When it comes to defensive investing, food and beverages are two of the go-to sectors for getting equity market exposure but protecting your assets. The logic is simple enough: “You gotta eat and you gotta drink!” What about when you mix value screens with defensive stocks?
We have been searching for deep value stocks of late now that the market sell-off has taken out a large bite from the value of many major companies. Some analysts group food differently than beverages, but our screen includes all of the following to identify the best value: Campbell Soup Co. (NYSE: CPB); The Coca-Cola Company (NYSE: KO); ConAgra Foods, Inc. (NYSE: CAG); Dr. Pepper Snapple Group, Inc. (NYSE: DPS); General Mills, Inc. (NYSE: GIS); Hormel Foods Corporation (NYSE: HRL); Kellogg Company (NYSE: K); Kraft Foods Inc. (NYSE: KFT); Pepsico, Inc. (NYSE: PEP); Tyson Foods, Inc. (NYSE: TSN); and Smithfield Foods Inc. (NYSE: SFD).
We are looking at food and beverages separately today in identifying the best value for investors looking for safe havens in the storm. This sector is already very defensive in nature, and we found that the defensive sector of consumer products actually has a market premium due to investors seeking safety. The good news is that the food and beverage sector has a few differences.
Campbell Soup Co. (NYSE: CPB) recently traded at $30.85 and its market cap is $10 billion. The stock’s 52-week trading range is $29.69 to $36.99. The current value is trading at a price-to-book ratio of about 9 to 1. Its forward price earnings multiple is 12.2 and its return on equity is 78.8%. The canned soup company currently pays a dividend yield of about 3.8% to investors. Thomson Reuters has a consensus price target of $34.00, implying roughly 10.2% upside to the most recent price. Campbell is under a new CEO and undergoing some change. It is hard to imagine that this is a luxury good or a health food group stock, but the company has been under fire from private-label soups in the past and it is now going to add more salt and flavors to regain some market share. Due to the correction, there is almost a turnaround element here.
The Coca-Cola Company (NYSE: KO) recently traded at $69.37 and its market cap is $159 billion. The stock’s 52-week trading range is $56.01 to $71.77. The current value is trading at a price-to-book ratio of about 4.5 to 1. Its forward price earnings multiple is 16.1 and its return on equity is 41.29%. The beverage giant currently pays a dividend yield of 2.71% to investors. Thomson Reuters has a consensus price target of $77.86, implying roughly 12.2% upside to the most recent price. What is so interesting about Coca-Cola is that it just the magic 52-week high list right after Labor Day. Coke and water, you gotta drink! This is a huge position for Warren Buffett, but chances are that it will be that way in a decade from now (or for his successor).