What are we looking for?
All the talk about potash is making some investors hungry. BHP Billiton's rejected bid for Potash Corp. of Saskatchewan has put the spotlight on the strategic value of food-related stocks. Today we look for investment opportunities further up the production chain from fertilizer chemicals to the shares of food product companies in the U.S. and Canada.
About today's screen
The screen lists the biggest food product companies in the two countries. For Canada, we set the minimum market value at $500-million, which quickly shrank the universe to just a handful of stocks, and we removed any cap on price-to-earnings multiples. For the United States, we set the bar higher, requiring a minimum market capitalization of $5-billion (U.S.) and a maximum PE multiple of 20. We also required growth in both sales and profit over the last year.
What we found
The market for food stocks is hot. All the listed companies are trading near their highs for the last 12 months, with the exception of Canada Bread Co., hovering near its low for the year. Ninety per cent of the company is owned by Maple Leaf Foods, whose two largest shareholders - the McCain family and the Toronto hedge fund West Face Capital - have been at odds over restructuring plans for Maple Leaf.
U.S. food companies, with their bigger size and broader reach, showed better revenue and profit growth over the last year and offer richer dividend payouts than the Canadian listings. Kraft Foods and Campbell Soup, with their 3.7 per cent and 3 per cent yields respectively, are frequently named among the favourite holdings of dividend fund managers.
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