Try J.M. Smucker for a sweet safety pick
The jam and jelly maker offers investors a tasty haven for what may be a bitter recovery.
By Jake Lynch, TheStreet
Goldman Sachs said in a research note Wednesday that the U.S. economy will either sputter along at a 1% to 2% growth rate or face recession in the next six to nine months. It's time to locate some defensive stocks.
J.M. Smucker (SJM), the maker of jams and jellies, is still TheStreet's top-ranked food-products stock, according to our quantitative stock model. Smucker's stock is little changed this year, lagging behind the 3.2% gain of the S&P 500 Index ($INX). But it rose Thursday as the S&P 500 fell, demonstrating its value as a haven during stock market turbulence.
Smucker's fiscal-first-quarter profit increased 4.9% to $103 million, or 86 cents a share, as revenue declined marginally to $1 billion. The operating margin extended from 18% to 19%. Volume gains in Folgers and Dunkin' Donuts brand coffees as well as in Jif peanut butter and Hungry Jack pancakes boosted quarterly numbers, while the oils and baking brands hurt its performance. The retail coffee division made the best sales gain, at 7%, but the retail-consumer unit posted the strongest profit increase, at 8%.
Smucker has grown sales 28% a year since 2007 and boosted net income 43% a year. Although its stock has trailed the market in 2010, it has gained 15% in 12 months and 4.5% a year since 2007, outperforming U.S. indexes.
More importantly, it's cheap relative to peers and could outperform in the weeks ahead, given renewed fear about the U.S. economy. It sells for a trailing earnings multiple of 15, a forward earnings multiple of 12, a book value multiple of 1.4 and a cash flow multiple of 10 -- 27%, 22%, 68% and 16% discounts to food products industry averages.
Analysts are bullish on Smucker. Nine rate its stock "buy," and five rate it "hold." None rank it "sell." A median price target of $68.44 suggests a 10% return. Janney Montgomery predicts the stock will rise 26% to $78. JPMorgan (JPM) forecasts a gain of 13% to $70. Goldman Sachs (GS) ranks Smucker "neutral" with a $68 target.
Institutional investors added to their positions in the latest quarter. Of the stock's 15 largest owners, 11, including BlackRock (BLK) and State Street (STT), amplified positions as four decreased holdings.
Smucker receives outstanding scores from TheStreet's quantitative equity model. It garners a growth score of 8.1 (out of 10) and a financial-strength score of 9.4. Impressively, Smucker ranks in the top 20 for overall score out of more than 5,000 stocks tracked by the model.
Although it's unlikely to enrich investors in the near term, it consistently delivers strong risk-adjusted returns. Smucker held $580 million in cash and $1.3 billion in debt at the end of the latest quarter, converting to a lofty quick ratio of 2 and a modest debt-to-equity ratio of 0.2.
Smucker pays a quarterly dividend of 40 cents, equaling an annual yield of 2.6%, with a payout ratio of 36%. It has increased its dividend every year in the past decade. Its five-year annualized dividend growth rate is 7.4%. TheStreet rates it "buy" with an $81.35 price target.
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Bill Stiritz has experienced an estimated $145 million in paper losses on his investment in the company.
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