Australia is often described as the food bowl of Asia, so the ASX could be a good place to find food-related shares.
We all need to eat food, so there should be a certain level of demand for the products each year. But that doesn’t mean they are risk free, there are plenty of potential problems just like with any other share.
Here are three food ideas:
A2 Milk (ASX: A2M)
The a2 Milk Company is one of Australia and New Zealand’s largest infant formula producers and the leader in a2-only protein based dairy products. It has operations in New Zealand, Australia, USA and China thanks to key supply and distribution agreements.
a2 Milk’s share price has been drifting lower since the start of July with investors concerned about Chinese regulations and competition. Management also warned that the company would be stepping up its marketing spending.
China profit growth may be under question in the short term, but the USA is another huge market and the company is well versed at winning market share despite intense competition.
a2 Milk is valued at 23 times the estimated earnings for the 2021 financial year.
Rural Funds (ASX: RFF)
Rural Funds Group is a real estate investment trust (REIT) that owns farms and leases them to tenants. Started in 1997, Rural Funds Management now manages $1.2 billion in agricultural assets across New South Wales, Queensland, South Australia and Victoria.
If a2 Milk is the growth food option then Rural Funds is the income option. It has a distribution yield of 6.1%, which looks pleasing with how low interest rates have gone.
Nuts, cattle, cotton, vineyards and poultry are the farm types that Rural Funds currently owns, which is diverse and becoming more diversified as the years go on.
Its share price is close to its stated underlying net asset value (NAV), it’s at a fair price for the assets you get.
Tassal (ASX: TGR)
Tassal is a Tasmanian-based salmon farming company founded in 1986 and listed on the ASX in 2003. Its operations include hatching, farming, processing, sales and marketing of Atlantic salmon. It operates under four different brands of Tassal, Superior Gold, Tasmanian Smokehouse and De Cost Seafoods.
The fish company is a mix of steady growth and income. It has increased its operating earnings for the past few years and it has a partially franked dividend yield of 4.4%.
It has expanded into the prawn industry with an acquisition strategy, which I think is a good move because it diversifies earnings. I believe that’s important because something like a disease could really hurt earnings in any particular year.
Over the long term fish demand is likely to keep increasing from domestic and overseas alike.
Summary
Each of these businesses have their positives and negatives. I’d pick Rural Funds for income and A2 Milk for growth, depending on what you’re looking for. But the shares in the free report below could be even better picks for long term growth.
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Disclosure: Jaz owns shares of Rural Funds at the time of writing, but this could change at any time.
