Don’t let your mother or your wife see this latest stock tip. They might get jealous!
They might be great cooks, but seriously, you should take a good look at what’s cooking in the food industry. Especially if you’re a hungry investor.
Fatten Up On This
When it comes to my feature stock of the day, there’s more to it than a tasty dividend. But the dividend does provide a very healthy yield of 3.59%!
We’re also looking at a larder full of products and profits. Even if you think you don’t care for Chef Boyardee, Orville Redenbacher, Peter Pan, Marie Callender’s or Slim Jim, you have to like what ConAgra Foods is doing with its brands.
The company’s CEO, Gary Rodkin says ConAgra labels now appear in 97% of all American households. That’s an astonishing number!
But Rodkin isn’t done – far from it.
In the past, ConAgra’s strategy was to make giant acquisitions. Now he is still aiming at more acquisitions but he says he’s hunting for smaller targets that generate profits which appear almost immediately on the bottom line.
A Treat For the Market
ConAgra (CAG) delivered on that strategy in a big way on September 20th when the company reported earnings that beat expectations by 9 cents a share.
In case you are not impressed yet, keep in mind that a 9 penny earnings surprise amounts to an amazing 25% increase in profits above the income that Wall Street’s best experts were counting on.
Take a look at ConAgra’s one-year performance and you’ll see that 2012 was a year of declining expectations and stunning over-performance.
Wall Street apparently missed the fact that ConAgra also boosted its revenue growth by a juicy 6% year-over-year. That’s a big deal for a company with $13.5 billion in annual sales.
Short-sighted investment gurus must also have been out to lunch when all year ConAgra delivered four consecutive earnings surprises!
Seriously! I challenge any hedge fund manager to name another big cap company that can do that. Even Apple fans should consider a taking bite of this stock.
A Recipe For Growth
A taste for bulging profits is what drives CEO Gary Rodkin’s strategy.
During the drought-driven inflation of food prices ConAgra tightened its belt. Cutting costs and boosting productivity were the watchwords.
Now Rodkin is touting a recipe for growth with three tasty ingredients.
1. Ambitious as it seems, ConAgra has set a goal of doubling its international business.
2.Chef Boyardee may be a money-maker but Rodkin is aiming to become the fastest-growing private label company in the world. That means ConAgra will also be selling the store brands that currently compete against its own labels.
3.ConAgra plans to build upon existing brands to get more out of its infrastructure.
Point #3 may sound boring but it’s actually delicious.
Cooking Like Mom, But Healthier
So-called “healthy eating” used to be all the rage, but that was before the recession.
ConAgra made big inroads into that sector with its Healthy Choice line of frozen meals. CEO Rodkin is pretty proud of that because food companies have to jump through a lot of government hoops before they can label themselves as “healthy”.
He’s even prouder of the advanced technology that made “the biggest new food product of the year” in 2008, the popular line of Healthy Choice Café Steamers.
But this year’s big breakthrough is comfort food.
ConAgra has come up with microwave packaging technology that gives food a thick, caramelized and crusty quality that’s usually associated with baked dishes.
I’ve tasted a few of them and they’re quite good.
Take a look at the freezer area of your grocery and you’ll find these green and white boxes are spreading like dollar bills in a fat bank account.
I love new technology that generates new profits.
Keeping Promises
The thing I like better about ConAgra than its food is its track record. It increases earnings, dividends and revenues as regularly as clockwork, even in tough times like these.
Take a closer look at its numbers and you’ll find good value. The company has a market cap lower than its annual sales. ConAgra is trading at a price-to-book value of 2.48.
That’s a bargain compared to the industry multiple which is higher than four.
And, on a more delicious note, ConAgra is acquiring profitable new brands, just as promised.
Among the recent acquisitions are P.F. Chang’s Home Menu frozen meals, Tennessee Pride, Bertolli, National Pretzel, and internationally, Del Monte Canada.
I like a company that executes on its promises.
Now that the excitement over ConAgra’s earnings surprise is over, and prices have backed off a bit, I think it is time to take a position with this stock.
Until the next earnings season I intend to sit back and tuck into those juicy dividends!
Action to Take: Buy CAG at $28.50 or less. Target $33.00. Sell-stop limit: $26.50
Good luck this week and as always, please feel free to post your comments below. Also, please keep in mind that Wealthpire is giving investors access to new software that picks winning stocks up to 92.75% of the time. Learn how you can use this ultra-accurate stock-picking software that legally "spies" on the world's top stock-picking services. Get the full report at www.ConsensusPicks.com.
Thank you for your interest,
Manny Backus
Founder and CEO, Wealthpire Inc.
www.Wealthpire.com
It's an interesting pick. But one note of caution is that CEO Gary Rodkin is selling a lot of shares -- more than 300,000 shares since October 31. Of course, there are many reasons to sell shares. He might need the money for something else. But, it's a caution flag.