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Overview

In the past several months, I've written two series of articles related to low-priced stocks to buy and low-priced stocks to avoid. For each round of articles, I focus on three stocks currently priced under $10 and review them as to whether I believe them to be worth looking at as potential buys for long term investors.

Using the same format, I've decided to take a look at stocks in specific market sectors and review them in a similar manner. Last month, I published an article related to three consumer goods stocks to buy. That article discussed Cal-Maine Foods, Kraft Foods Group, and Pinnacle Foods.

This article will review three stocks that I think should currently be avoided, and will also be focused specifically on the food industry within this sector. In determining why I find these stocks attractive, I will be looking at each company's financial performance, current valuation, recent trading activity, dividend policy, earnings and future outlook.

Stock No. 1

Campbell Soup Company (CPB) is a manufacturer, distributor, and marketer of a wide range of convenience food products worldwide. The company was founded in 1869 and is headquartered in Camden, New Jersey.

Financial Performance

Gross Profit Margin (Quarterly)35.89%
Profit Margin (Quarterly)7.94%
Return on Assets (TTM)4.46%
Return on Equity31.34%
Revenue$7.88B
Revenue (Quarterly YOY Growth)-1.81%

Looking at the chart below, you can see that revenue and gross profit for Campbell Soup Company has been far from impressive over the past five years, losing 1.08% and 8.84% respectively.

CPB Revenue (<a href=

CPB Revenue (TTM) data by YCharts

Current Valuation and Recent Trading Activity

Campbell Soup Company has a current price-to-earnings value of 35.90x and a price-to-book value of 10.12x. Looking at the chart below, you can see that this is by far the highest PE ratio Campbell Soup Company has seen in the past ten years.

CPB PE Ratio (<a href=

CPB PE Ratio (TTM) data by YCharts

Campbell Soup Company closed Wednesday at $43.33, $5.50 shy of its 52-week high and $9.03 higher than its 52-week low . Campbell Soup Company is trading slightly above its 200-day moving average of $43.27 but below its 50-day moving average of $41.02.

Campbell Soup Company has seen the following price returns:

1 Month Price Return2.15%
Year to Date Price Return24.19%
1 Year Price Return19.83%
3 Year Price Return22.44%

Earnings

For its latest quarter, Campbell Soup Company reported earnings per share of $0.66, which was 22 cents less than the same period last year and 21 cents less than estimates.

From the chart below, you can see that over the past five years the EPS for Campbell Soup Company has been flat and recently declining.

CPB EPS Basic (<a href=

CPB EPS Basic (TTM) data by YCharts

Dividend

Campbell Soup Company currently pays a $0.312 quarterly dividend that is yielding 2.88%. Looking at the chart below, you can see that Campbell Soup provides a fairly safe, low yielding dividend that steadily increases over time.

CPB Dividend Chart

CPB Dividend data by YCharts

Company Outlook

Campbell Soup Company's latest quarter posted disappointing results, but it did provide a slight glimpse of optimism in that the company was seeing a solid start to its current quarter. That optimism wasn't enough to keep the company from lowering guidance for fiscal 2014. I believe that Campbell Soup currently faces a multitude of issues that will limit its near term growth, including increased competition, weak sales in several of its business segments, and higher costs. Recently, the stock price has seen a slight bump as investors are hoping for a takeover and possible interest from Warren Buffet. For me, this kind of investing is too speculative for my tastes, which is why based on the actual company and not takeover rumors, I have to consider Campbell Soup Company a stock to currently avoid.

Stock No. 2

Mondelez International, Inc. (MDLZ) is a food manufacturer that produces a wide range of food products under brands such as Oreo and Nabisco. Formerly Kraft Foods Inc., Mondelez International, Inc. was incorporated in 2000 and is headquartered in Deerfield, Illinois.

Financial Performance

Gross Profit Margin (Quarterly)37.11%
Profit Margin (Quarterly)12.09%
Return on Assets3.49%
Return on Equity8.34%
Revenue$35.31B
Revenue (Quarterly YOY Growth)1.75%

Just like Campbell Soup Company, Mondelez International, Inc. has seen poor growth in both revenue and gross profit over the past five years.

