A dependable food supply is increasingly important to manufacturers, distributors, retailers and consumers. This means the food-safety market should benefit in the near future. In the past six months, there have been 10 highly publicized food recalls involving harmful pathogens like E. coli, Listeria and Salmonella. In addition, there have been 104 recalls in the last year involving food allergens. Inadvertent contaminations of milk and eggs were main culprits. Recent incidents of contaminated products made overseas have resulted in major recalls of food, produce and other products -- including the largest pet-food recall in history. With these heightened consumer concerns, food-safety companies are competing for extensive global opportunities. Many of these companies are ranked high within TheStreet.com Ratings' proprietary quantitative model, including Neogen Corp. ( NEOG), Strategic Diagnostics ( SDIX), Meridian Bioscience ( VIVO), Applied Biosystems ( ABI), Perkin Elmer ( PKI) and Millipore ( MIL). Additionally, for investors looking for strong defensive plays against the current economic slowdown and potential recession, the food-safety market should be a safe haven. Currently, China produces roughly 70% of the world's aquaculture seafood and is expected to produce well over a million tons of shrimp for 2007. The growth and successes of Chinese seafood production in 2007, however, have been overshadowed by a series of import bans from trading partners relating to antibiotic contamination, carcinogens and traces of chloramphenicol (used to kill harmful microorganisms but with serious side effects if consumed). The thought that we may have already consumed tainted food products from China is scary. Even more frightening: Extensive testing of foreign imports into the U.S. has only recently become a necessity. On Dec. 12, 2007, the Bush administration said it has signed product-safety agreements with China that will place greater responsibility and pressure on Beijing to regulate its exports of food, animal feed, drugs and medical devices. But that may not be enough. Several regulations and requirements are in the pipeline that will enforce stringent testing of imported products on their arrival in the U.S. This will open opportunities to food-safety companies within the U.S. to provide testing solutions. In addition to seafood concerns, contamination cases linked with meat and fresh-cut vegetables have resulted in a consumer backlash, and that has benefited the sale of organic products, which typically are perceived as safer. In a recent study published in the Organic Trade Association's 2007 Manufacturer Survey, organic foods are one of the fastest growing segments in the industry, with sales in 2006 increasing 21% to $16.7 billion. As more organic products are being introduced into the market, however, the ability to obtain premium quality raw materials is becoming a growing challenge. In fact, some 55% of survey respondents in 2007 said that the lack of dependable supply restricted their company from generating more sales of organic products. Perhaps more troubling are the recent findings that some organic products that Americans see in local grocery markets may not really be "organic" -- at least not in the sense that they are safer. As future findings and contamination cases are likely to arise, food-safety companies will help alleviate some consumer concerns by providing at least manufacturers with the proper tools and equipment to standardize the quality of their products. Another large potential opportunity for food safety companies lies in the recent legislative developments driven by the Consumer Product Safety Commission (CPSC). The proposed laws would significantly heighten pressure on retailers (not just manufacturers) to ensure that the products they sell are tested and certified for safety.
The growing number household products produced abroad has led Congress to consider various legislation that would appropriate further funding to the CPSC. Should these proposed new laws pass, food safety companies would be well positioned, as the implications of these developments extend beyond just household products. With these developments in mind, TheStreet.com Ratings found three companies in the food-safety market that not only have proven penetration in the space but also are ranked highly by our model. Our proprietary model's affinity to companies that show solid upside potential is supported by a number of metrics, including growth, price movement, returns, volatility, fundamentals and overall financial strength. The companies below rank strongly across these metrics. Neogen, our top performer, produces disposable, single-use, immunoassay and gene probe testing products that rely on the company's proprietary antibodies and RNA and DNA probes to produce rapid results. These tests are used to detect dangerous and/or unintended substances in human food and animal feed, such as food-borne pathogens, spoilage organisms, natural toxins, food allergens, genetic modifications, ruminant byproducts, drug residues, pesticide residues and general sanitation concerns. Currently ranked No. 14 among 731 stocks that we rate in the overall health care industry, and No. 5 out of 206 stocks rated within the health care equipment and supplies subsector, Neogen most recently earned an overall score of 7.70 (out of a possible 10), which translated into a strong buy rating. Strategic Diagnostics' detection technologies allow industrial customers (through the use of antibodies) to rapidly identify the presence of pollutants such as chemical toxins, biological pathogens and other contaminants that can compromise human or environmental safety, and/or financially impact efficiencies of production processes. The company most recently earned an overall score of 5.43, which translated into a decent buy rating. Meridian Bioscience produces diagnostic test kits primarily for certain respiratory, gastrointestinal, viral and parasitic infectious diseases. The company also manufactures and distributes bulk antigens, antibodies and reagents for use by researchers and other diagnostic manufacturers. The company most recently earned an overall score of 6.89, which reflects a solid buy rating. Also of note, many larger biotechnology and life science companies have been applying their existing products and technology to create new solutions across different verticals. These companies include drug giants like Pfizer ( PFE) and Johnson & Johnson ( JNJ), as well as mid-cap companies such as Applied Biosystems, Millipore and PerkinElmer.