The comfort of food stocks
ConAgra's relatively small drop Thursday shows an appetite for safe, slow-moving food and beverage stocks.
By Jim Cramer, TheStreet
Of all the companies that reported quarterly earnings recently -- Nike (NKE), Adobe (ADBE), Bed Bath & Beyond (BBBY), Oracle (ORCL), Darden (DRI), even Research In Motion (RIMM) -- only one stands out as a clear miss, a disappointment: ConAgra (CAG).
The company -- which has a mosaic of what I regard as second-rate brands, including Healthy Choice, Slim Jim, Chef Boyardee, Hunts, Wesson, Banquet and Pam -- failed to deliver at multiple levels. As a Wall Street Journal headline stated: "ConAgra earnings, sales drop."
The company took some shares, but when you read between the lines, you have to conclude that, of the major packaged-goods companies, including McCormick (MKC), which reported yesterday, ConAgra was among the worst we've seen.
And in contrast to all the other companies named, what happened to CAG after this poor showing? On a simply hideous day, it dropped 48 cents -- a reaction that, if you ask me, seems pretty benign compared with what happened to the other companies.
It was not a case of nobody caring. There were many people focused on ConAgra, in part because there was not a lot to focus on. No, what happened here is that people think we have now entered not a moderate but a severe slowdown, and they would rather hide in a poorly performing food stock with a 3.3% yield than venture into any discretionary consumer companies. They want protection and safety even if the execution is faulty and the costs very variable.
That was the true takeaway of yesterday's horrible session. I think it's in keeping with the stocks that have done well since the "flash crash"/BP (BP) spiral. While these factors have become daily reminders that things in the economy and the market are not working, foods and beverages have been very strong.
Today we see the results of the financial regulation bill, and, frankly, I think it is something that can be lived with by all. The assertions that it will force Citigroup (C) and JPMorgan (JPM) to spend billions (as the press reports imply) seem plainly fanciful. It is true that commodity trading has to be separate, but does anyone remember that Citi's "star energy trader" was separate? That the model the Senate used was Citigroup's model? Why will Citi have to spend billions to keep its model?
As for JPMorgan, it was worried about being able to compete with Deutsche Bank (DB) for customer business because it was not going to be allowed to perform "matter of course" swaps trading for corporate clients. That would have entailed a separate bank and tremendous costs, but that provision is gone.
The news, which includes no EPS impact for Goldman Sachs (GS), is said to be capable of buoying the banks. I think any closure on the issue will.
But, in the end, it doesn't matter. General Mills (GIS), Hershey (HSY) and Campbell's (CPB) are the flavors of the day. People see Pepsi (PEP) creep up, and they want in. Procter & Gamble (PG) has stabilized, albeit at low levels.
That's what we saw yesterday. The recession stocks rallied. The retailers worried. The computer stocks trashed. The manufacturing companies crushed. Last night on "Mad Money" I basically contested that this will always be the case and said it was the malaise that keeps prices down (see Doug Kass for a further expansion this morning). The manufacturing segment is very, very strong. It seems to be gaining. The tech market as exhibited by Oracle is quite strong. I didn't even mind Research In Motion. It's just that the expectations were so darned high.
Yet slow-motion food, dependable food, is what this market can handle. Down less on the big down days, and up equal on the big up days. That's the key to this miserable market.
It's the game plan for investors who recognize which way the wind is blowing, even if it's not where the earnings are.
At the time of publication, Cramer was long Goldman Sachs, JPMorgan and Procter & Gamble.
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