A Bargain in Fresh Del Monte

Motley Fool Hidden Gems recommendation Fresh Del Monte Produce (NYSE: FDP  ) harvested a 9% sales gain on the way to producing $1.03 per diluted share in earnings for its second quarter -- far exceeding the $0.94 analysts had estimated.

Nitpickers will be quick to note that, even if the company exceeds the analysts' 2004 earnings estimate of $2.78 per share, it will still be far below last year's $3.65 in earnings. Ah, but we are talking about a stock, with a well-known brand name, selling just north of $27. That is 10 times 2004 earnings and 7.8 times 2005 earnings. That's cheap. No, that's really cheap.

Those analyst estimates were made prior to the company agreeing to buy Del Monte Foods Europe -- an acquisition that will add modestly to earnings. This acquisition, besides bringing $370 million in sales, includes the perpetual, royalty-free license to use the Del Monte brand for processed and/or canned food products in more than 100 countries throughout Europe, Africa, and the Middle East.

Fresh Del Monte Produce (not to be confused with Del Monte Foods (NYSE: DLM  ) , which sells canned goods in the U.S.) has had plans for international growth. With Del Monte Europe, that growth will be done under the Del Monte brand name -- and it will include the more stable earnings that come from selling canned products.

Fresh Del Monte competitor Chiquita Brands (NYSE: CQB  ) sells for an equally low 11 times earnings. What is wrong here? Is there a risk that people will stop eating their fruits and vegetables? Is healthy eating unfashionable? Hardly!

One reason the stocks are not at market multiples is their exposure to bananas. "It's a jungle out there" is a good way to describe bananas and their wildly fluctuating prices. The companies, though, are expanding away from bananas -- a fact the stock market has yet to reward.

You can buy food stocks such as ConAgra (NYSE: CAG  ) , General Mills (NYSE: GIS  ) , and Kraft Foods (NYSE: KFT  ) . They are broadly diversified but sell for much higher prices. But, if you want to own the "fresh" end of the food chain, there are some real bargains to be found.

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Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.