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 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)
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
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%|
|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%|
|SJM||J M Smucker Co||S||8/20/2016||—||$139.76||—||—||1.90%|
|TSN||Tyson Foods, Inc.||E||8/25/2016||—||$75.43||—||—||0.73%|
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 position within the next 72 hours. See my current holdings here. This article is not investment advice and all readers are encouraged to speak to a registered investment adviser prior to making any investing decisions. Please also read our full disclaimer.