"If you're going to stay invested, you should look to defensive sectors," explain Ron Rowland and Brandon Clay, who point to consumer staples as a top pick for the current market environment.
"In a bear market, opportunities are usually limited to certain sectors. Surveying the investment horizon, we think the consumer staples sector has the best opportunity for growth in this economy.
"Regardless how the economy acts, people still eat. Consumers may not shop at Whole Foods, but they'll still buy groceries. Companies like Wal-Mart (NYSE: WMT) and Safeway (NYSE: SWY) will continue to rake in revenues from hungry customers.
"In addition, these companies should continue to receive additional revenue from consumers who normally shop at specialty stores, but can no longer afford to.
"Consumers may not be shopping at Sharper Image any more, but there are other creature comforts that will be difficult for Americans to abandon.
"Coca-Cola (NYSE: KO) and PepsiCo (NYSE: PEP) will still sell products during a prolonged downturn. In addition, companies providing toiletries and convenience like Procter and Gamble and CVS Pharmacy stand to do well during a shifty economy.
Campbell Soup (NYSE: CPB) seemed to have an okay first quarter. Revenue rose 3%, and earnings per share on an adjusted basis increased 10% to $0.77. This beat expectations by a penny, according to this source. Now, I agree, these numbers weren't great, but did you see the reaction to the stock on Monday? It closed down over 7.5% on better-than-average volume. Did the stock deserve such a beating? Was the selling a buying opportunity?
Well, as I've been saying, many stocks are great for long-term buying. How many times have you heard that people will be looking back at this current state of volatility after several years have passed only to conclude that it was one of the best buying opportunities of a lifetime? Campbell Soup is probably applicable to that cliche. However, the fact that the market rallied on Monday and Campbell Soup didn't participate might mean something. It might mean that the fears of currency translations and their effect on future earnings (this was mentioned in the press release and in news reports) will indeed cause the company some problems in the next several months.
What does this mean for someone who wants to pick up shares of the soup concern? Be wary, especially if you're sick and tired of picking up stocks at the wrong time. Even long-term thinkers don't want to feel a need to double-down a week after entering a position. No, I'm not saying Campbell Soup will tank that fast after the Q1 report. In fact, it may very well bounce from here.
I just didn't like the price action on Monday, so I probably would wait a little bit before considering the stock. Like Kraft (NYSE: KFT), Coca-Cola (NYSE: KO), and Kellogg (NYSE: K), Campbell Soup is a dividend play backed by a powerful line of supermarket products. However, like all those companies, international exposure is a big part of its thesis. So one must recognize that shares of Campbell Soup must be approached carefully considering all the headlines as of late concerning the effect of overseas sales.
Disclosure: I own Coca-Cola; positions can change at any time.
Well, it looks like Heinz (NYSE: HNZ) put me and my earnings preview to shame. The company delivered a great second quarter. The company, whose colleagues include Kraft (NYSE: KFT), Kellogg (NYSE: K), and Campbell Soup (NYSE: CPB), grew its bottom line by over 22% on a per-share basis. Heinz scored $0.87 per diluted share in profit, enough to wallop the analyst community's estimate of $0.76 per share.
Heinz made sure to hedge itself in terms of currency effects. That helped drive the quarter. The company's strong brand portfolio delivered, on an overall basis, almost 6% in organic sales growth. Management was able to leverage the equity of its product line to enact favorable pricing measures. And one of my favorite parts of an earnings report is the statement of cash flows. Cash from operations rose almost 10%, and operating free cash flow by the company's calculation (Heinz adds back disposals of capital property/equipment) increased almost 9%. It would, of course, be nice to see the growth rate of cash flow be closer to the growth rate of earnings, but at least cash generation is trending upward.
