There’s nothing quite like a volatile stock market to start rattling nerves and make people wonder how long it’s going to last, or if the market will ever be the same again. After coming within a whisper of official bear market territory on Monday, stocks rebounded strongly, as all three major market indices rallied more than 1.5%, driven in part by good earnings report from the tech sector and comments from President Trump More →
As the market has become more and more uncertain throughout this year, I’ve written more frequently about taking a more conservative, “defensive” approach to investing. There are a lot of different ways to think about being defensive when you believe market conditions are becoming more bearish. More →
The market’s volatility over the last week and a half has started to put a lot of people on edge. I’ve noticed an increasing number of talking heads on market media starting to throw out words that just don’t apply to the market yet, like “correction” and even “bear market” in a few cases. It’s pretty easy to get caught up in the hand-wringing and anxious nerves that always seem come when market volatility starts to pick up. More →
Over the last week, uncertainty appears to have become the primary theme of the market, as concerns over interest rates and global growth are starting to take hold and lead investors to question the market’s ability to sustain its long, bullish trend. As of this writing, in fact, the S&P 500 is sitting right on top of its 50-day moving average line, an indicator that a lot of technical investors like to use as a visual queue for the market’s intermediate-term trend. A break below this line could signal at least a short-term reversal, with more downside ahead that could see the market drop as much as another 4% before finding its next support level. That’s not exactly correction territory, but it is enough short-term downside to keep uncertainty high and prompt investors to start looking for “safe haven” investments that offer some measure of protection should things get even worse.
If the market keeps dropping, I think there could be some very interesting opportunities in defensive industries, and as I wrote yesterday, I think some of the best valuations in the market right now are coming in the consumer sSJMles sector in general, and the food industry in particular. If you’re looking to be conservative about the positions you take, it’s smart to be selective about how many stocks you buy in a single industry, and so even though I’ve been highlighting different stocks in the industry that I think offer interesting value propositions, you should take some time to compare each one carefully and decide for yourself which ones you think would offer you the right mix of opportunity, fundamental strength, and risk management.
One food company that I do think is really interesting right now is The J.M. Smucker Company (SJM). The name probably makes you think about the same products I do – fruit spreads. That’s because the company’s namesake Smucker’s brand is the #1 fruit spread brand; but this is a company that also owns the leading peanut butter (JIF), coffee (Folger’s), and dog snack (Milk-Bone) brands. When you consider they own other well-known brands like Crisco, Dunkin’ Donuts, Kibbles ’n Bits, and Carnation, to name just a few, you have a company with a pretty well-diversified product line that covers a pretty broad spectrum of the packages food industry. There are some risks about the food industry that have started to impact some important measurable components of SJM’s profile; however for the most part, this is a company with strong fundamentals, including good cash flow, decent (albeit declining) margins, and manageable debt. They also carry a very attractive dividend yield right now, with a very compelling long-term value proposition. Let’s take a look.
The J. M. Smucker Company is a manufacturer and marketer of branded food and beverage products and pet food and pet snacks in North America. The Company’s segments include U.S. Retail Coffee, U.S. Retail Consumer Foods, U.S. Retail Pet Foods, and International and Foodservice. The Company’s U.S. retail market segments consist of the sale of branded food products to consumers through retail outlets in North America. In the U.S. retail market segments, the Company’s products are sold to food retailers, food wholesalers, drug stores, club stores, mass merchandisers, discount and dollar stores, military commissaries, natural foods stores and distributors, and pet specialty stores. In International and Foodservice, the Company’s products are distributed domestically and in foreign countries through retail channels and foodservice distributors and operators, such as restaurants, lodging, schools and universities, healthcare operators.SJM’s current market cap is $11.6 billion.
Here’s a look at the stock’s latest technical chart.
Over the last few days, one of the things that has put the market a little bit on edge is concern that interest rates could be forced higher sooner than possible. Fed chair Jay Powell gave investors room to start feeling anxious last week when during a televised question and answer session, More →
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If the extended state of the market’s bull run – which is nearly 10 years in the running now – is starting to make you wonder how much longer the “good times” are going to last, you’re in a relatively small, but growing group of people that are becoming increasingly wary. One of the things that not a lot of people understand, however is that even in a bearish market, you can keep finding good stocks to invest in with good long-term growth potential, if you’re willing to be cautious and selective. You also have to be able to work with a long-term perspective, because if the economy and the market do begin to reverse, the turn lower can come very quickly; that often means that even stocks that right now are trading at great valuations and fit into the “bargain” category under current market conditions are at risk of following the broader market’s trend to the downside.
