A tasty IPO: Shares of chicken producer Gold Kist have surged since the company went public last year.

Finger-lickin' good: Pilgrim's Pride, the nation's second largest chicken producer, has had a nice year thanks to healthy demand and lower feed costs.

Special Reportfull coverage Charles Schwab earnings soar Sharper Image blunted by lowered profits How hot is HP? Pfizer's profit falls, but shares rise PLUS: Earnings Calendar

NEW YORK (CNN/Money) - There's a lot of talk about bulls and bears on Wall Street. But the market should perhaps be thinking of another animal: chickens.

Investors have been dipping their beaks in shares of poultry producers as healthy consumer demand for chicken and lower grain costs have led to strong profits.

Shares of industry leader Tyson Foods (Research) are up nearly 10 percent during the past three months and are trading just 7 percent below their 52-week high. Although the company reported disappointing fiscal third-quarter results Monday and lowered its fiscal fourth quarter guidance, investors appeared to take it in stride. The stock slipped about 2 percent.

Tyson, a diversified producer and distributor of meat products, blamed weakness in its pork segment for its pessimistic forecast.

But the company's chicken business, which accounts for nearly a third of overall sales and three-quarters of Tyson's operating profit, is clucking along quite nicely. Operating income from the chicken business surged 37 percent from a year ago, mainly due to the lower feed costs, which is one of the company's largest expenses.

And Tyson is not the only company benefiting from this trend.

Shares of Sanderson Farms (Research), the country's fifth-largest poultry producer, are up nearly 20 percent during the past three months.

Pilgrim's Pride (Research), the No. 2 chicken company in the United States, is up more than 25 percent this year. It reported fiscal third-quarter earnings last week that were nearly 7 percent better than expectations and also raised its fiscal fourth-quarter profit targets.

And then there's Gold Kist (Research), the fourth-largest poultry company in the country. Gold Kist went public last October and the stock has surged nearly 90 percent since then. Not bad for an IPO not named Google (Research).

So can these stocks continue to generate mouth-watering returns or is it time for investors to pluck them from their portfolios?

The key, according to Harris Nesbitt analyst Kenneth Zaslow, will be what happens to grain costs, particularly corn and soybean.

Although the U.S. Department of Agriculture recently predicted that feed costs should decline in 2005 and 2006, Zaslow wrote in a recent report about Pilgrim's Pride that a recent drought in parts of the Midwest could cause corn and soybean prices to rise. That would hurt profit margins for Pilgrim's Pride and the rest of the industry.

But as long as grain costs don't skyrocket, the poultry companies should continue to do well, said Todd Campbell, president of E.B. Capital Markets, an independent research firm catering to institutions.

Pilgrim's Pride has beaten Wall Street's earnings estimates for the past four quarters. As a result, analysts have raised their earnings targets for this fiscal year by more than 20 percent in the past three months and have boosted fiscal 2006 results by nearly 10 percent.

Analysts have also been aggressively raising their profit targets for Gold Kist, which will report its fiscal third quarter results on Aug. 9.

Just don't expect sales to be significantly higher. Tyson, for example, did report on Monday that the volume of chickens sold was up 1.4 percent from a year ago but that sales in dollar amounts dropped 2.5 percent. So clearly, the bullish case on chicken is all about profits.

"It's an earnings per-share story. The top line is going nowhere because everyone has chicken in their refrigerator and the industry is not really tapping into new markets," said Campbell. "But the industry is controlling costs. That's were you create value."

With this in mind, Campbell said that he thinks Pilgrim's Pride and Gold Kist still have some room to spread their wings. He's not as excited about Tyson's prospects because its beef and pork businesses are dragging down profits.

And Zaslow wrote in his report that Pilgrim's Pride should be able to hold up better than its competitors if grain costs rise since it has a bigger focus on prepared foods, which typically sell for higher prices (and hence have higher profit margins) than standard raw chickens and turkeys.

Investors looking at the group can also be comforted by the fact that none of the poultry producers have exorbitantly high valuations. Pilgrim's Pride and Sanderson Farms both trade at just 10 times fiscal 2005 estimates while Gold Kist has a P/E of 9 based on this year's profit projections.

So the stocks are all relatively cheep. Sorry, cheap.

For a look at more food and beverage stocks, click here.

For a look at the prices of commodities, click here.

Harris Nesbitt's Zaslow does not own shares of the companies mentioned but his firm has done investment banking for Pilgrim's Pride. Campbell does not own any of the stocks mentioned and his firm does not have banking relationships with them.