Macroeconomics. Interest rates. Energy prices. Currency moves. Fed policy. A hundred different forces can drive stocks at any point in time, providing thousands of investment ideas.
But sometimes, you can generate healthy profits from much simpler sources. Like Spam and sausage!
No, I’m not kidding. On Wednesday, the mega-meat producer Hormel Foods (HRL) announced plans to buy Applegate Farms LLC for $775 million.
The privately held company makes items like organic sausages and bacon, as well as other foods free of antibiotics and hormones. Hormel, for its part, makes Spam — the canned, processed meat that would survive a zombie apocalypse.
So why are they joining forces? Well, Applegate should generate sales of around $340 million this year for Hormel, and boost earnings per share by several pennies. That’s the short-term financial angle here, and the positive news sent shares of Hormel to within a few dimes of an all-time high.
But the bigger story here is the ongoing shift to healthier eating, and the healthy profits that that shift is throwing off! Just consider: Hormel’s transaction followed an October 2014 move by General Mills (GIS) to buy Annie’s. That company makes organic and minimally processed macaroni and cheese and other products, and it fetched $821 million.
|We’ve seen a nationwide expansion of higher-end grocery store chains focused on organic and natural products.|
Before that, Campbell Soup (CPB) broadened its healthy product line by purchasing Bolthouse Foods for $1.6 billion in 2012. Hershey (HSY) also added Brookside Foods back in 2011 to broaden its line of natural candies.
Meanwhile, we’ve seen a nationwide expansion of higher-end grocery store chains focused on organic and natural products. Their shares have pulled back recently amid some concern about short-term margins. But that looks like nothing more than a temporary hiccup.
Why? I know that my local grocery store … and my pantry and fridge … have more healthy foods in them than ever before. Big food companies are continuing to expand their offerings in those categories, as we saw Hormel do this week. Even fast food chains are taking their menus more up-market, and cutting back on serving highly processed, hormone-and-antibiotic-laden products.
Bottom line: Keep your eyes on this big shift, and consider the possible implications for your portfolio!
Until next time,
P.S. Consider giving Mike’s Safe Money Report a try. His subscribers are already invested in a few food sector names that could benefit from the healthy eating trend. Click here to learn more.