ConAgra: The Best Option in a Strong Industry
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There’s a reason ConAgra (NYSE: CAG), along with most of its competitors, are at or near 52-week highs. The fact that people, and there are more and more of them, need to eat sounds simplistic, because it is. It also happens to be part of the reason ConAgra, along with industry leaders Kraft Foods (NASDAQ: KRFT) and General Mills (NYSE: GIS), continues to reward investors with both solid growth and a nice dividend.
Consumer food and food processing stocks tend to be less volatile than others, as ConAgra’s minimal beta of 0.68 will attest. It’s a sound investment principle tapping into a consumer’s need for the ultimate staple. People may put off buying the 7-foot-screen plasma TV, but food is another matter. The result for investors is a sound basis for a diversified portfolio. ConAgra is particularly intriguing within the industry for several reasons.
ConAgra’s buying spree last year was capped by the purchase of National Pretzel Company in December. They also added to their ownership position in Agro Tech Foods Limited. But the acquisition that provides the most upside was the Marie Callender's brand purchase that closed in June. Marie Callender’s has a very strong reputation and name recognition with consumers, but seemed to be languishing. The company’s foray beyond pies and into a variety of frozen foods never really took hold. With the distribution strength of CAG and plenty of cash even after the purchases, Marie Callender's offers some very real potential.
ConAgra pleasantly surprised analysts with last quarter’s results and set the stage for what appears to be a nice 2012. Sales, revenues and earnings all beat forecasts and were up year-over-year. Especially impressive was the 16% jump in commercial food sales, which accounts for over a third of CAG’s revenue source; a strong indicator going forward. But even with that, ConAgra is the cheapest of all the big players and offers investors the highest dividend at 3.61%.
When ConAgra catches up and starts trading at 20 times earnings like Kraft, or even a mere 17 like General Mills and Hormel Foods (NYSE: HRL), shareholders will have a $30+ stock on their hands. And when you take into account projected earnings, ConAgra becomes even more appealing.
Investing in ConAgra isn’t sexy, it isn’t supposed to be. You probably aren’t going to woo the object of your affection at the cocktail party by bragging about how you upped your position in CAG. That kind of bawdy talk is reserved for LinkedIn and Netflix investors. No, you won’t wow ‘em, you’ll just quietly see 10% to 15% growth in 2012, along with a healthy dividend. That’s a pretty sound basis for most any portfolio.
The investment opinions included are just that, opinions. Tim is not a licensed investment professional, nor has he been for several years. Investing involves risk, as you well know, so consider your decisions wisely.