The Smiths' vegan front man Morrissey may have crooned, "Meat
is murder!" but the fact remains that meat is big business.
Take a look at figures from the U.N. Food and Agriculture
Organization, which projected a 5% annual growth rate of the
in most countries until 2015.
And in 2012, meat production climbed to more than 300 million
tons, according to the same report. That's a
of chickens. No wonder Morrissey and the other vegans are
As you can imagine, meat companies have historically made
. But the opportunity to
hasn't passed. I've come across three
in this industry worth considering, with one standing out as my
1. Hormel Foods (
This dividend-paying, food-making dynamo has paid dividends for
the past 47 years.
The company specializes in the production and marketing of
various food and meat products, including Spam and Country Crock.
of Skippy peanut butter expands Hormel's product offerings into
another kitchen staple.
My colleague Jay Peroni recently profiled the
. He pointed out that
are higher by 177% during the past seven years and cited the
company's strong financial picture as the reason for the
have interest expense covered by nearly 70 times as of the end of
2012, and its forward price-to-earnings (
) ratio is a healthy 17, compared to the sector's average of 27.
A lower P/E often signals a stock that is
in relation to its peers. Add in operating margins of
approximately 10%, and it creates a compelling case for this meat
The weekly chart shows the stock broke out of a base of $28 a
share range in October 2012. The stock has since rallied to just
2. Tyson Foods (
This nearly $9 billion
meat producer distributes and markets chicken, beef, pork and
related items globally. It has an excellent P/E ratio of 14.77
and a quarterly
gross profit margin
of just above 6%. A price-to-earnings growth (
) ratio close to 8 and a trailing 12-month
of $600 million has powered shares to a 100%
since August 2012. But technically, it appears the stock has hit
at just above $24 a share. I would await a pullback before
3. Smithfield Foods (
While both stocks paint a compelling picture for a long-term
, there's another stock in the meat sector that has my vote as
the ideal immediate investment: Smithfield Foods.
This stock has lagged behind Tyson and Hormel until its
third-quarter earnings release on March 7; shares soared 11%
earnings per share (
of 44 cents, beating estimates of 39 cents a share. A possible
split the company's divisions was also mentioned in the earnings
, fueling the speculative move higher.
Smithfield shareholder Continental Grain issued a letter
explaining the logic behind a possible corporate split. Shares
rallied close to another 5% on the news.
Shareholders expect Smithfield to split into three businesses:
pork and packaged meat, hog farms, and another that specializes
in international business.
It is argued that this potential breakup
boost returns by dropping the unprofitable hog-raising business.
estimate a split could lift the stock 50% to $48 a share.
But President and
C. Larry Pope is against a breakup. Smithfield points out that
the fiscal third quarter earnings jumped to almost $82 million
despite the losses at its hog farms. He says the hog farms
provide a competitive advantage that would be lost should the
company be broken up. In addition, he thinks things are improving
at the hog farms and they should soon be adding to the
. I don't think he will be able to withstand the shareholder
pressure. Therefore, Smithfield looks like a great speculative
entry right now. Technically, the stock has pulled back from its
high, creating an opportunity.
Risks to Consider:
Smithfield Foods is a speculative buy due to the fact that
upon the breakup of the company. I firmly think it will occur,
but no one knows for certain. Tyson and Hormel are strong stocks,
but their prices may be overextended.
Action to Take -->
Smithfield Foods is my favorite of the three stocks because it is
right now and has a favorable technical picture. My 18-month
target on the stock is $42.
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