Forget about the tech sector for a moment – how about the recent uptick in merger activity in the supposedly staid food sector?
The past few weeks alone has seen China’s Shanguai International agreeing to buy US pork icon Smithfield Foods in a deal worth $7.1 billion,1 and Dole Food Chairman and CEO David Murdock offering shareholders an 18% premium to take the company private – just as he did 10 years ago.2
And we’d be remiss if we didn’t mention Fresh Del Monte’s announced purchase of Natural Balance Pet Foods, the 24-year-old company founded by legendary actor Dick Van Patten.3
Investors, too, have been showing their interest in the sector, bidding up the prices of some of its largest names. Hormel Foods and Campbell Foods are each up about 20% in 2013, while General Mills and Hershey have both increased around 15%.
As Jack Hough pointed out recently in the Wall Street Journal, these large-cap stocks have been attractive because they offer reliable earnings and steady dividend payouts.4
However, Hough argued that the valuations of these companies were getting a little out of hand, since what these companies offer in terms of reliability they in turn tend to give up in mere single-digit-growth potential.
But that doesn’t mean there isn’t more attractive growth potential within the food sector – an idea that’s at the heart of the Healthy and Tasty motif, which is down 0.4% in the past month and up 16.1% in 2013. The S&P 500 is down 3.6% in the past month, and up 10.0% year-to-date.
The motif, a portfolio of 20 stocks, attempts to latch onto the projected growth in organic food consumption, as well as the increasing number of food providers trying to offer healthier options without giving up taste.
The Nutrition Business Journal, for example, has said that organic food sales in the US have grown from $11 billion to an estimated $27 billion in 2012. Organic food now represents 3.5% of all food sales in the US.5
Perhaps even more compelling than such macro data, however, is the recent and continuing evidence that this is the area where many large food companies see their growth opportunities. Just last month, Campbell Soup said it would buy Plum Organics, the Emeryville, CA, provider of organic baby food that generated $93 million in gross sales last year.6 In announcing the deal, Campbell said the premium and organic segments of the $2 billion baby-food market grew at an annual average rate of 43% from 2010 to 2012.
Campbell’s move came on the heels of Group Danone announcing its purchase of Happy Family, another leading baby-food maker in the US.
Growth in food stocks – health-oriented or otherwise – could certainly face risks if economic conditions worsen. But for now, it appears investors are not yet declaring themselves full.
1Agence France-Presse, “China’s Shanghui Buys Meat Processor Smithfield Foods, industryweek.com, May 29, 2013, http://www.industryweek.com/companies-amp-executives/chinas-shuanghui-buys-meat-processor-smithfield-foods, (accessed June 19, 2013).
2“Murdock Offers to Take Dole Private, Again,” foodprocessing.com, June 13, 2013, http://www.foodprocessing.com/industrynews/2013/murdock-offers-buy-dole.html, (accessed June 19, 2013).
3Dave Fusaro, “Del Monte Buys Natural Balance Pet Foods,” FoodProcessing.com, May 28, 2013, http://www.foodprocessing.com/industrynews/2013/del-monte-buys-natural-balance.html, (accessed June 19, 2013).
4Jack Hough, “Too Much Food? Try the Alternatives,” WSJ.com, April 21, 2013.
5Economic Research Service, US Department of Agriculture, “Consumer demand drives growth in the organic food sector,” http://www.ers.usda.gov/data-products/chart-gallery/detail.aspx?chartId=35003&ref=collection, (accessed June 19, 2013).
6Dave Fusaro, “Campbell to Acquire Plum Organics,” FoodProcessing.com, May 23, 2013, http://www.foodprocessing.com/industrynews/2013/campbell-buys-plum-organics.html, (accessed June 19, 2013).