×
Pro Analysis

Buy this milk stock on falling dairy costs, JPMorgan says

Bloomberg | Getty Images

Investors can bet the market his year with a milk stock, JPMorgan said Friday.

Shares of milk producer Dean Foods were upgraded by the bank to overweight from neutral, citing an improving sales outlook and falling dairy costs.

JPMorgan hasn't rated the milk stock as overweight since May 2010.

"Dean's margins are highly dependent on and negatively correlated with dairy costs. Though the company has other businesses (Friendly's, ice cream, fruit punch, et al.), over 60% of its sales derive from conventional milk. Dean buys raw milk, processes it, packages it, and then sells it to customers. Historically, there has been a highly negative correlation between Dean's gross profit and raw milk prices Y/Y," wrote analyst Ken Goldman in a note on Friday.