Investors have proven over and over that they want to buy value when they find it. Now comes a Focus List change from Credit Suisse on what should be two key defensive stocks for investors who want stock market exposure and want to have at least some protection in case the market tanks. Credit Suisse’s Investment Policy Committee has added Hormel Foods Corp. (NYSE: HRL) to that Focus List, and it removed Kellogg Co. (NYSE: K) as the stock is no longer considered one of its top investment ideas.

Before thinking these are new Buy or Outperform ratings, both are still officially rated as Outperform, with Kellogg having a $94 target (versus a $77.39 prior close) and with Hormel with a $43 target (versus a $37.33 close).
As far as Hormel, it has replaced Kellogg as one of Credit Suisse’s top investment ideas.

Tuesday’s report contained four positive reasons that Rob Moskow’s above-consensus estimate for 2017 would be positive:

(1) the street underestimates Hormel’s revenue and earnings growth momentum;
(2) Hormel is in the best spot among peers for growing demand for convenient protein products and deflationary meat cost trends;
(3) the company will continue to push its margins sustainably higher by shifting its mix to value-added products;
and (4) heavy short interest on the stock eventually will dissipate as the company continues to beat consensus expectations.

Additional catalysts were also cited. Mid-November should bring strong earnings and guidance, and the Jennie-O turkey will regain its previously lost distribution.

Some caution was made as well (reminder, sometimes analyst and investor upside doesn’t work out like they expect). The team said:

Some believe that the favorable supply-demand dynamics in pork processing will eventually disappear as new industry capacity comes on-line. Rob’s view is that the shift in the mix of the portfolio to value-added products will insulate Hormel from the commodity risk.

Credit Suisse points out that at 13 times EBITDA it is valued right in line with food peers. Still, being in line is while Hormel has a stronger momentum to its top line. The firm’s $43 target assumes modest multiple expansion to 13.5 times EBITDA against the firm’s fiscal 2018 estimate.

Hormel shares were last seen up 2.4% at $38.22, in a 52-week range of $30.50 to $45.72 and with a consensus analyst target of $41.22. Kellogg shares were last seen up 0.2% at $77.55. The 52-week range is $64.65 to $87.16. As far as dividends, Kellogg outyields Hormel with a dividend comparison of almost 2.7% to 1.5%.

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