|Minyanville.com, Spring, 2013. This article was written with Oliver Pursche, co-portfolio manager of the GMG Defensive Beta Fund. It was part of a series of articles developed under an agreement with minyanville.com to work with a variety of contributors and assist them in delivering actionable investment ideas each week.|
Looking to park your money for the long haul? Check out these companies, and initially, nibble at them.
If you read The Snowball, the biography of Warren Buffet — and a great read, I might add — his diet provides a remarkably good divining rod for productive investments. In case you don’t know, Warren Buffett is a greater disciple of hamburgers than Wimpy (if you’re too young to know who that is, check out J. Wellington Wimpy on Wikipedia). When Buffett toured China with buddy Bill Gates, he suffered mightily in the hinterlands of that country and beat a path to McDonald’s (NYSE:MCD) as soon as he got back to Beijing.
When Buffett announced he would acquire food company H.J. Heinz (NYSE:HNZ) with 3G Capital for $72.50 per share in a sweetheart of a deal on February 14 (wink), it sent food stocks soaring. Remember, Berkshire (NYSE:BRK.A) is not just a financial buyer. It is a strategic one as well. The price of $72.50 was an important data point. It meant the company felt the market missed something. Specifically, that even at a 20% premium, Berkshire could make money forever.
The investment thesis is pretty straightforward: Everyone eats, and they will never, ever stop.
Accordingly, if you are looking for long term investments, I would recommend taking a look at the food companies listed below, and initially, nibbling at them.
I say nibbling because it’s a good pun, and because since the Buffett/Heinz buyout, the group as a whole has jumped. For instance, General Mills (NYSE:GIS), which was trading at $42.98, or about 16x trailing earnings on February 13, is now trading at nearly $50, or more than 18x trailing earnings. It’s not that 18x is an egregious price, and I would posit the “Buffett premium” is here to stay, but rather that given the volatile, jumpy nature of our markets, I feel additional entry points will present themselves.
Another by-product of dealing in the most necessary of all products is that food companies tend to throw off a lot of cash. For instance, sticking with GIS for the moment, the company has been a stellar dividend payer and grower. Right now the yield is a healthy 3.1%. More importantly, though, over the past 10 years GIS has grown its dividend from $0.55 per share to the current $1.55 share, for a very heady compound annual growth rate of 10.7%.
Below is a list of food companies my firm likes, with the associated earnings date in case you want to take a look.
General Mills (NYSE:GIS): 6/26/13
Procter & Gamble Co. (NYSE:PG): 4/24/13
Kimberly-Clark Corporation (NYSE:KMB): 4/19/13
Kraft Foods Group, Inc. (NASDAQ:KRFT): 5/2/13
Kellogg Company (NYSE:K): 5/2/13
The Hershey Company (NYSE:HSY): 4/25/13
The J. M. Smucker Company (NYSE:SJM): 6/6/13
Dr Pepper Snapple Group, Inc. (NYSE:DPS): 4/24/13
China Botanic Pharmaceutical Inc. (NYSEAMEX:CBP)
Green Mountain Coffee Roasters, Inc. (NASDAQ:GMCR): 5/8/13
Dean Foods Company (NYSE:DF): 5/9/13