Everyone these days is on a protein power kick. General Mills is packing protein into its Cheerios, Hormel Foods is paying $450 million for protein supplement drinks maker Muscle Milk, and Yum! Brands' Taco Bell is replacing its Cantina Bell Menu with a new Cantina Power Menu that doubles the protein servings offered.
For years health professionals warned about too much protein in your diet, but today protein-heavy meals seem to be in vogue, and that appears to be infiltrating our portfolios as well, as companies try to bulk up their protein profile. Increased demand for protein was behind Tyson Foods' (NYSE:TSN) willingness to pay $7.7 billion to acquire Hillshire Brands and keep Brazilian meat processor JBS away from the prize.
It's not just in the U.S., either, but rather is something of a global phenomenon, albeit one that has been growing for decades. As my Foolish colleague Mark Lin points out, global consumption of protein has increased over four times over the past six decades, with consumption expected to reach 300,000 million metric tons by 2022, a six-fold increase from the 50,000 million metric tons consumed in the 1960s.
Yet it could also create a backlash. Beef and pork prices have rocketed to record levels due in part to drought and disease, but also because demand is surging. Even poultry is starting to climb as consumers turn to the lower-cost alternative just as there's a growing shortage of breeders.
As investors, we've been through this before. Back when the low-carb, high-protein Atkins diet craze gripped the country, shares of egg producer Sanderson Farms (NASDAQ:SAFM) hit what were then record levels of around $55 only to get cut by more than half a year or so later when the fad wore off. It's notable that in the latest round of high-protein eating, Sanderson's shares are nearly double what they were back then.
Then again, along with protein prices, everything is much higher today. Tyson's stock trades near its all-time highs, and Pilgrim's Pride, which was the vehicle JBS used to try to outbid Tyson for Hillshire, is closing in on its record highs again, while the $76 per share that fellow egg producer Cal-Maine Foods (NASDAQ:CALM) trades at makes the spike it enjoyed during the Atkins fad look like little more than a baby bump. Heck, even cereal maker General Mills is at its historical apex.
While most of these companies appear to still trade at reasonable valuations, it's hard to shake the notion we're seeing history repeat itself. They've gotten a big bounce from everyone jumping on the bandwagon. Moreover, there are macroeconomic factors at play, such as the Federal Reserve's monetary policies, which have inflated values everywhere, suggesting not that these are bad investments, just that they're not good ones at the moment. With long-term protein trends in their favor, these stocks may have just gotten ahead of themselves.
Still, even if you had bought Sanderson Farms or Cal-Maine Foods at their former peaks but held on through their collapse and subsequent resurrection, you'd barely remember the two years it took to get back to even. And today you'd be sitting on substantial gains. Even so, I like to buy my stocks at a discount, so I don't expect to be buying shares of these companies anytime soon.
Since I see the substantial gains they've made in such a short period of time as indicative of a coming pullback, betting there's more downside risk at the moment than upside potential seems the safer bet, no matter how much protein is muscling them forward.
Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Sanderson Farms. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.