As the domestic economy perks up, individuals and families will begin to spend increasing amounts of money on luxury items ranging from high-end televisions to vacations. However, I would also venture to say that they will spend more money on food items too. This is a big reason why I think the food stocks still have room to run from current levels. With that as a backdrop today let's discuss some of the big players in food, specifically General Mills (NYSE:GIS), which is expected to release its third-quarter earnings on March 24th.
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Why General Mills Looks Appetizing
One way to play what should be improving food sales over time might be to invest in grocery stores. To be clear, there sure seems to be upside potential to be had in chains like Kroger (NYSE:KR) or even Wal-Mart (NYSE:WMT), which sells significant quantities of food items. But rather than invest in one grocery chain, why not invest in companies that have brands that sell in multiple outlets?
Take General Mills for example. Its cereals - which include Cheerios, Chex, Lucky Charms and Wheaties - are sold far and wide, and not just in one grocery store chain. And with individuals having a bit more money in their pockets these days, this could mean a shift from generic brand cereals to one of General Mills' offerings. Of course, General Mills doesn't only sell cereal. I would argue that the same shift could also benefit its other food like its soups, snacks and ice cream. Again, with individuals feeling wealthier than they have in a while I like to think they are becoming more likely to splurge on Haagen Dazs, which is also under the broad General Mills umbrella.
GIS has essentially pummeled Wall Street estimates for the past three quarters. It also trades at 15 times this year's estimate and 14.5 next year's estimate, which is reasonable given that it is expected to grow a healthy 9.65% per annum in the next five years. As for the third quarter, Wall Street expects the company to earn 93 cents per share, but suspect it will come in above that number by two or more cents.
Other Yummy Food Stocks
While it is true that people are more likely to dine out as the economy comes back to life, many individuals and families are likely to also keep a tight watch on monthly household expenses. That would play into Campbell's Soup's (NYSE:CPB) favor. For the record, Campbell's has exceeded analysts' expectations by a pretty wide margin in three of the last four quarters.
Heinz (NYSE:HNZ) is another favorite of mine. The company's long operating history as well as its recent earnings beats makes it an attractive investment candidate. Also, with spring and summer on the way, condiment sales are likely to edge up a bit.
Bottom Line
Food stocks remain appetizing even as the economy rebounds. General Mills stands out as a terrific play not only because of its recent earnings beats but also for its growth potential in the coming years. (For more, see 10 Ways To Cut Your Food Costs.)
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