Jim Cramer is the host of the wildly popular investment show “Mad Money.” On his December 12th show, Cramer talked about themes that were working in today’s market. “You have to be clever about what this market really wants,” he said. “Risk on, risk off is for the non-homework doing gunners who will far more than likely make no money at all.” Point in fact, there was a variety of food stocks that were disappointing quarter after quarter, but now these “disappointers” are starting to come back.
Cramer says the following companies are doing better because their commodity costs are coming down. “It tells you that a European slowdown doesn’t make all stocks unattractive … it actually makes some stocks more attractive than others, like the food group,” he said. “Especially since many of these companies have put through price increases that are sticking at the same time that the raw costs are coming down.”
ConAgra Foods (CAG) had reported a “nauseating quarter” on September 20 but it has since started to rebound. It closed trading December 12 at $25.70, up from a close of $22.99 on September 20. It is trading at 12.98 times its forward earnings and pays a 96 cents a share dividend (3.80% dividend yield). It has 9.50% quarterly revenue growth. We like CAG. Its earnings growth estimates are also strong at 7.14% per annum for the next five years. CAG is a favorite pick of Ric Dillon’s Diamond Hill Capital.
McCormick (MKC) was labelled “not Thyme” by Credit Suisse after delivering weak gross margins, but the price has since moved higher. As of the close of trading on December 12, MKC was trading at $49.10 a share with a one-year target estimate of $54.42. In addition to the strong upside, MKC also pays a $1.24 dividend (2.50% dividend yield) and is priced at just 15.84 times its earnings. We like it for its 15.80% quarterly revenue growth and earnings growth estimate of 8.38% per annum over the next five years. John Rogers’ Ariel Investments is a fan of MKC.
Kellogg (K) was downgraded by Deutsche Bank from “buy” to “hold” but, since then, it has started to climb back. K closed trading on December 12 at $49.11 a share, with a one-year target estimate of $53.60. It pays a $1.72 dividend (3.50% dividend yield) and is priced at 13.87 times its forward earnings. K has a modest quarterly revenue growth of 4.90%. Its earnings grew 6.01% per annum over the last five years and are expected to grow even more over the next five. Analysts predict K will grow at 8.12% per annum over the next five years.
Heinz (HNZ) had disappointing sales at the end of the third quarter but it has reached bottom and is on the way back now. As of the close of business on December 12, HNZ was trading at $52.53 a share, or 14.47 times its forward earnings, with a one-year target estimate of $56.00 a share. It also pays a $1.92 dividend (3.70% dividend yield). It has a decent quarterly revenue growth at 8.30%. Its earnings have grown 5.19% per annum over the last five years but analysts predict it will up that pace over the next five years, forecasting growth of 7.75% per annum over the next five years.
Campbell Soup (CPB) reported “horrible” sales but its shares are recovering nicely. It closed trading at $32.47 a share, or 12.88 times its forward earnings. CPB pays a $1.16 dividend (3.50% dividend yield). Analyst expect its earnings will increase by 4.73% per annum over the next five years. We think that CPB’s earnings growth estimate, combined with its negative 0.50% quarterly growth makes CPB a hold, or possibly even a sale once the price recovers a little. Mason Hawkins’ Southeastern Asset Management had a position worth more than $636 million in the company at the end of the second quarter.
Tyson Foods (TSN) had a “total miss” but is moving higher now. On December 12, TSN closed at $20.10 a share, 8.41 times its forward earnings. It pays a 16 cents dividend (0.80% dividend yield). We think it is undervalued enough to make a buy. It has 12.90% quarterly revenue growth and its earnings have grown 50.95% per annum over the last five years. Analysts predict its earnings will increase by 7.33% per annum over the next five. Last week, Bloomberg reported a new USDA rule that will increase costs for processors like TSN so it could go either way, and its growth forecasts are modest. While analysts still list this stock as a buy, we are steering clear.