Gotta tell you, though, it looks like the market could care less about Heinz and its nifty numbers. As I write this, the stock is down 0.8%. I would have figured on a little more excitement considering that today was something of a calm day in the markets at large. Apparently Wall Street doesn't feel a lot of confidence concerning Heinz and its ability to keep up the good work. All I can say is that no stock should be considered defensive, even Heinz. We're playing by a different rule book, one that was written by a crazy lunatic. It seems like every stock is a gamble. If you have extreme patience and can tie up money for a long, long time, Heinz is not a bad bet at its current dividend yield. Otherwise, you may want to hoard cash.
Disclosure: I don't own any company mentioned; positions can change at any time.
Heinz (NYSE: HNZ), whose supermarket colleagues include Kraft (NYSE: KFT), Kellogg (NYSE: K), General Mills (NYSE: GIS), and Campbell Soup (NYSE: CPB), will be reporting second-quarter numbers on Friday, November 21. According to AOL Finance, the call is for approximately $0.76 in terms of earnings per share. That would represent about 7% of bottom-line growth. That wouldn't be too bad in this market.
Whether or not Heinz can beat the estimates, it's hard to say. My opinion? I wouldn't be betting on such an outcome. If I were a shareholder of the ketchup company, I would just hope that management at least meets expectations. I doubt that anything in the report will make me say that Heinz is now a perfect defensive stock. Literally nothing is defensive; best thing you can do in this market is hedge yourself by shorting some of it via an instrument like the ProShares Ultrashort (NYSE: DXD) ETF.
Heinz wasn't too far off from its 52-week low at the close on Wednesday. Considering that consumer-products companies may have a tough time competing with generic brands on price points, it's going to be difficult to see how the outlook for Heinz will be anything but cautious at best. Investors will be tracking the changes in volumes and how currency affects profits. And then there's the gross margin. With energy prices down, that should in theory help the metric, or at least I imagine that would be the case.
Tyson Foods, Inc. (NYSE: TSN) reported, according to this source, a decent quarter in terms of bottom-line profit, but it wasn't enough to satisfy Wall Street. Sales rose almost 10% to $7.2 billion. And net income on an adjusted basis came in at $0.15 per share. That represented pretty good growth over last year's profit figure. But you know, it didn't really matter for two reasons. One, the call by the analyst community was for four more pennies. Two, guidance was not tasty at all. Management sees further pressures coming, and the aforementioned source mentions that the fulfillment of debt obligations is an issue.
A tough environment for chicken has been plaguing Tyson. Not only that, but a look at the company's press release shows that operational cash flow took a huge dive over the last twelve months, dropping roughly 58% to $288 million. There was no free cash for the year to support the dividend obligations. That isn't too encouraging.
The bottom line on Tyson, which competes with the also-struggling Pilgrim's Pride (NYSE: PPC), is that it isn't a buy, at least not from where I sit. I know there will be investors out there who will see some value in the situation, but I cannot, at least not at this time. No, I'm not saying that I think Tyson will disappear. However, there are better ideas out there if you're looking to play the supermarket game over a long-term basis. There's Procter & Gamble (NYSE: PG), Kraft (NYSE: KFT), and Campbell Soup (NYSE: CPB), to name some examples. As I write this, Tyson's stock is down over 11%. Might we see a bounce in the next few days? Sure. But I'm not brave enough to step in with this one.
Disclosure: I don't own any company mentioned; positions can change at any time.
Kraft (NYSE: KFT), whose supermarket competitors include Campbell Soup (NYSE: CPB), ConAgra (NYSE: CAG), and Kellogg (NYSE: K), reported results for Q3 on Wednesday, and although they weren't stunning, they were apparently good enough for investors, as the stock was higher after the release.>
Of course, today is a funny day, with the Fed decision on rates and all. Still, Kraft proves that it continues to chug along with its popular brands and pricing strategies.
The food company said that net organic revenue grew by 7%. Price increases helped out quite a bit. Unfortunately, management said that volume decreased. That's not great news, as it shows that consumers are reacting to the costs. Adjusted earnings per share, which exclude the significant effects of a gain from a divestiture, came in at $0.44.
