5 defensive stocks to protect your money

Seek safety in Hershey, Smucker and other companies that produce consumer staples.

By TheStreet Staff Mar 11, 2011 12:27PM

Image: Groceries (© Jeffrey Hamilton/Getty Images/Getty Images)By Jake Lynch, TheStreet

 

With crude oil trading around $100 a barrel, the Middle East region on the brink and the Federal Reserve ending its bond-buying program soon, investor sentiment has turned. Thursday, the S&P 500 ($INX) fell 1.9% after rallying 24% since September. The following consumer-staples stocks -- shares of companies that produce goods needed to live -- are ranked highest by TheStreet's quantitative equity model.

 

Of note: Several represent food-products companies, which are subject to higher costs due to the recent rise in commodity prices. Their ability to pass on increased prices to consumers without affecting demand varies.


TheStreet's stock model incorporates both fundamental and technical factors. The stocks are ordered by net score, from good to great.

 

5. Hershey (HSY) is a confectioner.

 

Hershey's fourth-quarter net income increased 6.9% to $136 million and earnings per share rose 7.3% to 59 cents, helped by a smaller float. Revenue grew 5.4% to $1.5 billion. Hershey's gross margin widened from 44% to 46%, but its operating margin narrowed from 17% to 16%. Hershey held $885 million of cash and $1.8 billion of debt at quarter's end, for a quick ratio of one and a debt-to-equity ratio of two. It pays a quarterly dividend of 35 cents, equal to a yield of 2.6% with a payout ratio of 59%. Hershey has grown profit 33% a year, on average, since 2008.

The stock has been a top performer in the packaged foods industry, having risen 29% in the past 12 months and 15% annually, on average, since 2008. It trades at a premium to food products peer averages, costing 24-times trailing earnings, 18-times forward earnings and 2.2-times sales. Its cash flow multiple of 14 reflects a discount of 26% to the industry average.

 

Of analysts covering Hershey, six, or 33%, advise purchasing its shares, 11 suggest holding and one advocates selling them. Citigroup (C) offers the highest target, at $60, implying 12% of upside in the next 12 months.

 

4. J.M. Smucker (SJM) sells jams and jellies.

 

Smucker's fiscal third-quarter profit declined 2.6% to $132 million, or $1.11 a share, though revenue ascended 8.8% to $1.3 billion. The gross margin contracted from 40% to 39%, but the operating margin inched up from 19% to nearly 20%. Smucker held $588 million of cash and $1.3 billion of debt at quarter's end, for a quick ratio of 2.1 and a debt-to-equity ratio of 0.2. Smucker pays a quarterly dividend of 44 cents, converting to a yield of 2.5% with a payout ratio of 39%. Smucker has grown net income 42% a year, on average, since 2008 as its stock returned 13% annually, on average.

 

Smucker shares have appreciated 19% in the past 12 months. They sell for a trailing earnings multiple of 17, a forward earnings multiple of 14 and a book value multiple of 1.6, 34%, 15% and 64% discounts to food products peer averages.

 

Of equity researchers following Smucker, seven, or 47%, rate its stock "buy", seven rate it "hold" and one ranks it "sell." RBC Capital Markets ranks it "outperform" with a $75 12-month target, suggesting a rise of 6.8%. Sanford Bernstein is pessimistic, rating Smucker "underperform" and expecting it to drop 12% to $62 in 12 months.

 

3. Hormel (HRL) sells meat products.

 

Hormel's fiscal first-quarter profit climbed 34% to $149 million, or 55 cents a share, as revenue increased 11%. The gross margin rose from 20% to 21% and the operating margin extended from 10% to nearly 12%. Hormel held $650 million of cash and no debt at quarter's end. Cash rose 45% year-over-year and debt fell from $350 million. Hormel pays a quarterly dividend of 13 cents, converting to a yield of 1.9% with a payout ratio of 29%. Hormel has grown net income 11% and earnings per share 12% a year since 2008 as its stock climbed 11% annually, on average.

 

Hormel has advanced 1% in March as indices corrected, proving its countercyclical appeal. It trades at a trailing earnings multiple of 17, a book value multiple of 2.9, a sales multiple of 1 and a cash flow multiple of 14, 31%, 33%, 36% and 25% discounts to food products peer averages.

 

Of stock analysts evaluating Hormel, four, or 29%, recommend buying its shares, nine say to hold and one advocates selling. BMO Capital is bullish, forecasting an advance of 12% to $31 in 12 months. In contrast, Deutsche Bank ranks the stock "sell", expecting a fall to $22.

 

2. Church & Dwight (CHD) sells household products.

 

Church & Dwight's fourth-quarter profit decreased 11% to $47 million, or 65 cents a share, as revenue declined 2.1% to $657 million. The gross and operating margins remained steady at 47% and 16%, respectively. Church & Dwight held $189 million of cash and $340 million of debt at fourth-quarter's end, for a quick ratio of 0.9 and a debt-to-equity ratio of 0.2. Church & Dwight pays a quarterly dividend of 34 cents, equaling an annual yield of 1.8%. The company has grown net income 17% annually, on average, since 2008 as its stock rose 14% a year.

Church & Dwight has appreciated 14% in 12 months and 8.2% in four weeks, despite heightened volatility in equity markets. It sells for a trailing earnings multiple of 21, a forward earnings multiple of 16, a sales multiple of 2.1 and a cash flow multiple of 13, modest premiums to household products peer averages.

 

Of researchers following the company, nine, or 47%, advocate purchasing its shares, nine recommend holding and one suggests selling them. Goldman (GS) rates the stock "buy", expecting a rise of 13%. Jefferies (JEF) rates the stock "hold", predicting a drop to $70.

 

1. McCormick (MKC) sells spices and seasonings.

 

Fourth-quarter profit increased 15% to $134 million, or 99 cents a share, as revenue expanded 5.9% to $979 million. The gross margin declined from 49% to 48% and the operating margin fell from 20% to 19%. McCormick held $51 million of cash, up 29% year-over-year, and $880 million of debt, down 11% year-over-year, at quarter's end, for a quick ratio of 0.5 and a debt-to-equity ratio of 0.6. McCormick pays a dividend of 28 cents, converting to a yield of 2.3% with a payout ratio of 39%. McCormick has grown net income 17% a year, on average, since 2008.

 

McCormick's stock has advanced 27% in 12 months and 7.9% in four weeks. It trades at a forward earnings multiple of 16, a book value multiple of 4.5, a sales multiple of 2 and a cash flow multiple of 17, near parity with food products industry averages.

 

Of equity analysts evaluating McCormick, six, or 40%, advise purchasing its shares and nine recommend holding them. None advocate selling the stock. Janney Montgomery Scott offers a target of $52, suggesting another 7% of upside. Barclays (BCS) ranks the stock "equal weight" and predicts that it will drop to $44.

 

Related Articles

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

116
116 rated 1
284
284 rated 2
461
461 rated 3
671
671 rated 4
628
628 rated 5
618
618 rated 6
615
615 rated 7
495
495 rated 8
347
347 rated 9
115
115 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
DYNDYNEGY Inc10
TAT&T Inc9
VZVERIZON COMMUNICATIONS9
EXCEXELON CORPORATION8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.