Commodity prices are soaring and biofuel use is putting even more pressure on grains in particular. Can Big Food firms continue to thrive?
Yes, says Alexia Howard, senior research analyst at Sanford Bernstein.
She told CNBC why she remains “bullish on the food group.”
Howard acknowledged the rising costs in grain products – “bread, cereal, cookies, crackers” – but said that certain factors like increased pricing “can offset that.”
“Thanks to productivity improvements, though margins are under pressure, the EBIT growth – operating profit growth – is now actually coming through quite well,” she said.
And rising fuel prices are making Big Food stocks good defensive plays, as consumers shy away from restaurants.
“General Mills did quite well in the third quarter, Heinz has also done quite well recently,” Howard said, expecting these successes to continue.
The analyst named Sara Lee and especially Kraft Foods as plays on “an interesting story in dairy.”
Howard’s firm holds a significant amount of shares in General Mills and Sara Lee; Kraft is or was a client of Sanford Bernstein during the last 12 months.