The Smiths' vegan front man Morrissey may have crooned, "Meat is murder!" but the fact remains that meat is big business.
Take a look at figures from the U.N. Food and Agriculture Organization, which projected a 5% annual growth rate of the poultry market in most countries until 2015.
And in 2012, meat production climbed to more than 300 million tons, according to the same report. That's a lot of chickens. No wonder Morrissey and the other vegans are upset.
As you can imagine, meat companies have historically made solid investments. But the opportunity to profit hasn't passed. I've come across three stocks in this industry worth considering, with one standing out as my favorite.
1. Hormel Foods (HRL)
This dividend-paying, food-making dynamo has paid dividends for the past 47 years.
The company specializes in the production and marketing of various food and meat products, including Spam and Country Crock. The January acquisition of Skippy peanut butter expands Hormel's product offerings into another kitchen staple.
My colleague Jay Peroni recently profiled the stock here. He pointed out that shares are higher by 177% during the past seven years and cited the company's strong financial picture as the reason for the impressive growth.
The earnings before interest, taxes, depreciation and amortization have interest expense covered by nearly 70 times as of the end of 2012, and its forward price-to-earnings (P/E) ratio is a healthy 17, compared to the sector's average of 27. A lower P/E often signals a stock that is undervalued in relation to its peers. Add in operating margins of approximately 10%, and it creates a compelling case for this meat stock.
The weekly chart shows the stock broke out of a base of $28 a share range in October 2012. The stock has since rallied to just above $40.
2. Tyson Foods (TSN)
This nearly $9 billion market cap meat producer distributes and markets chicken, beef, pork and related items globally. It has an excellent P/E ratio of 14.77 and a quarterly gross profit margin of just above 6%. A price-to-earnings growth (PEG) ratio close to 8 and a trailing 12-month income of $600 million has powered shares to a 100% gain since August 2012. But technically, it appears the stock has hit resistance at just above $24 a share. I would await a pullback before purchasing shares.
3. Smithfield Foods (SFD)
While both stocks paint a compelling picture for a long-term investment, there's another stock in the meat sector that has my vote as the ideal immediate investment: Smithfield Foods.
This stock has lagged behind Tyson and Hormel until its third-quarter earnings release on March 7; shares soared 11% after announcing earnings per share (EPS) of 44 cents, beating estimates of 39 cents a share. A possible split the company's divisions was also mentioned in the earnings conference call, fueling the speculative move higher.