Harsh Times May Bear Fruit for Fresh Del Monte

In addition, the recent credit crisis is having a devastating effect on smaller distributors and producers of tropical fruits. With smaller produce companies looking to sell or close and supermarkets looking for a stable supplier, Fresh Del Monte could come out of this recession with a much more dominant presence in the market.

Not all the news from Fresh Del Monte has been positive: The company has recently closed down distributions centers in the U.K., which has not been a profitable market. Also, Fresh Del Monte is a family-controlled company that need not respond to outside shareholder pressures. However, it appears that Fresh Del Monte has a management team concerned with producing results for investors.

From a demand perspective, fruit and vegetable production and distribution is a relatively stable business. The only part of Fresh Del Monte's business that has softened is the prepared "fresh cut" fruit business, with some of that business moving to whole fruit. On a recent conference call, the company confirmed that some of its fuel costs are passed through to customers, but Fresh Del Monte should be a net beneficiary of lower energy costs.

Fresh Del Monte has a very solid business that should be able to prosper in the toughest of times. Its shares are coming off a recent $8 increase since October to $23 a share. With a mean 2009 earnings estimate of about $3 a share, the company trades at just under 8 times earnings. Since the stock has just experienced a big run-up, investors should look at initiating a position around $20 or $21.

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Know What You Own: Fresh Del Monte operates in the farm products industry; other stocks in that field include Archer Daniels Midland (ADM - commentary - Cramer's Take), Bunge (BG - commentary - Cramer's Take), Cal-Maine Foods (CALM - commentary - Cramer's Take), Chiquita Brands (CQB - commentary - Cramer's Take), Andersons (ANDE - commentary - Cramer's Take) and Alico (ALCO - commentary - Cramer's Take).

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At the time of publication, Gear had no position in the stocks mentioned.

Steve Gear was director of capital markets at Stockhouse.