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Growth prospects in the food industry are limited due to market saturation and the maturity of the industry, but some new trends in US food consumption patterns may help some companies enlarge their markets. One of the new areas of growth is in the low cholesterol, low-fat/non-fat food segment and health foods are now being sold in supermarkets. Several stocks in this industry will outperform the market in 1999, but most are conservative investments.

During the 1990s the food processing industry has been using cost controls, overseas expansion, and acquisitions to sustain their net-share growth or accelerate their income. The increasing importance of consumer convenience has had an impact on the industry, either in foodservice operations or in the convenience-at-home area. Investors need to select the most timely of the food processing stocks, as many are already highly valued.

Low-cholesterol, fat-free, and reduced- and low-fat products is the fastest growing category in the food processing industry, and these items are found in every supermarket food group. This food category is expect to grow in the future, as well, and take an increased market share, even though sales have not been tremendous. These stocks, however, are not timely in 1998, and many do not have great potential for the years 2001-2003.

The pace of grocery store-brand private-label introductions has increased in the 1990s, but this is not a threat to the food industry as many of these companies are engaged in private-label manufacturing. However, in order to meet competition many food processing companies must increase spending for promotions or reduce prices. Few of these stocks are expected to outperform the market in 1998, but conservative investors will find several attractive.

The larger food processing companies in the US have started seeking emerging overseas markets due to the market saturation at home, and many have become diverse in both geographic location and sales. The US dollar's movement in relation to other currencies has also had a major impact on the industry's foreign operations. There are very few timely stocks in the food processing industry, but investors may find some individual companies attractive.

The food processing industry will face continued competition from private-label products and it will continue to seek cost reductions in the face of slumping markets in Europe and the US. Private-label product growth is expected to continue due to better margins for supermarkets and lower costs for the consumer. Some food processing companies will be able to compete if they employ measures that will support their brands. Cost reductions will include divesting non-core product lines. Most stocks in this industry have a very limited investment appreciation outlook.

Many large-cap food processors have been increasing income or maintaining current levels of share-net growth through overseas expansion, acquisitions, and controlling costs. The strengthening dollar has made it hard for U.S. food processors to increase sales in Europe. Many 'grain-dependent' food processors have seen their margins squeezed by rising wheat and corn prices in the past two years. Only a few stocks are expected to outperform market averages in the next year.

A greater variety and abundance of heat-and-serve and ready-to-eat packaged foods are available from the food processing industry as a result of the increased convenience trend. In addition, foodservice comprises at least 10% of the food industry's business and has become a core industry segment in the 1990s. Most stocks in this industry are not timely, although several have appeal for conservative investors on an individual basis.

Continued use of growth opportunities in both domestic and foreign markets have permitted the food processing industry to retain its profitability despite the rising competition from private label foods. Expansion of global trade, new flavors and variations of food favorites and numerous mergers and acquisitions establish food processing securities as good long-term investments for conservative investors.

The food processing industry fears rising food prices, driven by high global demand and tight supplies. Pressure on prices may ease as farmers increase acreage of corn, wheat and fruits, but growing population trends are expected to keep food prices high. Some processors, such as Hershey Foods, try to keep prices low to maintain their market share. Several food company stocks appeal to conservative investors because of safety, but most are not rated timely for 1996-1997.

Rising corn, wheat and grain prices have affected the profitability of some food companies sufficiently to make investment in their securities questionable but have left other food companies unscathed. Hardest hit have been the meat and poultry companies who rely on grains for feeding stock, causing beef prices to drop and the poultry industry unable to cut prices as the consumer demand for beef rises. Surprisingly, ready-to-eat cereal, bread and pasta industries are untouched by the wheat and grain shortage.

Consumer awareness concerning weight is making sugar-free, fat-free, and reduced-fat a growth category in the food processing industry. There are FDA regulations for these foods now, and the number of foods in this category is likely to increase. Research and development are expected to improve quality and taste of these foods, as well. Few of these stocks will outperform the market, and investors should select the most timely.

Private-label brands in supermarkets are increasing their market share, due to profitability for stores and greater budget-mindedness by consumers. Food processors are then contending with private-label competition and several have lowered prices. Others also have a stake in the private-label business. Most of these stocks are defensive and not expected to outperform the market. These stocks are suitable mainly for conservative investors.

Supermarket chains are expanding private-label products, both in variety and quality. This has kept prices for brand-name products low, even though market share has not increased. Food companies are more active in new product introduction and increasing their markets in Eastern Europe, Latin America, and Asia. Several of these stocks are timely for conservative investors for the next three to five years.

Growth for food processors is limited, in partly due to the growing market share of private-label brands, and the US market has reached its saturation point. The growing markets of Latin America, Eastern Europe, and Asia have become the focus of the larger-capitalized companies. Low fat and health food products are growing segments. Conservative investors will find several safe stocks with good returns in this industry.