This Stock Is Downright Delicious

Marshall is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

General Mills (NYSE: GIS) is quite the delicious investment. The food company has an ultra-low beta of 0.17 and an above average 3% dividend yield while also being appealing as both a growth and value play. The company primarily operates in the U.S., but is looking to break into the international markets to fuel future growth.  

General Mills biggest initiative is expansion beyond the U.S. In 2012, only 30% of revenues were generated from outside the U.S. The U.S. market is becoming saturated, and the rising amount of disposable income in emerging markets overseas is where the growth lies. Some of the fastest growing opportunities are in China, India, and Latin America. General Mills plans to generate over $600 million in sales from China in 2013 and $900 million by 2015. 

General Mills' revenue for the international segment were up over 25% year over year last quarter thanks to its acquisition of the Brazilian food company Yoki and solid results from Yoplait International. 

This U.S.-foods giant is also trading cheaply, at 11.2 time operating cash flow, which is below its 12.3 times five-year average and below the 13 times industry average. 
General Mills commitment to shareholder value is also impressive. Over the past four years, General Mills has managed to increase its annual dividend payments by at least 8% annually. 

Other snacks

Another company that might be worth snacking on is Kellogg (NYSE: K), which is the leading producer of ready-to-eat cereal and snacks such as cookies, crackers, potato chips, cereal bars, fruit snacks and frozen waffles. The company also pays a 2.7% dividend yield. In 2012, the U.S. accounted for over 60% of Kellogg's sales, and the Morning Foods/Kashi segment accounted for 26% of sales.

After over 100-years of brand building, Kellogg turned to acquisitions in 2012 to help grow the company, namely, the Pringles buyout. Pringles is the world's second largest savory snacks business, behind only PepsiThis transformed Kellogg from a U.S. snacks company into a global snacks player, not to mention helping Kellogg balance out its portfolio. Kellogg is not abandoning North America, however. The Pringles acquisition is expected to add about $500 million in revenue in North America this year. 

A couple underrated foods companies include J.M. Smucker and Mondelez (NASDAQ: MDLZ). Smucker is one of the great peanut butter-coffee combo companies, while Mondelez is the international spinoff from Kraft Food Group. 

Its key segment is the biscuit category, accounting for over 30% of revenues, with 27% of revenue from the chocolate category, 17% from beverages, 15% from gum and candy and 9% from cheese and grocery. Mondelez's key brands include Oreo, Ritz, Chips Ahoy, Cadbury and Trident.

Unlike General Mills and Kellogg, Mondelez already has impressive international exposure, with about 80% of sales are expected to come from outside of North America in 2013.

Rumors are floating that billionaire activist Nelson Peltz might be looking to push Pepsi's snack food business and Mondelez to merge. This is big news, as I think this could be a big positive for both companies. The stock is down over 5% during the past month. This could be a good time to buy into the stock. 

Mondelez has reaffirmed its 2013 organic revenue growth target of 5%, while upping its earnings guidance to $1.55 to $1.60 per share. At the mid-point, that would be 13% year over year EPS growth. This international snack company also pays investors a 1.8% dividend yield on a 50% payout of earnings. 

Hedge fund activity 

Going into the second quarter there were a total of 18 hedge funds long Kellogg, which was a 13% increase from the first quarter. The hedge fund with the largest position includes billionaire Ken Griffin of Citadel Investment Group, having a $268 million position (check out Citadel's high yielders).

General Mills had 34 hedge funds long the stock, which was an impressive 31% increase from the previous quarter. Top hedge fund included Ric Dillon's Diamond Hill Capital, with a $181 million position (see Diamond's top picks)

Meanwhile, Mondelez had the most interest from major hedge funds, with 69 hedge funds long the stock. This includes billionaire activist fund Trian Partners with the largest position, a $1.2 billion position that makes up 26% of its 13F portfolio (see Trian's top pick).

Bottom line

The various snack foods companies are poised to perform well with the urbanization of various emerging markets. I tend to like General Mills the best given its low volatility and impressive dividend. Mondelez is still an impressive growth story with activist investor support. I also think Kellogg could be worth taking a look, as the Pringles acquisition could still be over-discounted -- meaning the long-term benefits could be better than expected. 

Marshall Hargrave owns shares of Mondelez International. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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