Getting fat on Atkins

A few weeks ago, I was at the grocery store shopping for pasta. The aisle was empty, and it triggered a question in my mind. Had the popularity of the Atkins diet created any noticeable and profitable investing or asset allocation strategies? Researchers have estimated that as many as 32 million Americans are on some type of high-protein, low-carb diet, and even many who aren't seem cautious in the presence of bagels and pasta.
Curious, I decided to assemble a mini-basket of stocks of publicly-traded companies that one would expect would suffer because of the Atkins revolution and compare its performance over the past year with a mini-basket of stocks of companies that might benefit from the high protein craze. I wanted pure plays in each category as much as possible, and so I crossed off companies who only derived a fraction of their revenues from carbs or protein products. Only two remained of the ones that came to mind: General Mills (cereals=high carbs) and Hormel (meat=high protein). Much to my chagrin, my first choice, Oberto Sausage Company, is family owned.
A quick Google located an article by James Glassman on this very topic. It suggested some other companies, and some further sleuthing using a few financial sites rounded out my lists. From this list, I culled five stocks for each mini-basket.
High-carb stock basket
High-protein, Atkins-approved stock basket
  • Hormel Foods (HRL)

  • John B. Sanfilippo & Son (JBSS): leading seller of nuts

  • Cal-Maine Foods (CALM): sells eggs to retailers

  • Tyson Foods (TSN): world's largest beef, pork, and chicken processor

  • MGP Ingredients (MGPI): Technically not a high-protein company, but this micro-cap develops wheat-gluten and fiber products that major bakeries can use to lower the amount of net carbs in their breads
I compared the returns for an investor who placed $1000 in each stock in each basket on February 23, 2003 and left the funds untouched for a year.
Now, before I share the results, I should note that by no means is this a scientific, controlled, well-structured test of any sort. The five stocks I selected for each basket may not represent the purest plays on this trend, and I haven't delved into the income statements to determine if the popularity of high-protein, low-carb diets is truly responsible for any changes in these company's fortunes over the chosen time period. I have neither the time nor interest to perform the type of rigorous study that I'd be comfortable using to invest my own money according to this philosophy. Also, in the interest of full disclosure, I should note that I don't stocks in any of these companies, nor do I own a farm or any livestock.
All that said, the results were amusing.

Value on 2/23/03
Value on 2/20/04
High-carb (anti-Atkins) portfolio
High protein (Atkins-friendly) portfolio
S&P 500 (SPX)

The high-carb portfolio underperformed the S&P 500 and got walloped by the high-protein, Atkins-friendly portfolio. In particular, the stock of Cal-Maine Foods, the seller of eggs, had a sunny-side up year, moving up 951.9%. John B. Sanfilippo & Son and MGP Ingredients were also huge winners.

High-carb portfolio

Stock Price on 2/23/03
Stock Price on 2/20/04
General Mills
Monterey Pasta
Panera Bread
Interstate Bakeries
American Italian Pasta

Atkins-friendly Portfolio

Stock Price on 2/23/03
Stock Price on 2/20/04
Hormel Foods
John B. Sanfilippo & Son
Tyson Foods
MGP Ingredients

Have the high-protein stocks been overpurchased by Atkins investors? Are they overvalued now? One could examine P/E and other such ratios relative to forecasted cash flow and earnings growth to make such judgments. I'll leave that to you enterprising capitalists.
It may hurt to give up your carbs in the quest to shed a few pounds, but investing in one company versus another in the quest for a fatter portfolio is all the same. You are what you eat, and your portfolio is what you feed it.
(Some other relevant stocks for the curious: Annheuser Busch (BUD) is pushing their low-carb beer Michelob Ultra, eDiets offers online Atkins diet plans, Sanderson Farms (SAFM) is a leading poultry company that's up 196% year over year, Smithfield Foods (SFD) is the world's largest pork processor, Seaboard (SEB) is another pork processor, and Johnson and Johnson is coming out with a sugar substitute called Splenda.)