3 Stocks for the Harvest Moon - Investment Ideas

By Zacks | October 02, 2012 AAA

The recent full moon was the harvest moon, which is defined as full
moon closest to the autumnal equinox. The harvest moon got its name as
it helped farmers gather their crops as daylight diminished. Not that
I like to use the stars to pick stocks, but I am not afraid of using
other celestial bodies to give investors a heads up on when its time
to harvest some profits.

I am taking a look at three food stocks and looking to see if its time
to harvest profits or leave them in the ground to grow more.

Let's start with Zacks #1 Rank (Strong Buy) Hain Celestial (HAIN) and not just
because "celestial" fits so nicely with my title. HAIN is a snack
food producer that is just as dependent on the harvest as any of the
major food companies.

The first thing I look to is the earnings estimates and how they have
trended over the last year... and I see good positive trends for HAIN
in 2012. Looking at 2013, I see the trend remains intact and the
implied earnings growth rate has moved from 9% in March of 2012 to the
current rate of 19.1%.

HAIN has produced seven straight positive earnings surprises and is
slated to report at the end of October. The Zacks Consensus Estimate
is calling for revenue of $378 million and $0.41 in EPS. This implies
growth of revenue growth of 29% and earnings growth of 41%. That is
almost the type of growth that would make Jack sneer at his beanstalk.

You would think that growth like this would come at a steep price, and
is does to a degree but the other valuation metrics come in like a
mixed bowl of nuts. A trailing twelve month PE of 34x is double that
of the industry average, while a forward PE of 26x shows a smaller
premium to the 16x industry average forward PE. The more conservative
measure of price to book has HAIN just below 3x and trading at a
discount to the industry average of 4x. The price to sales multiple of
2x is also showing the company trading at a discount to the 2.5x
industry average multiple.

Hain Celestial - ticker HAIN></p> <p> Another name that is going to be impacted by the upcoming harvest is<br />  <b>Conagra Foods</b> (<a href=CAG). The company has a
multitude of popular brands such as Peter Pan, Slim Jim, Hebrew
National, Hunt's and my personal childhood favorite, Chef Boyardee. I
am getting hungry just thinking of the Chef.

Investor gobbled up shares of CAG following its most recent earnings
release on September 20, 2012. The Zacks Consensus Estimate was
calling for EPS of $0.36 and the company delivered a beat of $0.08 in
reporting $0.44. Revenues came in slightly higher than expected as
well.

The beat marks the fourth consecutive positive earnings surprise.
Following the earning release, analysts increased their earnings per
share estimates and the stock rose to a Zacks #2 (Buy) ranking.

Prior to the September earnings release, analysts were expecting $1.98
in EPS for 2012 and $2.07 in 2013. Those numbers were kicked higher
by 4.5% and 3.8% respectively. The current estimates of $2.07 for 2012
and $2.19 for 2013 imply an earnings growth rate of about 6%.

The valuation picture for CAG might be the real reason that most
investors are looking to play the harvest. Right now, CAG is trading
at a discount to the industry on several metrics that investors tend
to pay close attention to.

A trailing PE of 14x is below the 17x industry average, while a
cheaper forward PE of 13x is even further below the 17x industry
average. On a more conservative measure, CAG is trading at a 2.4x
price to book multiple and that is well below the 4x industry average.
An even larger discount is present in the price to sales metric. A
0.84x multiple will bring in a lot of eyeballs as its less than 1x,
and well below the 2.5x industry average.

Conagra Foods - ticker CAG></p> <p> Finally we have a play that is really more about next year's harvest<br />  than this year.  We all heard about the drought and what it did to<br />  Midwest corn crops, but have we heard about how the farmers are going<br />  to need to enrich the soil for next year?</p> <p> <b>Rentech</b> (<a href=RNF) is in the
production of natural gas-based nitrogen fertilizer and industrial
products for agricultural uses. It serves the hard hit states of
Illinois, Iowa and Wisconsin and farmers are going to need the
fertilizers the company produces to help next year's crop.

There are only three quarters worth of earnings reports for this
tracking stock, but it has two beats and one miss. The two beats are
of pretty good size though, coming in at 21% and 50% ahead of the
Zacks Consensus Estimate.

Earnings estimates for 2012 have moved from $2.41 in April to the
current level of $3.11, an increase of 29%. Over the same time
period, estimates for 2013 have moved from $2.23 to $2.97, an
increase of 33%. What is surprising to me is the negative implied
earnings growth rate of -4.5%.

Have closely followed this play since early July, I find the negative
earnings growth rate very surprising. On the most recent conference
call management noted that they were increasing prices beyond the
highs of 2012. Those higher prices have, of yet, not translated into
higher EPS estimates.

The valuation metrics for RNF are pretty steep. Trailing twelve
months PE of 23x is well above 14x industry average. The forward PE,
however, shows a much better multiple of 12x compared to the 13x
industry average. Price to book is a sky high 12.5x and is many
multiple higher than the industry average of 2.7x. The price to sales
multiple of 7x is also well above the 1x industry average.

Rentech - ticker RNF></p> <p> So while the drought ravaged corn and soybean crops, it doesn't have<br />  to ravage your portfolio.</p> <p> <b>Want More of Our Best Recommendations?</b> </p> <p> Zacks' Executive VP, Steve Reitmeister, knows when key trades are<br />  about to be triggered and which of our experts has the hottest hand.<br />  Then each week he hand-selects the most compelling trades and serves<br />  them up to you in a new program called <i>Zacks Confidential</i>.  </p> <p> Learn More>></p> <p> <i>Brian Bolan is a Stock Strategist<br />  for  </p> <p> Zacks.com. He is the Editor in charge of the Zacks Home Run Investor<br />  service</i>, a Buy and Hold service where he recommends the stocks<br />  in the portfolio</p> <p> Brian is also the editor of Follow The Money Trader  a<br />  trading service that tracks institutional money flows and looks for<br />  great stock picks from that data.</p> <p> Follow Brian Bolan  on twitter at<br />  @BBolan1</p> <p> Like Brian Bolan  on  </p> <p> Facebook</p> </body></html>

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