Three Food Firms to Fatten Your Wallet

While babies are often hungry, their appetites can make some companies into fat cats, as when French yogurt and water giant Groupe Danone (GDNNY - commentary - Cramer's Take) announced it was purchasing Dutch baby-food maker Numico for a full-figured $16.7 billion.

That announcement led the market to speculate that other foodmakers might be on the prowl to buy or be bought. That's not an unreasonable assumption. I use computerized strategies to analyze stocks -- these strategies mirror the criteria used by several of Wall Street's greatest investors -- and it turns out that several food companies look favorable. These companies are promising investments without regard to whether they are in the merger-and-acquisition game. Add in the additional potential of M&A, and these companies deserve your serious consideration right now. Here are three food companies to consider.

Flowers Food

One such company is Flowers Food (FLO - commentary - Cramer's Take), which sells packaged bakery goods. My Peter Lynch-based strategy considers it a fast grower because its growth rate of 29.84% is above 20%, so this company is doing nicely.

Taking the growth rate and relating it to the P/E ratio (which is 25.58) gives us Lynch's P/E/G ratio, which in Flowers' case is 0.86. This is perfectly acceptable, as the P/E/G has to be 1.0 or less to be given a passing grade by the Lynch strategy.

In addition, inventory relative to sales has fallen during the past year. This is a good sign, as it suggests management is doing a strong job managing inventories. One more criterion is worth noting: Debt is relatively low, being only 10% of equity, which is another strong plus.

Unilever PLC

Another company in this market is Unilever PLC (UL - commentary - Cramer's Take), which is not only one of the largest food companies in the world, but also one of the largest home- and personal-care companies, as well. There are two sides to Unilever, the U.K. side, which is the one I'm referring to in this article, and the Netherlands-based side, Unilever NV (UN - commentary - Cramer's Take).

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At the time of publication, Reese was long Unilever, although holdings can change at any time.

John P. Reese is founder and CEO of Validea.com, an investment research firm, and Validea Capital Management, an asset management firm serving affluent investors and companies. He is also co-author of the best-selling book, The Market Gurus: Stock Investing Strategies You Can Use From Wall Street's Best. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Reese appreciates your feedback. Click here to send him an email.

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