Analysing 3 Defensive Stocks With High Yields: ConAgra Foods, Inc. (CAG) and More

Although ConAgra is much less leveraged than Heinz, I’d say, the metrics are telling only one side of the story. ConAgra recently agreed to acquire Ralcorp Holdings, Inc. (NYSE:RAH) for $4.95 billion, which would be totally financed by debt. Now once this acquisition is through, its actual debt/equity comes out to be 2.05x (0.78 + 1.27). Moreover, Ralcorp Holding has a poor ROI and ROE of 1.21% and 2.73%, respectively, which would further stretch its payback period.

Reasons to Buy Unilever

But there’s nothing against Unilever. The company has been reporting blockbuster earnings, and it recently reported a 11% surge in its quarterly sales growth, on a YoY basis. The management told that its key driver for growth would be innovation and new product launches in countries like India, China and Brazil. Its revenue from emerging markets accounts for 55% of its total revenue, which is higher than Heinz’ (23%).

This suggests that its growth engine might slow down before Heinz’s, but since India and China are resided by more than 2.55 billion people, its product marketing campaigns will play a crucial role. Additionally, since Unilever is well established in India, China, Brazil and South Africa, it won’t have to spend much on brand marketing, and has to largely focus on its R&D. In my opinion, this rationale coupled with solid financials, makes Unilever a solid buy.

Conlusion

Both Unilever and Heinz are great investment options, but I believe that Heinz has more upside potential as it still derives a major share of its revenue from North American and European countries. According to analysts, EPS of Heinz and Unilever are expected to grow at 6.95% and 5.4%, respectively for the next 5 years, and in my opinion, holding both the stocks would be a great way of spreading the risks and rewards.

The article Analysing 3 Defensive Stocks With High Yields originally appeared on Fool.com and is written by Piyush Arora.

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