The Most Expensive Food and Beverage Stocks for 2012

After a difficult 2011, many investors are eager to get to 2012 and start investing with a clean slate. The markets look like they'll close about flat for the year, providing just a little solace for those who sat through the late July/early August plunge that sent stocks spiraling.

Many are hoping the markets continue their strong end-of-the-year push and start 2012 off with a bang. If you are looking at the food, beverage, and tobacco sector to lead this charge, here are some of the priciest stocks in this space going into next year. Despite a strong 2011, these stocks warrant a second look because of their high multiples.

Company

Market Cap (in millions)

P/E

Forward P/E

P/BV

Smart Balance (NAS: SMBL) 330.7 39.2 21.3 1.04
Hansen Natural (NAS: HANS) 8,267.3 32.7 26.7 8.9
Calavo Growers (NAS: CVGW) 386.7 31.6 21.4 3.72
Beam (NYS: BEAM) 7,866.2 30.9 22.4 1.25
Hain Celestial (NAS: HAIN) 1,644.8 29.2 20.9 1.88

Source: S&P Capital IQ. Screen criteria: P/E > 28, Market cap > $250 million, forward P/E > 20.

One of the things I love about food and beverage stocks is their stability. While these may be some of the most expensive stocks in the space, they are well below the stratospheric multiples seen in other sectors like technology.

Of course, that doesn't mean investors should happily pay for a P/E of 40. Remember that the market values companies for a variety of reasons. Stocks that look expensive could be rule breakers going forward, while others fall flat after missing expectations. Since every company here sports a P/E higher than 29, investors had better expect a fair amount of growth in the coming years to justify these multiples.

Looking at this list one thing jumps out at me: the healthier-eating revolution. Three of the five companies here -- Smart Balance, Calavo Growers, and Hain Celestial -- have benefited from the rise of organic foods. Even alternative beverage maker Hansen Natural, best known for its Monster Energy drink, carries healthier organic juices and teas in its arsenal.

All of these companies outpaced the Dow Jones Industrial Average for 2011. Depending how you feel about consumers moving toward healthier eating, these companies could be poised for a repeat performance in 2012.

A few impressions
I recently did a "buy, sell, or hold" analysis of Hansen Natural and rated it a hold. I like that it has the largest market share among energy drinks, even besting ubiquitous Red Bull for the top spot. Its balance sheet boasts an impressive long-term debt of zero, and it sports a large cash balance.

So, what's not to like? While the company appears very healthy, I have concerns about energy drink sales peaking domestically. For Hansen to repeat its 2011 performance in 2012, I believe the company will have to grow internationally. Distribution agreements with Coca-Cola Enterprises could help, but continued weakness in Europe may spell trouble. What we have here is a great company that may fall victim to larger macroeconomic woes and a potential waning of energy drink popularity. I remain on the fence about Hansen's 2012 growth.

Similar to Hansen, I believe Hain Celestial is a strong company with some headwinds. The company produces such notable brands as Celestial Seasonings tea and Jason Natural Care products. It carries no debt and has upped its cash balance an impressive 31% year-over-year.

Unfortunately, many larger consumer goods companies are keen to Hain's game. Kellogg's Kashi brands of organic foods have garnered a loyal following, as have Clorox's Burt's Bees. Coupled with mature distribution networks, strong retailer relationships, and deeper pockets, these industry vets may prove too seasoned for Hain to grow any market share.

A Foolish glimpse at 2012
Food and beverage stocks can be a tricky game. It's a relatively stable and low-growth industry, but every now and then you can uncover a total blockbuster that crushes the market. I feel the same way about The Motley Fool's Top Stock for 2012. While the stocks listed here face undeniable headwinds, this retailer has powerful tailwinds like a growing presence in a booming economy. We've compiled a special free report for investors to uncover this company today. The report is free, but it won't be forever, so click here to access your copy today.

At the time this article was published Austin Smith owns no shares of the companies mentioned here. The Motley Fool owns shares of Clorox. Motley Fool newsletter services have recommended buying shares of Hansen Natural and Beam. 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.

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