Devour Growth in 2009

• Email
• Share
• Print

Here's my prediction for 2009: You're going to eat.

Yeah, you might go on a diet, or you might turn to comfort foods as you mourn those 2008 investment losses. Maybe you'll decide to focus on local produce, or you'll plant your own garden full of fresh foods (or even raise a few chickens in your backyard).

But just like the rest of America, and the world, you're going to keep eating. That's why I like the prospects for food-producing stocks in 2009 and beyond.

Dude, where's my Corn Flakes?
Globally, record prices and food-shortage scares were the main stories of 2008. With commodity prices dropping, international food companies such as H.J. Heinz (NYSE: HNZ) are poised to chomp on some big profits this year, especially if they can keep volatile foreign exchange rates in check.

Beyond successfully managing cost increases, the key to successful growth these days is finding an international stronghold through established local or global brands. International companies including Kellogg (NYSE: K) are using regional acquisitions to expand their client base, especially as U.S. consumption levels out.

What are we eating, anyway?
Of course, the United States is just a small piece of the pie for the top global food producers. However, in thinking about what's coming for foodies, I decided to take a step back and look at U.S. food trends for the past several years, courtesy of the U.S. Census Bureau.

Of course, red meat and pork consumption has declined considerably over the past 25 years, with most of the decline coming during the cholesterol crisis of the 1980's. More people were eating chicken for dinner during this time, and while chicken consumption has been growing since then, it now seems to be leveling off. Perhaps that's why Tyson Foods' (NYSE: TSN) CEO resigned on Monday after months of delivering bland results.

Americans aren't drinking as much milk as they were 25 years ago, but they're gobbling down yogurt in record numbers, with yogurt consumption levels increasing by 70% from 2000 to 2006 alone. Even with the low-carb diet focus, per capita consumption of flour and cereal products has increased by 33% since 1980, although values have dropped off from the highs reached in 2000. These trends certainly haven't hurt food conglomerate General Mills (NYSE: GIS), which recently reported market-share gains in December.

Kraft (NYSE: KFT) must be happy that Americans have almost doubled their cheese-eating over the past 25 years, but this number seems to be leveling off. Salad- and cooking-oil usage has more than doubled in the same period, although these numbers have also topped out.

Produce has been a mixed bag, with overall consumption falling off from 2000. Americans aren't eating as much canned fruit or vegetables, nor drinking as much fruit juice. So it's no real surprise that canned-food-focused Del Monte Foods (NYSE: DLM) struggles as it tries to find its place in an increasingly fresh-food world.

Where the growth is
Organic foods have been generating more-than-healthy growth, with $16.7 billion in sales in 2006 and projected revenue of $23.6 billion in 2008. In spite of today's pressing economic picture, the Organic Trade Association plans to aggressively target growth prospects through an ambitious marketing campaign designed to raise consumer awareness of the benefits of organic products.

Higher-priced organic foods may need all of the help they can get in this environment. One market research firm found that only 40% of Americans actually purchased organic products within the last six months, with organic fruit, vegetable, and dairy products among the most purchased. Hain Celestial Group (Nasdaq: HAIN) is among those competing in the organic space, generating 22% sales growth for its most recent quarter, but even that company's still working through recent commodity price spikes.

Is it time to sink your teeth into food stocks?
In spite of all the pessimism out in the market, I think that food stocks are among those poised for strong growth in 2009. Not only will people continue to eat, but they are choosing to eat out less frequently. General Mills, Kraft, and Heinz, among the strongest food producers, demonstrated continued pricing power in spite of a weak economy. Declining commodity prices will only help these companies to generate stronger profits, while a focus on global growth makes these foodies a strong, long-term play on the international markets.

Heinz and Kraft are trading at trailing-12-month P/E ratios near 13, while General Mills is a little more expensive right now at 16.4. All of these companies are delivering great dividends right now, too, with Heinz and Kraft's yields topping 4%. At relatively cheap market prices, this might be the time to end your fasting and dig into some yummy foodie stocks.

For related Foolishness:

• The Best Stocks for 2009
• What the Experts Aren't Telling You About 2009
• 5 Dow Winners for 2009