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
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

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!