While ModernGraham supports the bottom-up approach to investing, many investors do utilize the top-down method, whereby an industry is selected before the company itself.  With that in mind, this article will take a brief look at the best companies of the food processing industry, selecting the most promising investment opportunities within the industry, and giving a broad look into the industry as a whole.

Out of the more than 530 companies reviewed by ModernGraham, 19 were identified as being closely related to the food processing industry.  Of those, only one is suitable for the Defensive Investor, six are suitable for the Enterprising Investor, and the remaining twelve are considered speculative at this time.  The average company was rated as being priced at 235.71% to its MG Value (estimated intrinsic value), with an average PEmg ratio of 28.42.  The industry as a whole, therefore would appear to be overvalued, particularly in comparison to the market (see Mr. Market’s Mental State).

The Elite

The following companies have been rated as undervalued and suitable for either the Defensive Investor or the Enterprising Investor:

Tyson Foods, Inc. (TSN)

Tyson Foods, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.28 in 2012 to an estimated $3.17 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 7.76% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Tyson Foods, Inc. revealed the company was trading above its Graham Number of $52.23. The company pays a dividend of $0.55 per share, for a yield of 0.7% Its PEmg (price over earnings per share – ModernGraham) was 24.01, which was below the industry average, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-19.94.  (See the full valuation)

TSN charts August 2016

The Good

The following companies have been rated as fairly valued and suitable for either the Defensive Investor or the Enterprising Investor:

No companies met these criteria at this time.

The Full List

To view the MG Value and PEmg information,  you must be logged in as a premium member.  Clicking on the company name will take you to the company’s latest valuation.

For the investor type, a “D” indicates the company is suitable for the Defensive Investor, an “E” indicates the company is suitable for the Enterprising Investor, and an “S” indicates the company is considered speculative at this time.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield
ADM Archer Daniels Midland Company E 8/8/2016 $43.21 2.64%
BGS B&G Foods, Inc. E 8/30/2016 $47.18 3.26%
CAG ConAgra Foods Inc S 8/15/2015 $46.33 2.16%
CCE Coca-Cola European Partners plc Ordinary Shares S 9/1/2015 $38.16 2.99%
CPB Campbell Soup Company S 7/18/2016 $60.73 2.06%
DPS Dr Pepper Snapple Group Inc. S 9/11/2015 $93.17 0.52%
GIS General Mills, Inc. S 8/15/2016 $70.51 3.56%
HRL Hormel Foods Corp E 8/24/2016 $37.88 1.48%
HSY Hershey Co S 7/14/2016 $99.65 2.29%
K Kellogg Company S 7/15/2016 $81.78 2.43%
KO The Coca-Cola Co S 7/28/2016 $43.24 3.10%
MDLZ Mondelez International Inc D 8/25/2016 $44.74 1.52%
MJN Mead Johnson Nutrition CO E 6/20/2016 $83.75 0.49%
MKC McCormick & Company, Incorporated S 8/15/2015 $101.37 1.61%
MNST Monster Beverage Corporation E 7/27/2016 $153.81 0.00%
PEP PepsiCo, Inc. S 7/13/2016 $107.21 2.67%
SJM J M Smucker Co S 8/20/2016 $139.76 1.90%
SYY SYSCO Corporation S 9/8/2015 $51.93 2.35%
TSN Tyson Foods, Inc. E 8/25/2016 $75.43 0.73%

Disclaimer: 

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that

1, 2  - View Full Page