According to Melly Alazraki's Before the Bell article, the bottom line only met expectations. Furthermore, the current adjusted earnings performance represented a 0% growth rate. Ouch, Kraft! And then we come to the guidance. It's sort of good, sort of neutral. Management raised its guidance for organic net revenue growth for the year by 1% to 7%, but the outlook for adjusted earnings per share remains the same at $1.88. I suppose this is really more neutral than good since it's the bottom line that most investors care about.
Consumer-products company Kimberly-Clark (NYSE: KMB) was the latest company to see its stock placed on the chopping block. That's been happening a lot these days. The shares tumbled over 7% on Wednesday and closed at $57.22. While 7% is bad enough, it actually feels worse to say that the stock lost $4.45 per share on the session. When it comes to businesses that sell popular brands to consumers, shedding $4 per share is just awful. Especially for a stock that should be a defensive name, a proverbial port in the even more proverbial storm.
Kimberly-Clark posted an adjusted profit of $1.02 per share Wednesday morning, which was a penny better than analyst expectations. The article also states that the company is suffering from a shifting exchange-rate environment and competition from private-label products. That latter point is really going to be a problem for businesses such as Procter & Gamble (NYSE: PG), Clorox (NYSE: CLX), and Colgate-Palmolive (NYSE: CL). At some point, many will probably reach for generic items as opposed to name-brand counterparts.
This doesn't mean that companies who use big brands as their main ammunition for long-term growth should be avoided. Indeed, a company that can figure out how to strike a prosperous balance between the premium it can charge for its name products and the willingness of consumers to pay it will oftentimes do well in tough markets. Kraft (NYSE: KFT) had success with this during the previous quarter. Price increases were able to power results. Kimberly-Clark is going to be severely challenged in terms of maintaining margins and keeping up a proper level of marketing spending. Everyone's going after the consumer's wallet these days, so breaking out from the pack is a requisite undertaking.
Halloween is around the corner, my friends. I love this time of year. And you can bet Hershey (NYSE: HSY) does, too. Will the company sell a lot of candy to all those households who want to give some treats out? Let's hope so, because Hershey needs all the help it can get. It hasn't been growing too well, lately. (I'll be helping out by buying a bag of my favorite, the Reese's Peanut Butter Cup!)
The confectioner reported earnings on Thursday for the third quarter. Sales rose a modest 6% to roughly $1.5 billion. Adjusted earnings per diluted share came in at $0.64. That unfortunately represented a 6% decrease in the bottom line. Furthermore, if you're in the mood for more bad news, adjusted margins dropped across the board during the reporting period. And we can't look to an earnings beat to make things better. According to this article, Hershey managed to only equal analyst expectations, not beat them.
Yet, the stock is up well over 2% as of this writing. As the article pointed out, Hershey is doing okay in terms of market share and outlook. And I'll say this: long-term investors can look at the dividend yield on the stock and the brand equity behind the famous candy maker as positives. I just have to wonder how the stock is going to fare as the consumer continues to become affected by price increases at the supermarket. We all know that Hershey, along with other companies such as Kraft (NYSE: KFT) and Campbell Soup (NYSE: CPB), have found it difficult to spare their consumers the sting of rising costs in a softening economy. Hershey's shares are currently near a 52-week low. My instinct at this time says they'll be going lower still. If you're into dollar-cost-averaging over a long period of time (which would be a good strategy vis a vis this company), then I'd say that you'd be fine here. However, I don't think Hershey will break through to record highs anytime soon.
Disclosure: I don't own any company mentioned; positions can change at any time.
Supervalu (NYSE: SVU), whose competitors include Kroger (NYSE: KR), Safeway (NYSE: SWY), and Wal-Mart (NYSE: WMT), reported results for its fiscal second quarter. Net sales unfortunately didn't budge much at all. They came in essentially flat at $10.2 billion. Earnings per share on an adjusted basis were $0.61. According to this article, the expectations were for $0.69 per share. So, as can be seen, Supervalu lost the analyst-expectations game by a wide margin. Last year's adjusted earnings were $0.64 per share. Not only are those numbers disappointing, but comps saw a decrease of over 1%. And the gross margin suffered as well.
