I’m in an Oliver Twist, the musical, kind of mood. The heart warming story of Oliver, orphaned at birth, and his travails in vagabond London provide some important lessons that we may be able to use in our own challenges in this current economic malaise, recession, depression.
No, I am not talking about picking a pocket or two, though that is exactly the kind of behavior on Wall Street that got us into this mess. While there are many themes in the Dickens classic, the simple pleasure of having food on the table and what needs to be done to get is very telling.
In the musical, there is a great scene in Fagin’s lair where the children wax poetically about three meals a day. We are tired of eating just gruel. Instead, imagine sausages, steaks and Pease pudding.
Yes, food, glorious food, indeed. No matter how crummy the condition of the human state, sustenance is a powerful driver.
In a market with very little that can be counted on, investors can find the same comfort by intently focusing on food. Sales of goods are plummeting across the economy, but food purchases are sure to hold steady.
They always do even during horrible economic conditions like we now face.
As for food stocks, they are often boring companies that offer little in regard to growth. Instead, these businesses provide stable and steady cash flow that investors crave during economic slowdowns.
You won’t get rich owning food stocks, but you won’t get burned either. In fact, one could make the case that demand for stocks in this group may benefit those early to the party.
That demand has the potential to push food company stock prices higher. Thus the supposedly defensive position can become an attractive growth play.
That has not happened yet as sentiment in the market is poor across the board. In my view that creates an extra incentive for owning stocks in this group. Add in the fact that most food companies pay dividends and the story becomes all the more attractive.
Here are a few names to consider:
General Mills (GIS) is one of the largest food companies in the world. It offers a wide variety of popular brands to markets across the globe. Currently with a market value of $22.19 billion GIS shares have held steady during the recent bear market. The company is one of the few that have actually appreciated in value and even the credit crisis has done little to slow the ascent. GIS pays a dividend yield of 2.7%. Investors that own GIS can rely on a stable, well run company. (See also: "The Best Stock Hidden in Plain Sight.")
Soup today is not the gruel of Oliver Twist’s day. No sir, eating soup is like a meal in a can. It is filling and nutritional. Campbell Soup (CPB), being one of the more recognizable makers of soup, should benefit as consumers look to scrimp and save anyway possible. Instead of eating out, Americans can stay at home and enjoy a bowl of soup.
CPB is another winning stock in a down market and that trend higher should continue in 2009. Like GIS, CBP pays a dividend of 2.7%. Unlike GIS, CPB is better positioned for growth as consumer preferences change during difficult times. I know I’m eating more soup, but that may be because my kids love it. The reasons are irrelevant. Soup sales are rising and that is positive for those that own CPB stock. (See also: "Campbell Soup Company: Comfort Food for Investors.")
For those looking to be more aggressive in the defensive sector, there are a few food companies that have not done so well in the current environment. As such share prices are lower and opportunistic investors may find some real bargains.
One name to consider is Sara Lee (SLE). As the company says, "nobody does it like Sara Lee." Well, not exactly. The company has lost more than half its value over the last three years with 44% of that coming in the last 12 months.
SLE lost its mojo and its attempt to restore the old luster ran into the brick wall of a recession. Now with shares trading for under $10, SLE’s dividend yield is a healthy 4.6%. Adding further support to investors is the decision to reverse course with respect to suspending pre-approved stock buy-backs.
That move along with revised guidance pushed shares of SLE to near 52 week lows. Clearly SLE is not humming on all cylinders, but I expect the company to perform well despite recent missteps.
Getting rich by owning foods stocks you will not, but sleeping well you will. As the country plummets into a deep recession, you can invest safely knowing that food, glorious food will do well no matter the pain.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com.
