Top 10 Food Stocks To Watch In 2011

by Todd Shriber

One of the great things about an efficient market is that it’s easy to identify the winners and losers under a variety of scenarios. High oil prices can be bad for airlines. Reduced infrastructure needs in the emerging markets can spell bad news for any number of materials companies, and the list goes on.

Another example worth watching this year is food companies and how their shares react to rising commodities. Assuming supplies tighten, but demand increases, farmers will win and consumers will lose, as 24/7 Wall St. so aptly describes. But if food producers are forced to boost prices, that may be bad news for them as well as cost-conscious consumers scurry to generic brands to save a few pennies.

Here is the Trader Daily list of the top 10 food stocks to watch in 2011. The list is not in any particular order, nor is it intended to be a buy or sell recommendation.

1) General Mills (GIS)

Big G is the largest U.S. cereal maker by market cap and that means this company has to keep an eye on corn and grain prices, among other ingredients. Recent U.S. Department of Agriculture forecasts may portend price hikes for Lucky Charms, Wheaties and other big General Mills brands.

2) Kraft Foods (KFT)

For some reason, JPMorgan loves the Dow component and has a $40 price target on the stock, according to Business Insider, saying cost synergies from the Cadbury acquisition could help this year. Maybe. But maybe not if sugar and cocoa prices jump.

3) Yum! Brands (YUM)

The owner of the Kentucky Fried Chicken, Pizza Hut and Taco Bell chains is heavily exposed to price trends in food commodities. There’s good news and bad news in the USDA report for Yum. Poultry prices look manageable, but live cattle prices look poised to jump. Fortunately for Yum, China is a critical market for the company and KFC is wildly popular there.

4) Starbucks (SBUX)

The largest owner of coffee houses in the U.S., Starbucks may not be hurt too much by rising coffee prices. The company passed on some price increases to consumers and has insulated itself from commodities prices, according to Forbes.

5) Tyson Foods (TSN)

Remember those old commercials that said “Tyson’s feeding you like family?” It seems doubtful that the sentiment will extend to investors in 2011 as rising cattle and hog prices are problematic for Tyson. But rising corn prices, discussed on Seeking Alpha, could be a death knell for poultry producers.

6) Dean Foods (DF)

Noted hedge fund manager David Tepper recently upped his stake in Dean Foods, according to The Wall Street Journal. That may be a bullish sign, but it cannot be ignored that this stock was flirting with $17 in April and now trades below $10.

7) Cal-Maine Foods (CALM)

What comes first, the chicken or the egg? Cal-Maine is an egg producer. But that means the same corn price problems that could pressure Tyson’s chicken coop could also impact Cal-Maine.

8) Coca-Cola (KO) and 9) PepsiCo (PEP)

The world’s two biggest soft drink makers seem like obvious choices on rising corn prices alone. Where do you think corn syrup comes from? Then again, orange juices futures have recently been pressing four-year highs, according to Bloomberg, and any more bad weather in Florida could mean price hikes for Tropicana (PepsiCo) and Minute Maid (Coke).

10) McDonald’s (MCD)

The Dow component is another obvious choice. Pick nearly any of the scenarios outlined with the previous stocks and several are likely to be issues McDonald’s has to contend with this year.

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