• 19 Oct
    Want to get defensive? Stay away from this value trap

    Want to get defensive? Stay away from this value trap

    The market’s volatility over the last week and a half has started to put a lot of people on edge. I’ve noticed an increasing number of talking heads on market media starting to throw out words that just don’t apply to the market yet, like “correction” and even “bear market” in a few cases. It’s pretty easy to get caught up in the hand-wringing and anxious nerves that always seem come when market volatility starts to pick up. More →

  • 18 Oct
    DLB is a great stock at a high price: how to play it in today’s market

    DLB is a great stock at a high price: how to play it in today’s market

    Warren Buffett is the living gold standard of value investors today; practically every different approach to determining how much a stock should be worth borrows from some element of the methods Mr. Buffett has employed in building his wealth and reputation over the course of decades. More →

  • 17 Oct
    The small cap stock you’ve never heard of – but that could be the best bargain in the Materials sector

    The small cap stock you’ve never heard of – but that could be the best bargain in the Materials sector

    Since hitting an all-time early this year, the Materials sector has seen some of the biggest declines in the broad market. And even while today marked a big surge in price for practically every economic sector, Materials still dropped, putting their decline since late January at about -16% and nearly -11.5% year-to-date as measured by the SPDR S&P 500 Materials ETF (XLB). More →

  • 16 Oct
    ROST is a market beater – but does that mean you should buy now?

    ROST is a market beater – but does that mean you should buy now?

    One of the most interesting things to me about the stock market is that there really are as many different ways to invest your money as the human brain can imagine. That’s one of the reasons that there are so many different kinds of mutual fund and ETF choices geared for the average investor. One of the reasons that is so interesting is because that reflects another market reality: More →

  • 15 Oct
    TR makes tasty treats – their stock could be one, too

    TR makes tasty treats – their stock could be one, too


    More than two decades ago, I was just getting my start in the financial industry, working as a licensed representative for a major mutual fund company. In order to help new hires like me get more familiar with what mutual funds were about, and to start learning how the stock market worked, my employer encouraged studying the investment philosophies of a lot of the most well-known fund managers of the day. At the time, that meant paying attention to the “rock stars” of the mutual fund industry, and at that time there weren’t too many more popular or well-known names than Peter Lynch. More →

  • 12 Oct
    These 2 sectors have taken the biggest beating from the latest market rout

    These 2 sectors have taken the biggest beating from the latest market rout

    There’s really nothing like a little bit of volatility in the stock market to make people sit up and take notice. Whether you’re a seasoned, everyday investor or a relative neophyte putting a couple of hundred dollars each month into a 401(k) account, the last couple of days have prompted just about anybody that is trying to make their money work for them with the stock market wonder what is going on. More →

  • 11 Oct
    SIG: value stock, or value trap?

    SIG: value stock, or value trap?

    Sometimes, answering the question of whether a stock represents a legitimate, attractive value opportunity can be hard to do. A company could be struggling not only to grow its business, but may be forced to restructure its business in a way that makes most of the traditional measurables investors like to use look very unfavorable. More →

  • 10 Oct
    Is SJM undervalued enough to be a smart defensive investment?

    Is SJM undervalued enough to be a smart defensive investment?

    Over the last week, uncertainty appears to have become the primary theme of the market, as concerns over interest rates and global growth are starting to take hold and lead investors to question the market’s ability to sustain its long, bullish trend. As of this writing, in fact, the S&P 500 is sitting right on top of its 50-day moving average line, an indicator that a lot of technical investors like to use as a visual queue for the market’s intermediate-term trend. A break below this line could signal at least a short-term reversal, with more downside ahead that could see the market drop as much as another 4% before finding its next support level. That’s not exactly correction territory, but it is enough short-term downside to keep uncertainty high and prompt investors to start looking for “safe haven” investments that offer some measure of protection should things get even worse.

    If the market keeps dropping, I think there could be some very interesting opportunities in defensive industries, and as I wrote yesterday, I think some of the best valuations in the market right now are coming in the consumer sSJMles sector in general, and the food industry in particular. If you’re looking to be conservative about the positions you take, it’s smart to be selective about how many stocks you buy in a single industry, and so even though I’ve been highlighting different stocks in the industry that I think offer interesting value propositions, you should take some time to compare each one carefully and decide for yourself which ones you think would offer you the right mix of opportunity, fundamental strength, and risk management.

    One food company that I do think is really interesting right now is The J.M. Smucker Company (SJM). The name probably makes you think about the same products I do – fruit spreads. That’s because the company’s namesake Smucker’s brand is the #1 fruit spread brand; but this is a company that also owns the leading peanut butter (JIF), coffee (Folger’s), and dog snack (Milk-Bone) brands. When you consider they own other well-known brands like Crisco, Dunkin’ Donuts, Kibbles ’n Bits, and Carnation, to name just a few, you have a company with a pretty well-diversified product line that covers a pretty broad spectrum of the packages food industry. There are some risks about the food industry that have started to impact some important measurable components of SJM’s profile; however for the most part, this is a company with strong fundamentals, including good cash flow, decent (albeit declining) margins, and manageable debt. They also carry a very attractive dividend yield right now, with a very compelling long-term value proposition. Let’s take a look.



