Why Smithfield will keep bringing home the bacon
The pork craze may cool, but the pig powerhouse is branching into beef.
By Matthew Boyle

(FORTUNE Magazine) – In June more than 31,000 people converged on the Iowa state fairgrounds in Des Moines for the annual World Pork Expo, a three-day porcine parade featuring Hormel's traveling SPAM-mobile, the requisite barbecue contest, and even a "Pig-casso" art exhibit. There was plenty to celebrate, since pork, the largest source of meat protein in the world, has enjoyed strong demand both at home (thank you, Dr. Atkins) and abroad, mainly because of a weak dollar and Japan's ban on U.S. beef.

Lately no company has been living higher on the hog than Smithfield Foods (SFD, $26), the biggest hog producer and pork processor in the world, with $11.4 billion in sales. Smithfield served its shareholders a tasty 43% return in 2004, second only to Hershey among the FORTUNE 1,000 food companies.

The hog market is cyclical, and some analysts see tougher times ahead. Hog prices are down, pork inventories are rising, and Atkins is waning, all of which "could point to a rougher patch for Smithfield," says Wachovia's Jonathan Feeney.

Such near-term fears, though, have made Smithfield a bargain for long-term investors. It's selling for just ten times next year's expected earnings, vs. 13 for the average commodity firm. "It's a great time to look at this stock," says FTN Midwest Securities' Christine McCracken, pointing to unprecedented pork export demand and limited growth in hog production. Also, Smithfield is now the fifth-largest beef processor in the U.S., and in May it became a half-owner of what will be the nation's largest cattle-raising operation. Offering more than one kind of meat allows Smithfield to better compete in supplying large retailers like Wal-Mart. Keeping the Bentonville Beast well-fed is always sound strategy. -- Matthew Boyle