By James Dennin for Kapitall
The winter's strange weather has driven up food prices. Is there a way to profit from this trend?
Spring has mercifully started pushing up the mercury on our thermometers; although, it's quite possible that we're just now starting to feel the real ramifications of the polar vortex.
If you've tried to order a margarita or Thai food in the last month, you probably suffered a rude awakening to the lime shortage that is currently ravaging Mexico and, by extension, its eateries abroad. But that's only the beginning.
Coffee, pork, oats, and corn all edge out the 5th highest yielding asset class so far in 2014: the Italian stock market.
Starbucks (SBUX) has already released a statement saying it's going to stop buying coffee beans this year, and will rely on its reserves until the prices stabilize. If coffee doesn't retreat some (Arabica beans are up around 90% so far) it could soon affect the price of your morning pick-me-up.
And that's not all. The bad weather has affected nearly everything we, as humans, like to eat. Whether you're a carnivore (pork, beef, shrimp, and by extension chicken, are all near all-time-high prices); or a vegan (lettuce prices could rise by a third this year) it's hard to imagine how the trends could continue without some major changes to the American palate.
Stocks with more cash on hand will be more flexible in dealing with the crisis. Like Starbucks scaling back their coffee purchases, having extra money gives firms extra leeway to take advantage of price fluctuations.
In other words, they'll be able to buy more when prices are low, and stop buying when prices get high. We screened 60 stocks in the food and agricultural industries for high ratios of levered-free-cash flow to enterprise value (LCEF/EV).
We were left with 4 companies on our list.
Click on the interactive chart to view data over time.
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Will these foods thrive or perish under the pressure of rising food prices? Use the list below to begin your analysis.
1. Sanderson Farms, Inc. (SAFM, Earnings, Analysts, Financials): Engages in the production, processing, marketing, and distribution of fresh, frozen, processed, and prepared chicken products. Market cap at $1.62B, most recent closing price at $72.23.
Levered free cash flow at $179.74M vs. enterprise value at $1.75B (implies a LFCF/EV ratio at 10.27%).
2. Archer Daniels Midland Company (ADM, Earnings, Analysts, Financials): Archer Daniels Midland Company procures, transports, stores, processes, and merchandises agricultural commodities and products in the United States and internationally. Market cap at $26.63B, most recent closing price at $40.16.
Levered free cash flow at $3.83B vs. enterprise value at $32.56B (implies a LFCF/EV ratio at 11.76%).
3. The Andersons, Inc. (ANDE, Earnings, Analysts, Financials): Engages in the agriculture and transportation businesses in the United States. Market cap at $2.29B, most recent closing price at $54.17.
Levered free cash flow at $197.05M vs. enterprise value at $1.77B (implies a LFCF/EV ratio at 11.13%).
4. Industrias Bachoco S.A.B. de C.V. (IBA, Earnings, Analysts, Financials): Operates as a poultry producer in Mexico. Market cap at $2.14B, most recent closing price at $42.78.
Levered free cash flow at $360.10M vs. enterprise value at $1.76B (implies a LFCF/EV ratio at 20.46%).
(List compiled by James Dennin. Monthly returns sourced from Zacks Investment Research.)