Diamond Foods (NASDAQ:DMND) has left a bitter taste for investors as the stock has dropped steeply from around $90 a couple of years back to the twenties at present. The stock shot up to $90-levels in 2011 on the back of enthusiasm as a result of a deal to acquire Pringles.

But the stock has been an outperformer this year with gains of 75%. But even then, investors need to watch out as Diamond Foods is still feeling the effects of its earlier woes. Moreover, the presence of stronger peers means that it isn't possibly the best investment that can be made in this industry. Let's see why.

Going downhill
However, accounting anomalies related to dubious payments to walnut growers sent the stock crashing to as low as $15, and since then, Diamond has been reporting GAAP losses as it cleans up the accounting mess.

But, there have been a few positive signs recently, as Diamond put forth an analyst-beating performance in the fourth quarter. Also, in August, the news of settling of a lawsuit related to accounting troubles resulted in a gain of around 20% in its share price. The company announced a proposed $96 million settlement with $11 million in cash and 4.45 million shares of stock.

The company reported fourth-quarter revenue of $199.8 million. The reported revenue was ahead of the consensus estimates but still was down by 10.8% versus the year-ago period.

The revenue decline was a result of a weakness in the nut business segment, which saw a sharp decline of 25.2% in sales versus the year-ago period to $82.7 million. This was partly offset by a 3.3% improvement in the snacks business. However, the snack segment's gain was mainly due to pricing as volume was down by around 2% and this isn't a good sign going forward. Price hikes can hurt volumes, so if the company doesn't find new customers to increase volume, it might be in for some more trouble.

A few positives here and there
But there were some positives as well. Despite the drop in revenue, the gross margin in dollar terms witnessed a huge improvement of 770 basis points as a result of cost savings. This resulted in the company reporting earnings of $0.09 per share as compared to $0.02 per share in the year-ago period .

But, Diamond issued a soft forecast for the upcoming quarter. Revenue is expected to fall 12% as compared to the year-ago quarter due to lower walnut supply. However, the company expects to post year-over-year earnings gains for fiscal 2014 on the back of implementation of its multi-year turnaround strategies that are being implemented. The tepid outlook led to a pullback in the stock price and in my opinion, as long as the company doesn't show solid signs of progress, investors should stay away.

Instead of Diamond Foods, investors should look at more profitable options in the foods industry as listed below.

These are better bets
J&J Snack Foods (NASDAQ:JJSF) is a far bigger company than Diamond Foods and has a fairly simple business model. The company makes a few snack foods and frozen beverages, which it sells to foodservice and retail supermarket chains. The company continues to gain from its 2012 acquisition of Kim & Scott's Gourmet pretzels since pretzels have been a staple in sports stadiums in the U.S. since the 1970s.

Going forward, pretzels can be important growth drivers with demand from quick service restaurants, or QSRs, increasing. Pretzel rolls have enormous potential in the QSR industry and the foodservice space, and J&J could benefit from this trend due to its last year's acquisition.

As mentioned earlier, an accounting scandal related to dubious payments to nut growers surfaced when Diamond Foods was looking to acquire Pringles from P&G. Kellogg (NYSE:K) was quick to step in and acquire Pringles in a deal that was worth $2.7 billion.

With this acquisition, Kellogg turned from being just a U.S.-only cereals and snack foods company to being an international player. This deal also gave Kellogg $20 million worth of synergy in 2012, and is expected to provide another $50 million to $75 million going forward.

Thus, Diamond's loss turned out to be Kellogg's gain and investors looking for a stock with a decent dividend yield should consider Kellogg for their portfolio. With a dividend that yields 3% and a forward P/E of just 14.8, Kellogg is certainly worth a look.

What should you do?
Diamond is still feeling the aftershocks of its erstwhile accounting scandal and the company is yet to turn profitable. Revenue has been declining and outlook isn't bright either. Thus, investors should stay away from the stock and instead consider Kellogg or J&J for their portfolio.

Fool contributor Sharda Sharma has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.