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2 dirt cheap food stocks: Tassal Group Limited and Freedom Foods Group Ltd

It’s been a super year for investors in Tassal Group Limited (ASX: TGR) and Freedom Foods Group Ltd (ASX: FNP). That’s because the salmon producer and gluten-free food manufacturer have seen their shares rise by 20% and 16% respectively, both of which easily beat the ASX’s gains of 5% over the same time period. However, just because they’ve risen strongly this year doesn’t mean there isn’t still room for them to grow a whole lot more. Here’s why both companies could be great investments right now.

Stability

Although interest rates are set to remain at the current rate of 2.5% for a good while yet (possibly until the end of 2015 according to Goldman Sachs), companies with low levels of debt could prove to be a sensible place to invest for the long run. That’s because they’re unlikely to be hit hard by higher interest payments as interest rates rise, which means their profitability should not be compromised to the same degree as that of a highly indebted company.

So, it’s pleasing to see that both Tassal Group and Freedom Foods currently run low levels of debt. Their respective debt to equity ratios are 17.6% and 28.9%, both of which seem to be very comfortable and set the companies up well for long-term growth.

Strong prospects

On the topic of growth, Tassal Group last week reported profits that were up 22% year-on-year. However, the future could also be bright for the company as it is expected to post increases in earnings of 13.9% per annum over the next two years. Not to be outdone, Freedom Foods’ bottom line is set to increase by an incredible 185% per year over the next two years.

This means that the ratings on both companies are perhaps not representative of their potential, since P/E ratios of 14.2 (Tassal Group) and 46.4 (Freedom Foods) do not tell the whole story. Indeed, both stocks appear to offer growth at a reasonable price, with their price to earnings growth (PEG) ratios being highly attractive at 1.02 and 0.25 respectively.

Looking ahead

Certainly, shares in both companies have had a good run this year. However, with earnings growth being exceptionally strong and both stocks having only moderately leveraged balance sheets, they seem to be well placed to deliver further share price gains moving forward.

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Motley Fool contributor Peter Stephens does not own shares in any of the companies mentioned.

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