3 Food Stocks for a Healthy Investment Diet - Earnings ESP

The ageless mantra for staying healthy is eating healthy but hardly do we practice what we preach. Yet, being a life's staple, food manufacturing is not only a crucial sector but also a key contributor to the nation's investments. With widespread food consciousness, this industry is witnessing changes in consumer preference toward products with less artificial sweeteners, sodium and saturated fat. Consumers now prefer a nutritional diet and are ready to shell out extra for it.

Other favorable aspects of the food industry are that while it is relatively less vulnerable to adverse economic conditions, it is sure to step up during sustained economic recovery when higher disposable income automatically increases the demand for food. Thus, in a rebounding economy with falling unemployment and gasoline prices, higher consumer confidence and improving consumer spending, the industry offers much food for thought.

The industry is now ready to binge on the bullishness in the economy that is driving consumer-based metrics. Consumer spending - accounting for over two-thirds of the U.S. economic activity - increased 4.3% in the fourth quarter of 2014, the fastest clip in nine years, and advanced from 3.2% in the third quarter. This found its reflections in the consumer sentiment index which peaked January at 98.1, according to the University of Michigan and Thomson Reuters, and in an improving job picture with the unemployment rate lingering around 5.7%.

All these are rightly setting the stage for food companies which now have to go an extra mile in terms of pricing, packaging, promoting and introducing new product categories. We expect heated-up competition for sure and aggressive pricing to hurt margins to some extent. This raises questions on how to eat the stock and have it too. Here's where we use the Zacks' formula of a profitable mix in identifying stocks that are potential market winners.

How to Pick the Right Stocks?

Picking the best stocks from the Food space for one's portfolio is not a simple task. However, our proprietary methodology makes it fairly simple for you. One can narrow down the list of choices by looking at stocks with the combination of a favorable Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) and a positive Zacks Earnings ESP . Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

Earnings ESP is our proprietary methodology for identifying stocks that have the best chance to surprise with their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.

For investors seeking to apply this strategy to their portfolio, we have highlighted 3 enticing Food stocks for this earnings season.

3 Prominent Picks

United Natural Foods, Inc. ( UNFI ) is a Zacks Rank #3 stock with an Earnings ESP of +4.55%. The current Zacks Consensus Estimate for the second quarter of fiscal 2015 is pegged at 66 cents a share, reflecting an increase of 18.2% year over year. This Providence, RI based distributor and retailer of natural, organic and specialty foods registered an average positive earnings surprise of 1.6% over the trailing four quarters. The company is expected to report on Mar 9, and has a long-term earnings growth rate of 14.3%.

Kraft Foods Group, Inc. ( KRFT ) is a Zacks Rank #3 stock with an Earnings ESP of +1.37%. The current Zacks Consensus Estimate for fourth-quarter 2014 is 73 cents a share, portraying 61.4% growth from the prior-year period. This Northfield, IL based consumer packaged food and beverage company registered a positive earnings surprise of 4% in the third quarter, and has a long-term earnings growth rate of 7.9%. The company is slated to report on Feb 12.

The J. M. Smucker Company ( SJM ) is also a Zacks Rank #3 stock with an earnings ESP of +1.33%. The current Zacks Consensus Estimate for third-quarter fiscal 2015 is $1.50 per share. This Orrville, OH based manufacturer and marketer of branded food products worldwide, registered an average positive earnings surprise of 0.4% over the trailing four quarters, and has a long-term earnings growth rate of 5.8%. The company's earnings are scheduled for release on Feb 13.

Bottom Line

We believe that the above stocks boast strong fundamentals and growth prospects that can satisfy investors' appetite for market winners. Your portfolio's chance of giving you higher returns increases if you have a favorably ranked stock powered by the optimism of an earnings beat.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

UTD NATURAL FDS (UNFI): Free Stock Analysis Report

KRAFT FOODS GRP (KRFT): Free Stock Analysis Report

SMUCKER JM (SJM): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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