The Strength in Consumer Staples: What’s Up With That? – Campbell Soup Company (CPB), ConAgra Foods, Inc. (CAG)

Page 1 of 2

If you’re familiar with Saturday Night Live you’ve seen the recurring skit in which Kenan Thompson hosts a talk show where none of the celebrity guests ever get to talk because he constantly interrupts to sing his theme song, Ooowee, What Up With That? What Up With That?

With consumer staples stocks hitting 52 week and all time highs you wonder-what’s up with that? Shouldn’t defensives be sitting out this rally, much as Thompson’s guests do? Companies like Campbell Soup Company (NYSE:CPB), The J.M. Smucker Company (NYSE:SJM), ConAgra Foods, Inc. (NYSE:CAG), Hormel Foods Corporation (NYSE:HRL), The Clorox Company (NYSE:CLX)General Mills, Inc. (NYSE:GIS) and The Hershey Company (NYSE:HSY) are all hitting 52 week highs. Hormel is puzzling because despite missing on earnings is still powering higher. Valuations are getting stretched and the XLP, the consumer staple index is also at highs.

Campbell Soup Company (NYSE:CPB)The Fear Factor

These moves don’t look as though they’re based on fundamentals but fear…fear of sequestration, higher gas prices, and an imminent market downturn. Like utilities were a go to sector last year it looks like consumer staples are the anointed hiding place this year. Hopes of another big Buffett buy like that of H.J. Heinz Company (NYSE:HNZ) in these staples is unlikely so fear is undoubtedly at work here.

One other theory is a search for yield, anywhere and everywhere but in a fairly risk free sector. Also, retail investors and institutions who sat out the party are finally coming back but still risk averse.

Too Late To The Party?

Campbell Soup Company (NYSE:CPB) has moved up almost 20% since the end of 2012. At 17.63 P/E and a yield of 2.90% it looks okay but the PEG is saying otherwise at 2.79. New-ish CEO Denise Morrison had a full plate coming into the job with the 144 year old company’s old-fashioned image needing a serious makeover. She has already acquired natural foods company Bolthouse Farms and added more “foodie” type soup offerings in on the go packaging to attract a younger demographic. The strategy seems to be working as the company beat on both top and bottom line when it reported Q2 earnings on February 13.

At an EV/EBITDA of 10.46 and return on equity of 62.08% Buffett might have done better to buy Campbell Soup Company (NYSE:CPB). Except for the tricky little matter of ten times total debt to total cash. Pocket change to Warren. For a consumer staple defensive with yield it has a surprisingly large short interest of 8.10%. Several large and well-known hedge fund names like Ray Dalio, Jim Simons, Mario Gabelli and Krys Krystinik have stakes in the name. It’s not that I don’t like Campbell’s, I just don’t like it here.

The same situation applies with Smucker’s. The family founded business is still family run with Richard Smucker as CEO. It’s up 25% over the last year and the short interest is decreasing. It has a slightly higher P/E at 20.20 and a lower yield of 2.20% but a lower payout ratio than Campbell’s. Its EV/EBITDA is slightly lower at 9.87 and the PEG is at 2.16.

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 44 percentage points in 21 months Learn how!

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!