Small Cap Food Stocks May Benefit From The "Food Frenzy"

A recent article in USA Today by Bruce Horovitz, " What's behind the food stock frenzy" focused on the heavy takeover activity in the food sector.

Horovitz noted that companies in the sector must buy or be bought, explaining:

"Perhaps that's why even giant Tyson Foods got into the melee Thursday when it offered $50 a share — about $6.8 billion — in an all-cash deal to purchase Hillshire Brands, which makes Jimmy Dean sausage and Ball Park hot dogs."

Horovitz continued: "Earlier this week, Pilgrim's Pride offered about $6.4 billion for Hillshire. Never mind that earlier this month, in a possible move to thwart Pilgrim's Pride, Hillshire bid $4.2 billion for Pinnacle Foods."

A previous article on Benzinga emphasized this potential for the industry and detailed the appeal of niche food companies such as Hormel Foods HRL, Noodles & Company NDLS, and The Original SoupMan SOUP.

The frenzy of mergers and acquisitions in the sector makes each even more appealing.

Still, Hormel Foods may be too big. Noodles & Company is on a growth spree of its own, just acquiring sixteen franchise locations. With rising revenues, a niche appeal, and the allure of celebrity status through its association with the legendary comedy series, "Seinfeld," The Original SoupMan appears particularly attractive.

Regardless of target, the consolidation in the food sector is likely to continue.

Growth around the world makes food stocks an attractive sector. It's also appealing from a defensive perspective.

Even though the bull market is still going strong, the US economy registered negative growth for the last quarter. The food industry is viewed as recession-proof, especially stocks like Hormel Foods and Tyson Foods TSN that pay dividends.