2019_01_31 — “What are Your Portfolio Investment Concerns?”

January 31, 2019

What are Your Portfolio Investment Concerns?

What are your portfolio investment concerns?

• Worried about the chance of recession?
• Apprehensive that technology stocks may be overplayed or subject to new and restrictive government regulations?
• Anxious about possible inflation?
• Want to partake in emerging market growth but not take direct emerging market risk?
• Like to buy stocks that are off their recent highs?
• Believe that steady income and cash flow can ballast your portfolio better than volatile capital gains/losses?

High yielding consumer product good (CPG) stocks pay dividends above the S&P average, tend to be recession resistant, have pricing power, and are aggressively expanding in emerging market countries. CPG stocks represent companies that tend to sell consumer staples items (like food, medicine, and toiletries) that are purchased in good times and bad, hence their recession resistance. Traditionally, these same companies have been able to use marketing savvy to raise prices with inflation. In addition, since U.S., Europe, Australia, and Japan, are already saturated with these products, multinational CPG companies actively seek growth and expansion in emerging markets, thereby hopping on the bandwagon of emerging market growth.

Although this is only a partial list, some representative names, tickers, and yields could be Altria Group (MO) 6.4%, Anheuser Busch Inbev NV (BUD) 4.2%, Campbell Soup (CPB) 3.9% yield, Clorox (CLX) 2.5%, Coca-Cola (KO) 3.2%, Colgate-Palmolive (CL) 2.6%, Conagra (CAG) 3.9%, General Mills, (GIS) 4.4%, Kellogg (K) 3.8%, Kimberly Clark (KMB) 3.7%, Kraft Heinz (KHC) 5.2%, Molson Coors (TAP) 2.4%, Newell Brands (NWB) 4.3%, PepsiCo (PEP) 3.2%, Philip Morris International (PM) 5.9%, and J M Smucker (SJM) 3.2% — Note: all yields are approximate at time of writing.

There are, of course, glaring negatives to the CPG story. There is good reason why some CPG companies look relatively attractive; they have fallen out of favor with investors and their customers. In many instances, share prices are down significantly from their 1-year or 5-year highs as U.S. consumer preferences have shifted to healthier, new-age, tech-savvy, or home delivered fare, and as sin stocks such as tobacco and alcohol have fallen out of favor. Technology through social media marketing, online purchasing (where Amazon and WalMart can offer less expensive private label brands on the screen directly next to national brands), and new age home delivery options (such as Dollar Shave Club) have aided the consumers’ move away from traditional brands.

Kraft Heinz, for example — famous for its heavily processed cheeses, Oscar-Meyer meats, and Kool-Aid drinks — has lost growth to seemingly healthier, less processed, organic, or even vegan options found online, through social media, or in the supermarket aisles. The broadening success of Whole Foods and Sprouts markets have driven shopping carts away from shelves stocked with Kraft Heinz, Campbell Soup, and Hormel products.

It may take several years for CPG companies to win back their mojo, or they may never succeed. Investors in CPG stocks are taking the odds that top notch managements with ample resources will turn around declining growth, and that if they don’t private equity will step in to rectify the situation. Meanwhile, high dividends pay investors to wait. Nonetheless, this Sunday, you will see some of these CPG companies wage battle anew in their Super Bowl Sunday ads. Notably, Kraft Heinz is taking risky and risque bets of its own as it debuts a new daredevil campaign for Planter’s Peanuts and porn inspired commercials for its Devour frozen food line on Super Bowl Sunday. Will this be enough to turn the Millennial eye, and make them say “Dilly Dilly”? Only time will tell.

Michael Ashley Schulman, CFA

~~

Disclosure: The views and opinions expressed are those of Michael Ashley Schulman, CFA and are subject to change without notice. The views and opinions referenced are as of the date of initial publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Forward-looking statements cannot be guaranteed; neither can backward-looking nor current-looking statements. This material is provided for informational purposes only and does not constitute an offer or solicitation to purchase or sell any security or commodity or invest in any specific strategy. It is not intended as investment advice and does not take into account each person’s or investor’s unique circumstances. Information has been obtained from sources believed to be reliable, but its accuracy, completeness and interpretation cannot be guaranteed. Past performance is no guarantee of future results.

Originally published at https://seekingalpha.com.