So, we have an earnings miss, flat revenue growth, and a decline in the bottom line. What does all that add up to in terms of market reaction? The stock sees a bid. At the time I began writing this piece, it was up 2.5%. As I found with Kroger, the market may be looking at supermarket businesses as defensive plays. Of course, at the time I covered Kroger, that company's numbers were a lot better than Supervalu's.
However, last time I checked the stock before sending this piece in, it was becoming more volatile along with the market, moving from green to red in quick succession. Given the weak data, I can't say that I'd be considering Supervalu right now. It is true that people will continue to shop at supermarkets even during economic downturns, but I'd rather look at something the supermarket sells as opposed to the supermarket itself to get defensive. I'd rather align my portfolio with the stronger brand equity of perhaps a Kraft (NYSE: KFT) or a Procter & Gamble (NYSE: PG) than a Supervalu.
Disclosure: I don't own any company mentioned; positions can change at any time.
Science-fiction has proffered worlds where advertising is instantaneously and specifically delivered to individuals, sometimes through such wondrous devices as brain implants. As we move along the timeline, it's interesting to see how much of that isn't actually fiction anymore, but indeed, science. Take the following article, for example. It discusses a cafe that has screens next to cash registers that attempt to increase sales by displaying images of appropriate add-on items. One of the examples given was of a pastry suddenly appearing on the screen upon the order of a coffee.
That doesn't sound so bad, but what about the following? The article mentions that an Israeli business, YCD Multimedia, has a technology that can scan the faces of customers and then utilize algorithms to reveal demographical information about them, such as gender and a rough idea about age. The rest becomes obvious: advertising can then be matched to the demographic, yielding the ultimate in instantaneous targeted marketing. There apparently are some trials underway in this country, but they seem to be on the lowdown.
Now, we all know the problem here. Do you really want to walk into a retail store and be scanned? Do you want a piece of software converting you into zeroes and ones for the sole purpose of extracting money from you in the form of promotional advertising and/or offers? Maybe a big needle should extend out of the cash register and poke you in the finger so that a DNA sample can be taken and analyzed so that, a nanosecond later, it'll know exactly what your likes and dislikes are and go from there. Actually, I'm just being funny on that last one, I put that in a short sci-fi story I wrote a while ago about the dark side of retail and customer service.
Is the market getting you down? You want it to go up, right? Well, you better settle in and brace yourself for even harder times as an individual investor. That is, if some pundits are correct about the direction of share prices. According to this CNBC page, a Dow of 8,000 is now in play, and gold might be set to strap a rocket on its back and propel itself up to $1,500 per ounce over time. I'm not sure about the gold, but a Dow of 8,000 almost feels like a logical rest stop at this point (but that might be emotion talking). In the end, none of us can tell the future.
I can, however, share with you a wish. And it isn't just my wish. I'm sure there are others out there who have already said this. And, yes, this wish is coming from someone who owns The Walt Disney Corporation (NYSE: DIS), The Coca-Cola Company (NYSE: KO), and General Electric (NYSE: GE). I own them for the long term (except for a separate trading position in GE which completely failed and may turn into another long-term asset), so maybe this wish isn't so mysterious. I want to go back to that "happy" time of October of '87. I want to see the Dow drop over 20% in one day. Preferably, I'd like to see it drop 25%, on Cloverfield-monster-sized volume. How many points would that be? As of this writing, it would be roughly 2,670 points.
What, am I insane? About as insane as the idiots who decided to become risk sponges, I suppose. In all seriousness, we need a crash. We need a reset, a reboot. We need a lot of panic on the street, and a spiking VIX ($VIX.X), to at least begin a bottom formation. If you think we're going to form a bottom without pain, you're wrong. And if you think, at this point, that we can form a bottom without a crash, well then, I won't say you're completely wrong on that count, but I will say that a crash would be better.
