The month of February is barely a week and a day old, but some trends are shaping up. The leading "style box" of the month so far is Smallcap Growth (IJT), +1.8%, just a tad better than Midcap 400 Value (IJJ), +1.7%.
For the year, the style-box champ is also Midcap Value, +9.3%, followed by Midcap Growth (IJK), +8.5%. The least productive cohort so far is Nasdaq 100 (QQQ), +4.4%.
Newsflow has been relatively quiet of late, as the major impulse pushing prices higher has been the "path of least resistance," which admittedly is less of a factor than a description.
Investors who have left behind are now out in force complaining that stocks have risen "too far, too fast" and that the markets are "overdue" for a sharp, lengthy correction. They could be right. Who knows? However, there are very few ways to reliably measure what "too far, too fast" with any precision, or how much of a correction is required to rejuvenate demand should it ebb.
Perhaps the best way to think about the market now is that there are more thoughtful and persistent buyers who see more value in stocks than bonds and cash, and a diminishing number of enthusiastic sellers. In these conditions, buyers have to keep offering incrementally higher prices to pry shares out of holders� hands, and that is what drives shares up. For the advance to collapse, either buyers have to lose their hunger, or holders have to become more anxious to sell. Not very complicated.
What's quite interesting is that seemingly everywhere you look there are pockets of value that haven't really been touched much. So many big techs have been down so long, for instance, that they could double and double again and not make a dent in their decade-long humiliation. Applied Materials (AMAT), I'm talking to you. But there is plenty of value in consumer staples, financials and energy still, too.
One of the staples that my model likes is B&G Foods BGS , a manufacturer and distributor of packaged foods and household products. Based in Parsippany, N.J., the company focuses on higher-quality, shelf-stable foods that it distributes across the United States, Canada and Puerto Rico. It's definitely in the small-cap growth category, though it could move up to mid-cap growth status pretty soon.
Its portfolio of products run the full gamut, from cereals and canned meats to fruit spreads, seasonings and salad dressings. Some of the firm's brands include Ortega salsa and Mexican food products, Cream of Wheat cereals, Emeril's sauces, Polaner fruit preservatives, and a host of others.
B&G operates primarily in the branded-consumer segment, where it holds the No. 1 or No. 2 market position for most of its product lines.
Its retail distribution is as vast as anyone in the industry with a national infrastructure that gives it access to nearly every channel that offers food to customers. It sells its products to supermarkets, food distributors, warehouse clubs, mass merchants, the military, food-service accounts, and direct through the Internet. Despite the impressive distribution network, B&G is a manufacturer of food products first and foremost.
It purchases its agricultural products, meat, poultry and other ingredients from growers and wholesale suppliers both here and abroad. As a result, raw materials will always be the company's biggest expense, and it utilizes several hedging techniques to offset short-term price fluctuations.
B&G has been one of the best hedgers in the industry, and over the last several quarters, the company has been able to offset any commodity price increases with sales price increases and cost saving measures.
The key to the company's growth over the years has been smart and timely acquisitions of established brands or product lines. In the last 15 years, B&G has acquired nearly two dozen brands, primarily from large global packaged-food companies like Nabisco, Pillsbury, Nestle and Kraft Foods.
Its most recent additions occurred just a few months ago when B&G was able to secure New York Style and Old London snack brands from Chipita America Inc for just over $62 million. According to analysts who follow the sector, the purchase gives B&G an immediate entry into the deli-snacking segment with established brands of bagel and pita chips. The deal is expected to be immediately accretive to earnings and will add about $50 million in annual revenues.
Chief executive David Wenner has been in charge since 1993, originally joining B&G in 1989 as an assistant to the president. Prior to joining the company, he spent 13 years at Johnson & Johnson (JNJ) in a number of operational areas including manufacturing, maintenance, and purchasing.
While revenues have grown at a modest 5.0% clip annually for the last decade, net income has grown by an average of 24% each year during the same time frame. That's a result of decades of improving operating margins while maintaining a highly selective acquisition strategy.
Shares are up 45% in the last 12 months, and are up nearly 13% this year already. B&G Foods' established network and breadth of products gives investors enough confidence to consistently let it trade at a premium to its peers. It's currently going for 21 times next year's earnings, which is the sort of valuation you want in a growth stock � and it sports a decent dividend yield of 3.6% to boot.
The stock has been flat for about the past two weeks, so it could well move higher from here. You could call it a chip shot.
Disclosure: Mr. Markman owns BGS.
No comments:
Post a Comment