"Safe" is a relative term for food stocks

By Brad Dorfman - Analysis

CHICAGO (Reuters) - The idea that stocks in food companies are a safe haven because people always have to eat is being put to the test in a world shocked by recession fears.

People still need to eat, but they do not necessarily have an appetite for higher-priced branded foods. That is forcing investors to pick and chose which food stocks provide safety.

But the things investors typically prize about food companies in a bear market -- such as stable, predictable cash flow -- remain in place, and the recent slide in the market makes for some attractive investments, analysts said.

"The door is open to pursue best-of-breed companies without paying best-of-breed prices," Edward Jones food analyst Matt Arnold said,

Still, while food companies may also benefit as prices for wheat, oil and other commodities fall from historically high levels, companies with weaker brands might be forced to give up some of the price increases that have lifted their sales.

"It's not like you can go into the food stocks in a secular bear market and make money where other stocks are losing money, or else everybody would own them," said Matthew Kaufler, a portfolio manager at Touchstone Value Opportunities Fund.

The Standard & Poor's U.S. packaged foods index has fallen about 14 percent in October, compared with a 24 percent drop by the S&P 500.

That difference in itself shows that the market thinks that while everyone will feel some pain in a global slowdown, the amount of "pain" is relative.