3 food stocks for tasty returns

The food industry isn’t seen as the most defensive, that’s usually left to the healthcare sector. Food isn’t seen as having the most exciting products either, technology stocks are much better at getting the investing juices flowing.

However, I do think food stocks have their part to play in an investor’s portfolio. We all need to eat, so unless there’s something inherently wrong with a food business it should have demand even in a downturn.

Here are three food stock ideas:

Tassal Group Limited (ASX: TGR)

If Australia is the food bowl of Asia then Tassal is the salmon king of Australia. It has several major salmon farms in the ideal waters of Tasmania, as well as a large fish wholesale business.

It has increased its operating profit each year over the past four years and could continue growing as demand for salmon steadily increases in Australia with healthier diets and in Asia with a growing middle class.

It’s currently trading at 14x FY18’s estimated earnings with a grossed-up dividend yield of 5.6%.

Costa Group Holdings Ltd (ASX: CGC)

Costa is one of Australia’s leading food-producing companies. It now has five pillars of food produce, being berries, mushrooms, citrus fruit, tomatoes and avocadoes.

Demand for its products is increasing at a pleasing rate due to global and Australian population growth. The supermarket giants are willing to pay a decent price for large-scale dependable supply of food – which Costa can deliver.

Costa is now predicting underlying profit growth of 25% this year and you’d think that there will be continued growth as it expands its farms acreage in Australia and abroad.

It’s currently trading at 30x FY18’s estimated earnings with a grossed-up dividend yield of 2.3%.

BetaShares Global Agriculture ETF (ASX: FOOD)

This is an exchange-traded fund (ETF) that looks to give investors exposure to some of the biggest food businesses in the world. Some of its top holdings include Archer Daniels Midland, Kubota, Deere & Co and Tyson Foods.

This group of companies is very likely to benefit from the growing global population and the potential food shortage we may experience in a decade’s time according to some experts.

Foolish takeaway

Food businesses’ earnings may not be affected that much by an economic downturn, although the share prices would still feel some pressure.

At the current prices I’d be interested in buying Costa the most, but the FOOD ETF does intrigue me as well.

An even better way to benefit from the growing Asian region is this top stock which is now expanding into Asian with its first stores.

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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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