One way you can try to minimize some of that risk is by focusing on stocks that analysts and experts like to call “defensive” in nature. These are businesses that offer products or services that are needed no matter what the economy is doing, so their revenues generally manage to be pretty stable. If they’re conservative about the way they manage their business, that usually means that even if their profits get squeezed by tighter economic conditions, they’ll be able to weather the storm better than most other stocks in more cyclic sectors and industries.
One of the industries that fits into this “defensive” category is Food Processing. This is an industry that includes some big, well-known names like Kellogg Company (K), General Mills (GIS), Kraft-Heinz (KHC), Campbell Soup (CPB) and Tyson Foods (TSN). Over the last year or so, this is also an industry that has come under a lot of pressure by investors who have been concerned that consumer trends are shifting away from many of these traditional names to smaller, trendier companies who are perceived as offering healthier options. The bigger companies have been scrambling to find ways to adjust to this shift, but that has also created some nice value options in the industry with stocks that have a terrific fundamental profile to use as a baseline and the size, resources, and responsiveness to make the adjustments they need to stay relevant.
One stock in this sector that I think has a great fundamental profile to work with, and appears to already be well-positioned to work with the trend toward healthier food options is Sanderson Farms Inc. (SAFM). This is a small-cap stock that a lot of people might not recognize at first blush; but this is a company with a singular focus. Investors who prefer to see a company with a diversified portfolio might look at the fact SAFM focuses exclusively on protein from poultry as a negative; but this is the third largest poultry processor in the United States, with a model that allows them to function profitably as a low-cost provider of protein products. As I think you’ll see, there is a pretty strong case to be made for this stock as a serious value opportunity, even under current market circumstances.
Sanderson Farms, Inc. is a poultry processing company. The Company is engaged in the production, processing, marketing and distribution of fresh and frozen chicken, and also preparation, processing, marketing and distribution of processed and minimally prepared chicken. It sells ice pack, chill pack, bulk pack and frozen chicken, in whole, cut-up and boneless form, under the Sanderson Farms brand name to retailers, distributors, casual dining operators, customers reselling frozen chicken into export markets. The Company, through its subsidiaries, Sanderson Farms, Inc. (Production Division) and Sanderson Farms, Inc. (Processing Division), conducts its chicken operations. Sanderson Farms, Inc. (Production Division) is engaged in the production of chickens to the broiler-stage. Sanderson Farms, Inc. (Foods Division) is engaged in the processing, sale and distribution of chickens. The Company, through Sanderson Farms, Inc. (Foods Division), conducts its prepared chicken business. SAFM has a current market cap of about $2.4 billion.
Here’s a look at the stock’s latest technical chart.
In the constant search for value, one of the questions that inevitably have to ask yourself as an investor includes how the stock you’re looking at is likely to behave in different economic cycles. Some stocks are highly cyclic; the energy and automotive industries are good examples of market segments that respond well in certain economic phases, but really struggle in others. One of the things that a lot of investors like to do when they think the sustainability of current economic strength could be at risk is to start looking for stocks that are less cyclic in nature. Looking for companies that should do well in any economic cycle means focusing on businesses that consumers will always need to rely on no matter what the economy is doing. These are often called defensive stocks, and they often revolve around industries like utilities, healthcare, and food, among a few others.
Another pocket of the market that can be pretty interesting is Beverages. Since they fit into the Food category, it’s usually pretty easy to buy into the idea that Beverage companies should have a pretty stable business model, no matter what the economy’s current state may be. You can actually drill down a little further, too to mine a sub-segment, Alcoholic Beverages to tap into (pun intended) what is perhaps an ironic twist on a defensive strategy, since sales of alcoholic drinks have shown a historical tendency to remain very healthy – and even to increase somewhat – when the economy is in decline.
The truth is that alcoholic beverage companies generally do well in bullish economic cycles, as well as in bearish ones. That is another reason that this can be an interesting segment to pay attention to; but one of the difficulties about the industry is the relatively small market presence of U.S. companies. In the case of beer, for example, 85 percent of the beer made in the United States is owned by foreign companies. How do you play the industry? One of the notable names is Boston Beer Company (SAM). You may not recognize the company name right away, because the company doesn’t fit the description of a large-cap, blue-chip stock. It’s a good bet, however that you know about their products, especially if you are a beer drinker.
The stock is interesting, because it has been following a very strong upward trend for a little more than the past year, increasing from about $130 to its current price a little above $290 per share. That’s a 124% increase in price in a little over a year; but the stock is also down since the last week of July from a high at nearly $330 per share. That’s down about 12% in just a few weeks. The stock more recently has been showing some strength, rebounding from a short-term low at around $270 per share. Is it poised to go back up and retest its $330 highs? Maybe; the company has some interesting fundamental strengths that indicate they are very well-managed and effective at managing their business. However, there are some important value-based measurements that I think suggest the stock is actually pretty risky right now. Let’s take a look.