    Fundamental and Value Profile

    The J. M. Smucker Company is a manufacturer and marketer of branded food and beverage products and pet food and pet snacks in North America. The Company’s segments include U.S. Retail Coffee, U.S. Retail Consumer Foods, U.S. Retail Pet Foods, and International and Foodservice. The Company’s U.S. retail market segments consist of the sale of branded food products to consumers through retail outlets in North America. In the U.S. retail market segments, the Company’s products are sold to food retailers, food wholesalers, drug stores, club stores, mass merchandisers, discount and dollar stores, military commissaries, natural foods stores and distributors, and pet specialty stores. In International and Foodservice, the Company’s products are distributed domestically and in foreign countries through retail channels and foodservice distributors and operators, such as restaurants, lodging, schools and universities, healthcare operators.SJM’s current market cap is $11.6 billion.

    • Earnings and Sales Growth: Over the last twelve months, earnings increased almost 18%, while sales growth increasing not quite 9%. Growing earnings faster than sales is difficult to do, and in the long-term generally isn’t sustainable, but it is also a positive mark of management’s ability to maximize business operations. In the last quarter, earnings decreased almost 7%, despite an increase in sales of almost 7%. That points to increasing costs, which right now are coming from from foodstuffs as well as transportation costs. This reality is also reflected in SJM’s margin profile; over the last twelve months, Net Income was nearly 18% of Revenues, but declined in the last quarter to about 7%. That is a red flag, but the company’s balance sheet indicates that their margins remain adequate.
    • Free Cash Flow: SJM’s free cash flow is good, at a little over $800 million for the trailing twelve month period; that translates to a Free Cash Flow yield of about 7%.
    • Debt to Equity: SJM has a debt/equity ratio of .78, a relatively low number that indicates the company operates with a generally conservative philosophy about leverage. This number did increase significantly in the last quarter from .59, which I believe is a reflection of their acquisition of pet food company Ainsworth in May of this year for $1.7 billion. In the last quarter, their long-term debt increased from about about $4.7 billion to almost $6.2 billion, suggesting the larger portion of the purchase was financed by debt.
    • Dividend: SJM pays an annual dividend of $3.40 per share, which translates to a yield of 3.33% at the stock’s current price.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for SJM is $69.72 per share and translates to a Price/Book ratio of 1.46 at the stock’s current price. Their historical Price/Book average is 2.04, which suggests that the stock is trading at a discount right now of about 39.5%. Their Price/Cash Flow ratio offers an even more optimistic perspective, since it is currently running 62% below its historical averages. Between the two measurements, the long-term target price, based strictly off of value analysis could lie anywhere in a range between $142 and $165 per share. The low end of that range was last seen in the early spring of 2017.



    Technical Profile

    Here’s a look at the stock’s latest technical chart.

     

    • Current Price Action/Trends and Pivots: The chart above traces the stock’s downward trend from late April of 2017, where it peaked at around $144 per share, to its trend low point at close to $100. It also informs the Fibonacci retracement lines shown on the right-hand side of the chart. The stock is currently sitting near that trend low, with strong support at that point from previous pivot lows in November 2017 and June of this year. The stock is about 15% below the resistance marked by the 38.2% Fibonacci retracement line, so a bounce higher off of support could see the stock revisit that level fairly quickly. A break below current support at around $100 could give the stock additional room to drop to multi-year lows that may not find support until around $90 per share – a level last seen in early 2013.
    • Near-term Keys: A strong bullish pivot from the stock’s current support level could be taken as a good signal for a short-term bullish trade using call options or even buying the stock, with a near-term target between $110 and $115 per share. The strength of the stock’s downward trend, however could push the stock below its current support at $100, which would be a strong indication to consider shorting the stock or working with put options. Given the stock’s valuation measurements and general fundamental strength, including a very healthy dividend, the current price represents a very impressive bargain if you’re working with a long-term time horizon and don’t mind accepting some nearer-term price volatility.


  • 09 Oct
    Interest rate fears are making the market jittery – that could be a good thing for defensive stocks like TAP

    Interest rate fears are making the market jittery – that could be a good thing for defensive stocks like TAP

    Over the last few days, one of the things that has put the market a little bit on edge is concern that interest rates could be forced higher sooner than possible. Fed chair Jay Powell gave investors room to start feeling anxious last week when during a televised question and answer session, More →

  • 08 Oct
    COP demonstrates why oil stocks might be very attractive growth investments – but don’t call them a good value

    COP demonstrates why oil stocks might be very attractive growth investments – but don’t call them a good value

    A few days ago, I wrote about the fact that oil prices have been surging for the last few weeks. While the price of West Texas Intermediate (WTI) crude has dropped a bit from a peak a little above $76, it remains close it, sitting as of this writing just a little below $74 per barrel. This latest surge has pushed oil prices to levels not seen in four years, when oil in the midst of an historical plunge that didn’t find a bottom until the beginning of 2016. More →

1 2 3 4 5 6 75