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2 food stocks for your portfolio to bite into

Food stocks aren’t considered as defensive, but in some ways I think they should be.

We all need to eat. The Australian and global populations are growing. There is a growing demand for Australian grown food both domestically and abroad.

With that in mind, here are two shares that I think have very promising futures:

Costa Group Holdings Ltd (ASX: CGC)

Costa is one of Australia’s largest fresh food producers. It grows a variety of fresh food including tomatoes, mushrooms, citrus fruit, berries and avocadoes.

The business is expanding in Australia, China and North Africa which is a very good diversification strategy. There is a big demand for Australian produce from middle class Asians who are looking for healthy and safe food.

Costa is currently growing its underlying earnings at a double-digit rate and if it achieves price increases for its produce then there’s no reason to think the good growth can’t continue.

The one drawback is the current valuation. It’s currently trading at 25x FY19’s estimated earnings, which is quite high.

Tassal Group Limited (ASX: TGR)

Tassal is Australia’s largest fish company. It has large salmon-growing operations in Tasmania’s waters where the climate is well suited for the business.

The company has managed to grow its operating earnings before interest, tax, depreciation and amortisation (EBITDA) and operating net profit after tax (NPAT) for each of the last five half-year reports.

Fish is seen as healthier than most other protein sources like beef and lamb, so consumption on a per capita basis is increasing.

Tassal is currently trading at 13x FY18’s estimated earnings.

Foolish takeaway

I believe both shares are very promising ideas and could deliver pleasing returns for shareholders. Climate change is one risk to watch for both as it could easily affect their farms, otherwise I expect decent growth from both.

These top growth shares would also work excellently with Tassal and Costa in a diverse portfolio.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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