6 Stocks to Feed Your Portfolio

If you're like me, the market has taken a big bite out of your portfolio. Naturally, you're hungry for the days of huge returns; but finding stocks that offer that in this bear market has been nothing short of finding a fine restaurant at the price of McDonald's. As the recession hasn't shown signs of letting up any time soon, consumers have reined in spending on almost everything -- that is, except for food. People may not be splurging for dinners at McCormick and Schmick, but they are still eating. As a result, food companies are weathering the environment better than most any other consumer-cyclical companies.

One example is McDonald's (NYSE: MCD  ) . The fast-food chain has seen fatter margins as this crisis has unfolded. People are trading down to cheaper food items and restaurants as their budgets tighten.

Satiating your portfolio's appetite
To uncover some of the food companies most likely to weather the downturn best, I ran a screen using the Motley Fool's CAPS screening tool. I searched for companies in the food and beverage industry with:

  • Market caps of $100 million or greater.
  • Current price of $5 or greater.
  • CAPS ratings of four or five stars, the highest and second-highest ratings from our CAPS community.

Here's what my screen popped up today:

Company

Market Cap (in billions)

CAPS Rating (out of 5)

Balchem

$0.360

*****

General Mills (NYSE: GIS  )

$18.2

*****

H.J. Heinz (NYSE: HNZ  )

$10.6

****

Kraft Foods (NYSE: KFT  )

$34.8

****

PepsiCo (NYSE: PEP  )

$80.3

*****

Zhongpin (Nasdaq: HOGS  )

$0.240

*****

*Data from Motley Fool CAPS.

I focused on picking the creme de la creme of the list. Not all of the stocks the screen returns are investable; therefore, the screener should be only the first step in your investment research. As always, remain mindful of the stock's valuation, fundamentals, and growth prospects.

When taste-testing food stocks, you should investigate the following ingredients:

How much cash is on the books? Is the company increasing its cash position, or at the least, preserving cash? That's especially important in this cash-strapped environment.

Pay attention to margins and the future of those margins. Should commodity prices remain low (as I expect this year), that should help margins. However, remain mindful of whether food companies that raised prices over the past year to absorb rising input costs are able to maintain those higher pricing levels. A company's pricing power is always important, but it's especially important now, as pricing has become a larger point of competition and sustaining market share in this recession. If the producer is lowering prices, as might happen to remain competitive, that could reduce margins.

Another question to ask is if grocery stores where food companies sell their products are still buying their products at historical levels. Campbell Soup (NYSE: CPB  ) , known for its stable of soups found in just about everyone's pantries, noted that major retailers reduced their inventories in the fourth quarter last year. 

Start feeding your portfolio at Motley Fool CAPS today! Let the collective wisdom of our 125,000-member-strong investment community help you make better investing decisions.

For related Foolishness:

Fool contributor Jennifer Schonberger does not own shares of any of the companies mentioned in this article. PepsiCo, Kraft Foods, and H.J. Heinz are Motley Fool Income Investor recommendations. The Motley Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (7)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 26, 2009, at 11:39 PM, nicko168 wrote:

    Based on the past weeks of observation, in order to avoid these turmoil crisis, I would suggest the readers to avoid the following companies at the moment:

    1. Banks.

    2. Auto.

    3. Retails.

    4. Casino.

    5. Insurance.

    6. Builders.

    7. Advertising.

    8. Energy.

    9. Healthcare.

    10 Loan.

    11. Chemical.

    12. Credit.

    13. Electric.

    14. Communications.

    15. Semiconductors.

    16. Rental.

    17. Electronics.

    18. Computers.

    19. Software.

    Blah..Blah..Blah."what can I buy?" Ha..Ha....Don't listen to analyst's prediction which does not work in this turmoil but there's an old saying "listen from the horse's mouth"

    After listening to the speech that day which caused the whole stock market to slid to its lowest..."what the heck"..I realised that there's a shift in position to .....just playback the speech & the clue is what's not mentioned & who's already awarded the technology & millitary contract ....Ha...Ha..Catch it?

  • Report this Comment On February 27, 2009, at 12:07 AM, nicko168 wrote:

    Revised Version:

    Based on the past weeks of observation, in order to avoid these turmoil crisis, I would suggest the readers to avoid the following companies at the moment:

    1. Banks.

    2. Auto.

    3. Retails.

    4. Casino.

    5. Insurance.

    6. Builders.

    7. Advertising.

    8. Energy.

    9. Healthcare.

    10 Loan.

    11. Chemical.

    12. Credit.

    13. Electric.

    14. Communications.

    15. Semiconductors.

    16. Rental.

    17. Electronics.

    18. Computers.

    19. Software.

    20. Estate

    Blah..Blah..Blah."what can I buy?" Ha..Ha....Don't listen to analyst's prediction which does not work in this turmoil but there's an old chinese saying "listen from the horse's mouth". That's the truth!!!

    After listening to the speech that day which caused the whole stock market to slid to its lowest..."what the heck"..I realised that there's a shift in position to .....just playback the speech & the clue is what's not mentioned & who's already awarded the technology & millitary contract ....Ha...Ha..Catch it?

    The market goes opposite direction when the horse can talk....ha..ha..

    This report is free & welcome any comment....

Add your comment.

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