Is Spam nutritious for your portfolio?

Posted May 28th 2008 6:50PM by Peter Cohan
Filed under: Earnings Reports, Products and Services, Consumer Experience, Hormel Foods (HRL), Recession

The Associated Press reports that Spam sales are on the rise. Cans of Spam -- a pig byproduct -- are flying off the shelf as consumers are turning more to lunch meats and other lower-cost foods to extend their already stretched food budgets.

As I posted, consumers are going on a recession diet. I had not thought of Spam as a way to play this trend. But its sales are up 10.6% and its manufacturer, Hormel Foods (NYSE: HRL) has seen its profits rise 14%. But the price of Spam is up more than Hormel's stock, with the average 12 oz. can costing about $2.62. That's an increase of 17 cents, or nearly 7% from the same time last year.

Despite rising prices, Spam seems like a good alternative to consumers. AP quotes Kimberly Quan, a stay-at-home mom of three, who has been feeding her family more Spam in the last six months as she tries to make her food budget go further. "It's canned meat and it's in the cupboard and if everything else is gone from the fridge, it's there."

Spam was good enough for Allied troops in WW II. Yet Hormel stock is up a mere 4% in the last year. With earnings expected to rise 8.6% on a P/E of 16, the stock is not cheap.

So you need to decide: Is Spam good enough for your family and its stock portfolio?

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

Tags: hormel, hormel foods, HormelFoods, recession, recession diet, RecessionDiet, spam

Print this

Reader Comments (Page 1 of 1)

5-28-2008 @ 9:33PM

CrossProfit said...

If the investment logic is "if everything else is gone from the fridge, it's there" then why spam? Why not all canned food? In which case the better investment would be tin cans.

Off the top of my head, you should look into;
1) Ball Corporation (BLL)
see: http://www.crossprofit.com/admin/update_symbol.asp?id=25869
2) Crown Holdings Inc (CCK)
see:
http://www.crossprofit.com/admin/update_symbol.asp?id=28607
(you may have missed the boat on this one)
3) Owens Illinois Inc (OI)
(does more glass in the U.S., but is definitely into packaging)
4) Silgan Holdings Inc (SLGN)
5) Greif Brothers Corp (GEF)

I'm sure there are more, but you'll have to do your own research. Some of the above mentioned companies have extensive operations outside the U.S., which you will have to decide if it is a positive or negative.

Saul Sterman
CrossProfit

5-29-2008 @ 6:06AM

Sal said...

Americans deserve to eat SPAM for not voting AGAINST EVERY INCUMBENT .

6-08-2008 @ 7:15PM

RJ said...

I think the financial future would look a lot better if the company were to return to original formula. Put some Spam under the broiler and watch the plastic bubble form. Not the same old Spam, not the same old stock.
RJ

6-19-2008 @ 6:23AM