Hi All,
Okay, today’s posting is on the topic of sector investing. One important aspect of building a successful stock portfolio is adequate diversification. There are lots of ways of achieving adequate diversification, but one way to do it is by buying stocks in several different sectors of the economy.
This posting features a discussion of some of the leading names in the consumer staples sector. Consumer staples is one sector to consider for at least two reasons. First, its somewhat recession proof. Even during a recession people still need to purchase food and household products. Second, the consumer staples sector has increased by 17.3% in the past 6 months – better than some other industries like utilities or telecommunications. So, buying consumer staples stocks is a good way to juice up your portfolio while adding some diversity.
Three of the biggest names in food products are currently looking at merging. Namely, I’m sure many of you have heard of the on-going drama concerning Kraft (KFT) and Hershey’s (HSY) attempted takeover of Cadbury (CBY). The result has been investors guessing what direction these stocks will go, and frequently jumping ship when their opinions change. This has created an unpredictable outcome for both Kraft and Hershey, with Kraft making gains recently and Hershey stock falling. At the same time, we should not necessarily expect this trend to continue.
Should you invest in any of these three companies? Personally, I would say the situation is too unpredictable. It looks as though Kraft will end up acquiring Cadbury, but it could be a messy acquisition. I would say there are better investments out there.
Here are some other stocks you may want to consider:
As reported by Foodprocessing.com about three weeks ago, General Mills quarterly profit was up nearly 50% in the second quarter. The stock price has been rising steadily over the past 9 months from around $50 to where it is now, hovering over $70. This is about equal to their previous peak stock price in October 2008. With a P/E ratio of 14.65 and Earnings Per Share of $4.83, this company has a potentially a safe yet solid stock to look into for 2010.
The J.M. Smucker Company (SJM)
Smuckers has a P/E ratio of nearly 18 and, like General Mills and the rest of the industry, has seen an increase in their stock price throughout 2009. The earnings per share are $3.46. Their stock price has nearly doubled since May when the price was $35 (It currently is around $62). This may not be a cause for celebration, though, as it is just now nearing its July 2007 high of around $62.50.
Kellogg Company (K)
Kellogg is another food product giant. The stock price’s previous high was $57 in October 2008 and, since a drastic downfall following that high, has currently recovered to a price of $53. Is there more room for this stock to gain? That will yet to be seen. Earnings per share are $3.17 with a P/E ratio of close to 17. Its products are manufactured in 19 countries and marketed in more than 180.
As we mentioned earlier, the nice thing about the food product industry is that it is relatively stable. The stock prices have moved, for the most part, with the market. Groceries specifically and food in general have been called “recession-proof.” The one situation that you should be concerned about with these companies is if there is a shift in consumer sentiment and they start buying more generic, store-brand food.
All three of the above companies (Kellogg, Smuckers, and General Mills) are solid companies that have good earnings per share with stable product lines. If you are looking for a large capitalization stock to add to your portfolio, you could do worse than these three.
Best,
David @ DINKs Finance
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