Is Further Consumer Staples Consolidation Coming?: Campbell Soup Company (CPB) and More

Page 1 of 2

Warren Buffett has done it again.  His Berkshire Hathaway Inc. (NYSE:BRK.B) has, in his terms, ‘bagged another elephant’.  In February, it was revealed that Berkshire and a Brazilian private equity firm would be purchasing H.J. Heinz Company (NYSE:HNZ) in a deal worth $23 billion.  Investors may be wondering if this signals a turnaround for mergers and acquisitions.  In a recent segment on CNBC, Jim Cramer claimed that we are now in a state of ‘merger mania’, and that the corporate confidence needed to revitalize the M&A market is back.  Is he right?  And, if so, are there other stocks within the consumer staples sector ripe for the plucking?

Campbell Soup Company (NYSE:CPB)Corporate cash sitting idle

Thanks to the Federal Reserve’s extremely easy monetary policy, interest rates are at historic lows.  The economic recovery in the United States continues to trudge along at a painfully slow pace.  As a result of the Great Recession, companies cut workforces to the bone and are still only hiring at a selective pace.

Consequently, profits sit on the balance sheets of corporate America and provide little in return.  It’s been well-publicized that companies in the United States are sitting on a trillion dollars of cash that is earning them almost nothing.  Therefore, the best use of cash to provide shareholders return seems to be returning it in the form of dividends and share buybacks, and in the case of slow-moving conglomerates like Berkshire Hathaway, making big acquisitions.

Heinz represents a lot of what Warren Buffett has publicly said he favors for Berkshire’s investments.  The company provides its namesake ketchup and other food brands; Heinz’s products could likely be found in virtually every household in America.  The company pumps out reliable cash flows and an ever-increasing stream of dividends.  It’s a powerful brand name with a long history of success.  At the same time, it isn’t the only one to have these qualities within the consumer staples sector.  Here are two candidates that share many of these characteristics and may be attractive to not just Berkshire Hathaway, but also one of the consumer staples giants.

Two possible candidates

Campbell Soup Company (NYSE:CPB) rallied since the Heinz takeover announcement, and its shares now sit at five-year highs.  The maker of its namesake soups, as well as Prego pasta sauce and Pepperidge Farm cookies, holds a $12 billion market capitalization and could be well-positioned for a takeover, considering its remarkable consistency and operating history of more than 140 years.

A plausible alternative could be Hormel Foods Corporation (NYSE:HRL).  Hormel could be a nice bolt-on acquisition, as the company holds a market capitalization of only $9 billion and a portfolio of well-established brands. Hormel was founded in 1891, and has since sold its flagship Spam and Hormel Chili to consumers. However, the company has broadened its product portfolio over the years. Hormel has achieved strong annual earnings per share growth of 11% annually since 2007, and annual sales growth of 6% over the same period.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!