Investors Have Been Going Nuts Over This Stock

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Diamond Foods (NASDAQ: DMND) has not been kind to its shareholders over the past two years. The company's shares have collapsed since hitting a high of over $90 in September 2011. An accounting scandal cancelled the planned merger between Diamond Foods and the Pringles division of Procter & Gamble (NYSE: PG) when the company was forced to restate earnings results. However, Diamond Foods just hired a new CFO, and shareholders are starting to feel some hope that the company can turnaround.

Buy what you know

Owning shares in Diamond Foods should be as simple as buying what you know. After all, the company's products are on every grocery store shelf. The company's brands include Kettle Brand chips, Emerald snack nuts, Pop Secret popcorn, and Diamond of California nuts. As recently as 2009, Diamond Foods had 10% of the snack food market.

Instead, it turns out the company's CEO and CFO had booked payments to walnut growers in the wrong periods. Diamond Foods was forced to restate earnings, and both the CEO and CFO were fired. Since February 2012, the company has been working to clean up the mess they left and instill some stability into the company and for shareholders.

Next steps for the company

The company is finally bringing in a permanent CFO. Raymond Silcock will be the new CFO, and he brings a wealth of experience in the food and beverage industry. He was previously CFO of Great Atlantic & Pacific Tea, and before that he was CFO at UST and started his career in finance at Campbell Soup.

The market has reacted positively to the news, with the stock rising over 11% on the announcement. With Brian Driscoll as the new CEO, the two can work to reduce costs and increase brand awareness. The company is no longer in crisis mode, but rather in turnaround mode.

There are some signs that the turnaround is starting to happen. In this week's earnings release, analysts were forecasting a loss of $0.17 per share on revenues of $175.1 million. Instead, Diamond beat expectations by earning $0.05 per share on revenues of $184.9 million.

Pringle's ends up with Kellogg

When the deal for Pringles fell apart with Diamond Foods, Procter & Gamble struck a deal with Kellogg (NYSE: K). As a result of the Pringle's deal, Kellogg is now the number two snack food company in the industry. While Kellogg has benefitted by owning Pringle's, Procter & Gamble has had to restructure its organization as well.

Procter & Gamble has brought back A.G. Lafley as CEO to shake things up at the consumer products giant. He has divided the company into four organizations reporting to him – baby, feminine and health care, beauty, health and grooming, and fabric and home care. Expectations are for the company to be transformed for the better, as it was under Lafley from 2000 to 2010.

The sale of Pringle's follows the company's overall strategy of selling non-core assets. Lafley will likely continue with the plan that he started while he was CEO before. Possible targets within Procter & Gamble for sale are pet food brands Iams and Eukanaba, battery maker Duracell, or some of its OTC medicine brands. None of these divisions really fit into the new Procter & Gamble. Cash from these sales could fund a game changing acquisition like Lafley did when Procter & Gamble bought Gillette.

Kellogg, on the other hand, has been firing on all cylinders since the Pringle's deal. The stock is up over 30% in the past year. Kellogg was able to add Pringle's chips to go on the grocery shelves, along with its Kellogg cereals and Keebler cookies.

What I like most about Kellogg is that the company is focused on its core business and is not in need of a turnaround. The company continues to improve its position as the leading breakfast cereal company in the world, even as it continues to innovate and introduce new products. The company does a great job of monitoring its customer's preferences and can adjust accordingly. Currently, the company is introducing healthier versions of its breakfast cereals as more consumers become more health conscious.

How they compare

<table> <tbody> <tr> <td> </td> <td> <p><strong>Diamond Foods</strong></p> </td> <td> <p><strong>Procter & Gamble</strong></p> </td> <td> <p><strong>Kellogg</strong></p> </td> </tr> <tr> <td> <p><strong>Market Cap</strong></p> </td> <td> <p>$390.39 million</p> </td> <td> <p>$213.97 billion</p> </td> <td> <p>$23.20 billion</p> </td> </tr> <tr> <td> <p><strong>Revenue</strong></p> </td> <td> <p>$910.98 million</p> </td> <td> <p>$83.72 billion</p> </td> <td> <p>$14.62 billion</p> </td> </tr> <tr> <td> <p><strong>Gross Margin</strong></p> </td> <td> <p>0.20</p> </td> <td> <p>0.50</p> </td> <td> <p>0.38</p> </td> </tr> <tr> <td> <p><strong>EBITDA</strong></p> </td> <td> <p>$45.53 million</p> </td> <td> <p>$19.70 billion</p> </td> <td> <p>$2.13 billion</p> </td> </tr> <tr> <td> <p><strong>Operating Margin</strong></p> </td> <td> <p>0.02</p> </td> <td> <p>0.20</p> </td> <td> <p>0.11</p> </td> </tr> <tr> <td> <p><strong>Net Income</strong></p> </td> <td> <p>($77.54 million)</p> </td> <td> <p>$11.36 billion</p> </td> <td> <p>$921.00 million</p> </td> </tr> <tr> <td> <p><strong>P/E</strong></p> </td> <td> <p>N/A</p> </td> <td> <p>17.49</p> </td> <td> <p>24.78</p> </td> </tr> </tbody> </table>

Foolish assessment

If management can turn around Diamond Foods, shareholders will no longer feel nuts for holding onto the stock. Diamond has a great collection of assets and consumers know their products. Procter & Gamble is a great company and A.G. Lafley is certainly the man who can get the company focused and moving in the right direction. Kellogg continues to perform well, and the Pringle's acquisition has added to the company's success. For shareholders, Diamond Foods is the most speculative, but offers the most upside. Either way, consumer staples is a great sector to be in as they will always be on every grocery store shelf.

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Mark Yagalla has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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