Skip navigation

Cultivating Profits

Kevin Matras goes over the importance of screening and back-testing. See how you can increase you odds for success, and get three new stock picks for this week.

We’ve all read the stories and heard about rising food prices around the world.

The cost of food is up everywhere­—from 40 percent to 50 percent on some foods, to over several hundred percent in some parts of the world.

There are some many culprits responsible for this: reduced worldwide harvests, rising fuel prices, acreage competition from bio-fuels, increased demand from rapidly developing countries and even acreage competition for feed grains as demand for meat has increased.

In countries like South Africa, food prices have increased by 50 percent with some parts like Sierra Leone by over 300 percent. In other parts of the world it’s even worse, with food riots breaking out.

Even in the U.S., there’s been an increase in food prices. In fact, there’s been a 41-percent increase in wheat, corn, rice and other cereals. However this has not hurt the U.S. as much as it’s hurt developing countries.

Here in the U.S. we spend only about 10 percent of our disposable income on food; this is a sign of a highly developed economy. But in countries like India, for instance, it’s over 40-50 percent. Sadly, if you’re poor, it’s the majority of your expenditures. Even in some countries in Europe, they spend more than twice what the U.S. spends on food.

But as the standard of living increases in other countries due to their growing economies, so do their diets and food demands. This is a good thing in and of itself, but it poses a problem in that as demand increases so do prices.

For example, demand for meats has increased substantially. But this increased demand for meat is causing acreage to be shifted from growing grain for human consumption to growing grains for feedstock, further increasing prices.

The fact of the matter is the world is eating more than it produces.

Even global stocks of food like cereals have fallen in recent years to their lowest levels since the 80s. Increased demand for food, rising energy costs, competition from bio-fuels and feed grains, as well as weather problems and reduced harvests worldwide, have contributed to the situation we’re in today.

This won’t be an easy fix.

But for those companies who step up and provide solutions by increasing food production, services, support and transportation, there will be plenty of opportunities. And investment in these companies helps provide the necessary capital to help find solutions.

The screen I’m running today scans several industries:

  • Food
  • Food/Drug-Retail/Wholesale
  • Chemicals & Fertilizer
  • Machinery
  • Utility-Water Supply
  • Transportation

It then looks for Zacks #1 Rank stocks
And all the stocks are >= $5, and have an average daily share volume of >= 50,000

36 stocks came thru this screen. Here’s three of them:

ASTE Astec Industries, Inc.
SBS Companhia de San Basi (SABESP)
OLN Olin Corp.

If you want to tighten it up, consider adding other items such as EPS Growth Rates, Upward EPS Revisions, ROE, etc.

If you’re looking to broaden your list of choices, and then further dig into the companies, consider opening up the screen to Zacks #2 Rank stocks as well.

Either way, this is a fine place to start as you search for ways to invest in the very important business of food.

Sign up for your free trial of the Research Wizard and get the rest of the stocks on this screen and start screening your on own ideas right now. And then back-test them to see how they work. It’s easy to do and you’ll be on your way to picking better stocks immediately.

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
TAGS: Archive
Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.