The Boston Beer Company, Inc. is a craft brewer in the United States. The Company is engaged in the business of producing and selling alcohol beverages primarily in the domestic market and in selected international markets. The Company operates through two segments: Boston Beer Company segment, and A&S Brewing Collaborative segment. The Boston Beer Company segment comprises of the Company’s Samuel Adams, Twisted Tea, Angry Orchard and Truly Spiked & Sparkling brands. The A&S Brewing Collaborative segment comprises of The Traveler Beer Company, Coney Island Brewing Company, Angel City Brewing Company and Concrete Beach Brewing Company. Both segments sell low alcohol beverages. The Company produces malt beverages and hard cider at the Company-owned breweries and under contract arrangements at other brewery locations. As of December 31, 2016, the Company sold its products to a network of approximately 350 wholesalers in the United States and to a network of distributors. SAM has a current market cap of about $2.5 billion.
Here’s a look at the stock’s latest technical chart.
Two months ago, I wrote about The Kroger Company (KR) and predicted the stock was set to reverse its long-term downward trend in a big way. I’m generally not the type of person to pay myself on the back when something like that works out in my favor, but since the stock was below $25 then, and as of this writing is surging above $30 – that’s more than 20% in two months, if you’re keeping track – I feel pretty good about that prediction.
The other, more important reason that it seems like a good time to revisit this stock is because in spite of this nice, big rally, the stock is still undervalued. That’s pretty remarkable considering how far the stock has already moved, but it means that there is still plenty of good opportunity to work with a stock with some really terrific fundamental strength behind it and a management team that is actively working to stay competitive with bigger companies like Amazon.com (AMZN), Target Stores (TGT) and Walmart (WMT). Those are also stocks that get a lot more buzz in the media but whose value proposition is significantly less compelling. I still think that if you’re looking for a way to invest in the stock market defensively using the Consumer Staples sector, KR is one of the best plays available.
The Kroger Company (KR) is one of the most well-established, nationwide names in the grocery business, and they’ve held up well for decades even as companies like WMT and AMZN have pushed their way in and changed the competitive landscape of their industry. Not only am I willing to bet there is a Kroger-owned grocery store close to where you live, I’m also going to go out on a limb and say that you probably visit that store a handful of times every month at least. That is the kind of “stickiness” that analysts like to point to when they look for companies that will generally hold up in a troubled economy.
This is a company that has faced challenges from competitors large and small and manages to find its own way to not merely survive, but remain competitive and relevant. In just the last month, I’ve watched the company announce moves that should be useful to that end. Perhaps the most noteworthy just crossed newswires this morning, as the company is expanding its delivery portfolio. They already offered online order pickup and delivery from almost half of its stores nationwide via its Clicklist service, but is now adding the ability to ship home essential and non-perishable items at a lower cost using its Kroger Ship service. This is a non-subscription-based service, priced at $4.99 for two-day shipping on orders under $35, and free for orders above that minimum. It’s clearly designed to compete favorably with Amazon’s Prime Pantry service (which charges a higher delivery fee and requires an active Prime membership), and Target’s Restock service (next day delivery, free if you pay with a Target credit or debit card). The service is rolling out initially in four markets (Cincinnati, Houston, Louisville, and Nashville), with plans to expand to other markets in the next few months.
The Kroger Co. (Kroger) manufactures and processes food for sale in its supermarkets. The Company operates supermarkets, multi-department stores, jewelry stores and convenience stores throughout the United States. As of February 3, 2018, it had operated approximately 3,900 owned or leased supermarkets, convenience stores, fine jewelry stores, distribution warehouses and food production plants through divisions, subsidiaries or affiliates. These facilities are located throughout the United States. As of February 3, 2018, Kroger operated, either directly or through its subsidiaries, 2,782 supermarkets under a range of local banner names, of which 2,268 had pharmacies and 1,489 had fuel centers. As of February 3, 2018, the Company offered ClickList and Harris Teeter ExpressLane, personalized, order online, pick up at the store services at 1,056 of its supermarkets. P$$T, Check This Out and Heritage Farm are the three brands. Its other brands include Simple Truth and Simple Truth Organic. KR has a current market cap of $24.1 billion.
Here’s a look at the stock’s latest technical chart.
The Consumer Staples sector is segment of the economy that has underperformed the rest of the stock market, at least until the last few weeks. Trade tensions seem to be one of the primary factors right now that have increased uncertainty enough to prompt investors to start paying more attention to industries that fit into a more “defensive” economic profile, which means that stocks like Kroger Company (KR) and General Mills (GIS) in the Food Products industry, and CVS Health Corp (CVS) and Walgreens Boots Alliance, Inc. (WBA) have been getting a little more attention. CPB is another stock in the Food Products industry that is offering some pretty attractive opportunities right now.
