Filed Under:
Tickers in this Article: DF, KFT, CPB, HNZ
Food stocks aren't known for being particularly eye-catching. However, there are a number of companies that can fare very well, in terms of earnings and whose stocks can have a significant amount of upside from their current level. That doesn't mean that one should buy stocks in the sector without doing his homework thoroughly.

IN PICTURES: How To Make Your First $1 Million

Dean Foods
Dean Foods (NYSE:DF), known for its presence in the dairy business, was out with its first-quarter earnings earlier in the week. It earned 23 cents per share excluding items, which was a nickel shy of expectations. In conjunction with the release it indicated that for the second quarter it was looking for adjusted diluted earnings of 23 to 28 cents a share whereas Wall Street had been expecting a heftier 41 cents a share. Making matters perhaps a bit worse it suspended its full year guidance. The stock was hit hard on Monday in early trading. (For more on analyst expectations, be sure to read Analyst Forecasts Spell Disaster For Some Stocks.)

However, Dean Foods should be kept on the radar screen. This is a company that has been around since 1925, and has had to operate under difficult situations in the past and it can do it again. Also, logically speaking as this economy comes back, the demand for dairy products of all types should get a boost as well. Dairy is, in a nutshell, something we would have a tough time living without.

While earnings estimates for this year may get ratcheted down in the near-term, and the stock may struggle in the near-term too, this is a company that can survive and ultimately thrive in time.

Food Companies on the Radar
There are several other food and beverage companies that look attractive now. Near the top of the list is Kraft (NYSE:KFT), for a couple of reasons. Kraft has been a consistent performer on the earnings front, swallowing analyst estimates quarter after quarter for the past year. Also, it trades at just 14.7-times this year's estimate, which is $2.06. Plus, longer-term as the economy ramps up, demand for its various tasty wares should too.

Campbells Soup (NYSE:CPB) is likely to be another winner. The company is expected to earn $2.45 a share this year, yet it trades at only $35 and change. It also dishes out a tasty dividend and the forward yield is more than 3%. Overall, this stock seems as if it would be more appropriately valued in the mid $40 range, based upon its earnings potential.

Heinz (NYSE:HNZ) is another favorite because not only has it been around a long time, and it has an amazing reach and deep pockets, but because it has also been performing well in spite of what has clearly been a less than terrific economy. It's beaten the Street three quarters straight. As this economy really hits its stride, it seems to make sense that more and more people will be going out to restaurants, eating at back yard BBQs and buying its wares for their homes, which should boost the bottom line.

The Bottom Line
Longer-term, the food space shows a lot of promise. Of course, that doesn't mean that investors should buy stocks in the space blindly. That said, among my favorites in the food and beverage sector are Kraft, Heinz, and Campbells. Each can show sizable earnings growth over the next few years, and each of those stocks has nice upside potential from their current levels.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

comments powered by Disqus

Trading Center