The market ebbs and flows based on investor sentiment. The need to eat never changes. One way to protect yourself from the ups and downs of the market is to focus on food stocks like General Mills, Inc. (NYSE:GIS), Campbell Soup Company (NYSE:CPB), and Kellogg Company (NYSE:K), where supply and demand work on a totally different biologic system.
Simple Logic
“Markets move in cycles. Investors who forgot that fact in the late-1990’s learned it again by the 2002 lows… Investors who forgot that fact in 2007 learned it again by 2009… They have already forgotten, so investors will have to learn it yet again.” That’s an abridged quote from mutual fund manager John Hussman.
It points out a basic fact about the stock market that investors don’t like to hear: prices go both up and down. You can move beyond this cyclicality by building a portfolio that doesn’t have the same dynamics. One key area that moves to its own beat is food. You have to eat, it doesn’t matter what the economy or stock market are doing.
Here are three food stocks that made it into Hussman Strategic Dividend Value Fund:
Steady as She Goes
Perhaps the best example of a stable business is General Mills, Inc. (NYSE:GIS). The company is among the largest players in the packaged food category. Its brand portfolio includes such well-known names as Cheerios, Green Giant, Progresso, Betty Crocker, and Yoplait. Each is an important brand in staple food categories.
Impressively, General Mills’ top and bottom lines grew right through the deep 2007 to 2009 recession. And it has increased its dividend on an annual basis since 2004. While the stock sold off during the recession, investors focusing on the core business would have clearly seen a continuation of solid results. This is part of the reason why the shares quickly recovered.
More recently, input costs have been pinching profitability. That’s an ongoing issue in the food business, since commodity prices can, and often do, change dramatically and swiftly. Still, the top line hasn’t stopped expanding at General Mills, which means the bottom line and dividends are both likely to keep moving generally higher, too.
With a 3% or so dividend yield, General Mills, Inc. (NYSE:GIS) would be a good option for investors looking for a consistent performer. That said, the shares are trading near all-time highs, so more conservative types might want to watch for a pull back.
Another Rock in the Storm
Kellogg Company (NYSE:K) is best known for its cereal business. However, it also makes cookies, crackers, and other so-called “convenience foods.” Its list of brands includes Frosted Flakes, Rice Krispies, Pop-Tarts, Eggo, Keebler, and recently acquired Pringles.
Although Kellogg’s top line fell for two years during the recession, the bottom line and dividend kept moving higher. That provided material solace to investors stung by the market’s steep fall. Like General Mills, Inc. (NYSE:GIS), Kellogg Company (NYSE:K)shares fell during the recession but quickly recovered. Selling products that consumers eat every single day is a business that lends itself to stability and, eventually, stability gets rewarded.
Kellogg Company (NYSE:K) shares are near all-time highs, so the most conservative investors might want to put it on a watch list. If there is a market sell off, however, jump aboard quickly. Still, an around 2.7% yield should be compelling for income investors looking for a stable business right now.
A Turnaround
Campbell Soup Company (NYSE:CPB) has something of a different story to tell. The company’s namesake soup is its core business. However, it also owns brands like Pace, Prego, Swanson, V8, and Pepperidge Farm, so it clearly has exposure to other product categories.
Campbell Soup Company (NYSE:CPB)’s top and bottom lines peaked just prior to the recession and have struggled to recover. A consumer shift away from soups, however, had a lot to do with that. The soup giant has been far more aggressive of late with new products, including recently announced plans to purchase Plum Organics, an organic baby food company. The soup giant is also working to streamline its operations through plant closures and layoffs.
While the top line is finally looking stronger, the bottom line has been essentially unchanged for three years. Earnings this year, meanwhile, look to be flat to lower because of input cost pressures and corporate efforts to improve long-term performance.
The shares, meanwhile, look like they have just broken out of an over decade-long trading range. So, momentum investors might want to take a look. However, with an around 2.5% dividend yield and a long history of annual dividend increases, income investors should be interested, too.
Everyone has to Eat
While the markets go through cycles, eating doesn’t. Kellogg Company (NYSE:K), General Mills, Inc. (NYSE:GIS), and Campbell are all giants in the food industry. The first two have shown the strength of their businesses in good times and bad, which makes them at least worth watching, if not buying, as the market hovers around all-time highs. Campbell Soup Company (NYSE:CPB) has a turnaround feel to it, though the market appears to be recognizing management’s efforts.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article If The Market Sells Off, Food Demand Won’t originally appeared on Fool.com.
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