invest using strategies similar to their investment strategies.
Tyson Foods (TSN) is a food stock favorite of my Peter Lynch-based strategy. The company is one of the world's largest producers of meat and poultry, and the top U.S. producer of chicken and beef, according to the company's website. This gives it a commanding market position, which is a real plus.
The Lynch strategy emphasizes the price-to-earnings relative to growth, and is a measure of how much an investor is paying for growth. A P/E/G of 1.0 or less is what this strategy looks for and below 0.5 is considered very strong. Tyson's price-to-earnings is 14.38 and its growth rate is 37.97%, based on the average of the four-and five-year historical growth rates. This produces a very favorable P/E/G of 0.38.
Hormel Foods (HRL) produces a variety of meat and food products (though it did recently purchase Skippy Peanut Butter). Its product lines include some major brand names, which provide a competitive advantage, such as Skippy's, Saag's, Spam, El Torito and Dinty Moore. Pork and turkey products are its primary focus.
My James P. O'Shaughnessy-based strategy likes the company's large market cap ($11.4 billion), its earnings-per-share, which have increased in each of the last five years, and a price-to-sales ratio of 1.33. That is below the 1.5 maximum allowed. Those stocks that pass these three hurdles are then rated by their relative strength, a measure of how well a stock has performed in the past 12 months when compared to the overall market. Only the top 50 stocks based on all of these criteria earn the strategy's top recommendations. Hormel, with a relative strength of 79, is one of these top 50.
A major provider of food ingredients, namely sweeteners and starches, is Ingredion (INGR). It sells to the food, beverage, brewing and pharmaceutical industries, among others. Ingredion's business is built on wholesaling to producers, rather than having name brand product lines like the other companies I just recommended. Like Tyson, this is a favorite of my Lynch strategy, earning a highly favorable P/E/G of 0.25.