Hungry for profit

The food sector is offering appetizing investment opportunities.

Consumers spend an average of 16% of their disposable income on consumer staples—food, non-alcoholic and alcoholic beverages, personal care and tobacco products. This broad category is less affected than other sectors by economic conditions. Consequently, sales and earnings growth tend to be more stable.

Stocks in this sector are known as defensive stocks, since consumer demand for these companies’ products and services remains relatively stable no matter how the economy is performing. You can identify defensive stocks by thinking of basic needs: food, health, clothing and shelter.

Of particular interest in volatile markets is the food sector. As populations grow, so must the food supply. In the U.S., food and beverage companies employ 1.4 million workers in manufacturing, which constitutes 12% of all U.S. manufacturing jobs. From farm to fork, the U.S. food industry employs more than 15 million workers and, in 2010, generated $1.1 trillion in sales.

Investing in food may therefore seem like a win-win decision. But there is no guarantee all food-related stocks will perform well. We have identified the Major Food Diversified industry group as being in an uptrend, and SmarTrend has identified Uptrends in the stocks of several companies in this sector.

Sanderson Farms, Inc. (SAFM; see chart below) produces, processes, markets and distributes fresh and frozen chicken products and prepared food items. Sanderson Farms sells its chicken primarily under the Sanderson Farms brand name to retailers, distributors, and fast food operators in the southeastern, southwestern, and western U.S. During late October, SAFM was trading at $51.60 and SmarTrend issued an alert on its Uptrend on September 15, 2011 at $42.67—an increase of 20.9%.

Corn Products International, Inc. (CPO) refines corn and produces sweeteners and starches. The company has customers in a wide range of industries, including the food, soft drink, brewing, pharmaceutical, corrugating, paper, and textile industries. CPO has company-owned operations, joint ventures, alliances, and technical licences in countries around the world. CPO is in an Uptrend called by SmarTrend on October 12, 2011 at $43.34. With a price of $49.68 in late October 2011, this stock increased 14.6% within approximately two weeks.

Lancaster Colony Corporation (LANC) manufactures and markets consumer products with a focus on specialty food products for the retail and foodservice markets. SmarTrend shows shares of LANC in an Uptrend and issued the alert on August 29, 2011 at $58.68. In late October, LANC was trading at $67.32, an increase of 14.7%.

It’s also worth noting this Downtrend Alert. Chiquita Brands International, Inc. (CQB) markets, produces, and distributes fresh bananas and other fresh produce, and distributes and markets fresh-cut fruit and other branded fruit products. On May 23, 2011, SmarTrend issued a Downtrend Alert when CQB was trading at $13.89. By late October, CQB was trading at $9.26, a decrease of 33.3%.

Whatever research and trading system you use, be sure you can get both Uptrend and Downtrend information, since it’s equally important to know what’s going on in both directions.

Chip Brian is the Founder and CEO of SmarTrend® www.mysmartrend.com