Trying to solve the packaged foods mystery

There's something strange going on in the world of packaged foods: Even as the population has grown and the economy has improved, U.S. sellers of packaged foods and beverages have seen stagnant sales volume.

"We can be fairly certain they're still eating, if we take a look around," quipped Jonathan Feeney of Athlos Research. But he added that Americans may now be inclined to eat somewhat different types of items, and in different ways.

For starters, it would appear that "people are going to dollar stores, and other places that aren't as easily measured or served by traditional distribution" methods," Feeney said Tuesday on CNBC's "Trading Nation."

On top of that, when they do go to the supermarket, they appear to be spending less time in the packaged-food-packed aisles.

When people buy groceries, they're displaying a greater predilection to buy "compete meals at the perimeter of the store, fresh foods at the perimeter of the story."

Feeney reports in a recent note to clients that the supermarket prepared food business has grown by $15 billion since 2008, taking almost 3 percentage points of market share in the "food at home" category from packaged foods with long shelf lives.

While some argue that a greater interest in eating healthy has motivated the shift, the analyst says consumers are attempting to find "cheaper eats in a deflationary world."

And how have companies responded to these trends? By and large, sellers of packaged food and beverages have found ways to cut costs and increase margins in order to squeeze out more profits from the same amount of sales, Feeney said.

"Not coincidentally, volumes seem to be stagnant or worse, and worsening YTD," he added in a note.

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The advice he consequently provides to investors is simple: Ignore the magic of margin boosts, and look for companies that are actually managing to increase sales.

"Buy the growth companies, and leave aside the ones that aren't growing on the top line," Feeney said. "This focus to cost savings and deals and consolidation in the space won't last forever, but growth will."

Specifically, the analyst prefers shares of "snacking companies" like PepsiCo and Snyder's-Lance, given that snacks have proved more resilient than other types of packaged food products.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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