|Written by GSCR Staff|
|Wednesday, 12 February 2014 22:48|
No doubt today’s headline is imprinted into the pop culture lexicon from America’s favorite under achiever, Homer Simpson. Another classic is an episode where Lisa states that she is going to become a vegetarian and not eat any animals anymore. Homer asks her if she is going to give up ham, pepperoni, and most importantly bacon and Lisa replies that these all come from the same animal. Homer replies chuckling in disbelief,”…right Lisa, a wonderful, magical animal!”
Where are we going with Homer? Yesterday there was a great article in MarketWatch about the bacon industry and how, despite a poor economy, it is generating unprecedented revenue for restaurants, food suppliers, and kitchenware manufacturers. Here is the link below.
The market research firm Information Resources, Inc. (IRI) reported that bacon sales have increased annually over the last four years and in 2013 alone, sales climbed 9.5% to an all-time high of nearly $4 billion. Another tidbit from the article we enjoyed is the appearance of bacon related gastropubs popping up in major cities, like BarBacon in NYC’s Hell’s Kitchen district. Clearly the rough economy is not affecting this industry.
The question is why is this important for John or Jane Q investor/trader and what macro-economic forces will benefit related stocks. Clearly the rough economy creates an atmosphere of the consumer ingesting comfort foods like bacon and even spirits. Case in point, last April we highlighted Craft Brew Alliance (NASDAQ – BREW) and the stock is up 106% since! The second factor in play is the overall rise in price in food and commodities associated with food products. At the basic level there can be no substitution as everyone needs to eat.
We looked over some stocks with some exposure to the pork industry, and yes bacon, and with an overall diversity in products. Tyson Foods, Inc. (NYSE – TSN - $36.89) may be out of our market cap and price range but is a solid play on our themes above with a diverse portfolio. On a micro technical level TSN is very bullish all the way out to the 50-day DMA. Additionally, forecast revenue for the rest of FY14 and Q1 FY15 put the forward 12-month P/E at 12, under the trailing 12-month P/E of 15, a great signal in basic valuation.
Tyson is a strong brand with a presence in almost every grocery chain in the United States. Additionally, the Company continues to try and grow organically, with introductions like its first breakfast line Tyson Day Starts™. We think the stock is great play this year in the food industry. The $45 level is an achievable target.
Have a great day!
Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.
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