Like GIS, Campbell Soup Company’s (CPB) stock price suffered from criticism in the media about the company’s appeal to the growing Millennial target demographic, whose preferences seem to point away from traditional names to smaller, more “organic” brands. The concern is warranted, as it is incumbent on any company to make sure their products align with consumer tastes and preferences, no matter how well-established they may be. That said, there is a lot to be said for a company with the kind of name recognition and history behind it that CPB carries. Their fundamentals are quite strong, and their value proposition is more interesting now that it was just a couple of months ago.
Smaller and more buzz-worthy (and generally more expensive at the grocery store register) brand names right now certainly have their appeal; but one of the reasons CPB is seen as a defensive stock also comes because of their ability to make their products available at cheaper prices. If and when the economy begins to slow, more expensive, currently “sexier” products will likely be challenged to retain their sales and profits far more than better established, more affordable alternatives.
Campbell Soup Company (CPB) is a food company, which manufactures and markets food products. The Company’s segments include Americas Simple Meals and Beverages; Global Biscuits and Snacks, and Campbell Fresh. The Americas Simple Meals and Beverages segment includes the retail and food service channel businesses. The segment includes the products, such as Campbell’s condensed and ready-to-serve soups; Swanson broth and stocks; Prego pasta sauces; Pace Mexican sauces; Campbell’s gravies, pasta, beans and dinner sauces; Plum food and snacks; V8 juices and beverages, and Campbell’s tomato juice. The Global Biscuits and Snacks segment includes Pepperidge Farm cookies, crackers, bakery and frozen products; Arnott’s biscuits, and Kelsen cookies. The Campbell Fresh segment includes Bolthouse Farms fresh carrots, carrot ingredients, refrigerated beverages and refrigerated salad dressings; Garden Fresh Gourmet salsa, hummus, dips and tortilla chips, and the United States refrigerated soup business. CPB’s current market cap is $12.4 billion.
Earnings and Sales Growth: Over the last twelve months, earnings and revenues have both increased, with earnings growth outpacing revenue growth (18.6% to 14.6%). Growing earnings faster than sales is difficult, and generally isn’t sustainable in the long term, but it is also a mark of management’s ability to maximize its business operations and manage costs. It should be noted that the company’s Net Income is less than 5% of Revenue, which indicates that they operate with a very narrow margin profile.
Here’s a look at the stock’s latest technical chart.
When markets become volatile, it usually means that investors are becoming increasingly uncertain and nervous. Uncertainty can come from all kinds of different things – concerns about inflation, wage growth, central bank monetary policy, earnings trends, and geopolitical events. For most of the last three months, most of the uncertainty in the market has revolved around the spectre of trade war between the U.S. and its biggest trading partners. That fear is raising its ugly head once more this week as new tariffs from the U.S. against China are set to take effect on July 6. Besides those tariffs, there are also looming duties against Canada and Mexico along with the steel and aluminum tariffs against the European Union and other trade allies. At the same time the U.S. will begin imposing duties on $34 billion worth of Chinese imports on Friday, Beijing is set to respond in kind with tariffs on a range of products including soybeans, seafood and crude oil.
When economic concerns increase, investors often start to look for investments that are defensive in nature; that is, they’ll usually start moving money into less volatile, more “secure” assets like Treasury bonds and T-bills, or into stocks that they think should be less cyclical in nature and so have less risk than other stocks. Food companies, including Packaged Foods, which is the industry that Tyson Foods, Inc. (TSN) sits in, often fits into that description. While the stock is down since the latter part of 2017 from a high at around $85 per share to its current price around $67, it has also been holding its value pretty well since the beginning of May, when trade war rumors were really beginning to heat up. Does that mean that TSN, whose sales outside of the U.S. accounted for only about 12% of their total sales in 2017, could be a good stock to hold? Let’s take a look.
Tyson Foods, Inc. is a food company, which is engaged in offering chicken, beef and pork, as well as prepared foods. The Company offers food products under Tyson, Jimmy Dean, Hillshire Farm, Sara Lee, Ball Park, Wright, Aidells and State Fair brands. The Company operates through four segments: Chicken, Beef, Pork and Prepared Foods. It operates a vertically integrated chicken production process, which consists of breeding stock, contract growers, feed production, processing, further-processing, marketing and transportation of chicken and related allied products, including animal and pet food ingredients. Through its subsidiary, Cobb-Vantress, Inc. (Cobb), the Company is engaged in supplying poultry breeding stock across the world. It produces a range of fresh, frozen and refrigerated food products. Its products are marketed and sold by its sales staff to grocery retailers, grocery wholesalers, meat distributors, warehouse club stores and military commissaries, among others. TSN has a current market cap of $24.4 billion.
Here’s a look at the stock’s latest technical chart.