Should those who own shares of Kraft immediately put an order in to dump the stock? Well, shareholders know what is best for them and their specific situations, but if you want my opinion, I don't think Kraft is a sell.
For starters, that $1.88 per share figure represents an adjustment related to the sale of the Post cereal asset. It therefore doesn't bother me too much. And as for the 2009 estimate, Kraft's $2-per-share guidance includes a $0.03 charge for the Post-cereal exit and monies devoted to cost savings. Analyst estimates for the most part don't factor adjustments into their bottom-line figures. So, this guidance doesn't really frighten me.
What I think is more telling is the issue of margins. Consumer-products companies such as Hershey (NYSE: HSY), Procter & Gamble (NYSE: PG), Kellogg (NYSE: K) and PepsiCo (NYSE: PEP) all have margins on their corporate minds. From what I can tell, Kraft has been pretty successful at protecting itself from inflation by utilizing price increases.
Heinz (NYSE: HNZ) beat analyst expectations, and mine for that matter, when it released its first-quarter report on Thursday. Wall Street was looking for about 66 cents per share on the bottom line. Heinz delivered 72 per cents share, a figure that represents a 14% growth rate. This was achieved with the help of a 15% rise in top-line sales.
Management mentioned that organic sales were aided pretty evenly by volume growth and pricing strategies. Looks like brand equity wins the day yet again. People are simply willing to pay for their name brands. This isn't to say that generic, private-label items won't always be a concern for companies like Heinz, as well as competitors such as Hershey (NYSE: HSY), Kraft (NYSE: KFT), Campbell Soup (NYSE: CPB), PepsiCo (NYSE: PEP) and General Mills (NYSE: GIS). They always will be.
Heinz is proving to be one heck of a defensive business during this tough recession. The only segment where the company is having problems is in its U.S. Foodservice where sales and operating income declined. Not so surprising, I suppose, since some restaurants are having trouble getting patrons through the door. People may be willing to spend for Heinz ketchup in the supermarket, but if they're not willing to go to the local casual-dining hangout, then those places won't be demanding as much Heinz ketchup for their tables.
Heinz (NYSE: HNZ), famous maker of thick-and-rich ketchups and other foodstuffs, is due to report first-quarter results on Thursday. So, what might be in store for the company? Are we looking at a lot of growth for the bottom line?
Well, according to Earnings.com, analysts aren't looking for much growth at all. Last year at this time, Heinz served up 63 cents per share. Wall Street seems to be looking for three measly pennies of growth! Can Heinz beat the 66 cents per share that analysts believe it will report?
Looking at some past price history, I can't say that I'm overly optimistic that Heinz will beat the expectations by too much (if it beats at all, that is). Remember that consumer-products companies are having one heck of a time with inflation. Raising prices is key to survival, but those higher price-tags must be accepted by the consumer base.
Increased marketing spending also is important during times like these since many businesses want to see if they can capture some market share while the competition is hurting.
So investors will want to carefully evaluate the margins and volume of sales when Heinz issues its earnings release. This has been par for the course for businesses such as Hershey (NYSE: HSY), Kraft (NYSE: KFT), Campbell Soup (NYSE: CPB), PepsiCo (NYSE: PEP), and General Mills (NYSE: GIS).
"If you're going to stay invested, you should look to defensive sectors," explain Ron Rowland and Brandon Clay, who point to consumer staples as a top pick for the current market environment. 
Is the market getting you down? You want it to go up, right? Well, you better settle in and brace yourself for even harder times as an individual investor. That is, if some pundits are correct about the direction of share prices. According to 
Waiting for the other shoe to drop: The looming credit crisis
Closing Bell: Dow down 7.7%; GE, YHOO, MS fall, PGI, MNT soar
Bet on T&A with J&J (JNJ)