MDLZ Revenue (<a href=

MDLZ Revenue (TTM) data by YCharts

While the charts for Mondelez International, Inc. and Campbell Soup Company seem similar, there is a significant difference. The difference is that Campbell Soup has seen a far bigger drop in gross profit (8.84% compared to a just over 1% drop in revenue), while Mondelez International has seen the bigger drop in revenue (12.81% compared to a just over 1% drop in profit).

Current Valuation and Recent Trading Activity

Mondelez International, Inc. has a current price-to-earnings value of 22.69x and a price-to-book value of 1.88x. While Mondelez International, Inc. appears to be a much more fairly valued stock than Campbell Soup Company, it is still overvalued compared to its historical valuations.

MDLZ PE Ratio (<a href=

MDLZ PE Ratio (TTM) data by YCharts

Mondelez International, Inc. closed Wednesday at $34.64, $0.56 shy of its 52-week high and $9.64 higher than its 52-week low. It is trading above both its 200-day moving average of $31.56 and its 50-day moving average of $33.72.

Mondelez International, Inc. has seen the following price returns:

1 Month Price Return1.76%
Year to Date Price Return36.13%
1 Year Price Return33.01%
3 Year Price Return65.77%

Earnings

For its latest quarter, Mondelez International reported earnings per share of $0.41, which was in line with estimates and two cents higher than the same period last year.

Looking at the chart below, you can see that Mondelez International's EPS has been up and down over the past five years, but overall just flat.

MDLZ EPS Basic (<a href=

MDLZ EPS Basic (TTM) data by YCharts

Dividend

Mondelez International, Inc. currently pays a $0.14 quarterly dividend that is yielding 1.62%.

Company Outlook

I think the future of Mondelez International, Inc. is more stable and bright than Campbell Soup Company. The company continues to expand and has recently bolstered its share buyback program; however, I think the stock is currently priced to high, which will limit price appreciation greatly. Considering Mondelez International's very low dividend yield and limited revenue growth, I feel that there are far better companies to invest in currently. While I don't think Mondelez International is necessarily a bad investment, I don't think at its current price, it is a good one either.

Stock No. 3

Post Holdings, Inc. (POST) is a manufacturer, marketer, and distributor of cereals, snacks, and related products in the United States and Canada. The company was founded in 1895 and is based in St. Louis, Missouri.

Financial Performance

Gross Profit Margin (Quarterly)38.57%
Profit Margin (Quarterly)-0.31%
Return on Assets0.49%
Return on Equity1.10%
Revenue$1.03B
Revenue (Quarterly YOY Growth)18.00%

Since its spinoff from Ralcorp, Post Holding's revenue has increased nicely, but profit has been a concern.

POST Revenue (<a href=

POST Revenue (TTM) data by YCharts

Current Valuation and Recent Trading Activity

Post Holdings, Inc. has a current price-to-earnings value of 165.97x and a price-to-book value of 1.06x.

Post Holdings, Inc. closed Wednesday at $48.67, $5.23 shy of its 52-week high and $15.02 higher than its 52-week low. It is trading above both its 200-day moving average of $44.46 and its 50-day moving average of $46.40.

Earnings

For its latest quarter, Post Holdings, Inc. reported earnings per share of $0.16. Looking at the chart below, you can see that EPS has been flat since Post Holdings spinoff.

POST EPS Basic (Quarterly) Chart

POST EPS Basic (Quarterly) data by YCharts

Dividend

Post Holdings, Inc. currently does not pay a dividend.

Company Outlook

Post Holdings, Inc. operates in a market that has limited growth potential and strong competition. I haven't seen any evidence that suggests Post Holdings' revenue, profit, and earnings future growth will be anywhere close to a range that justifies its current high price. Given the fact that the company doesn't pay a dividend and that it faces a declining demand in the cereal market, I consider Post Holdings, Inc. as a stock that should currently be avoided.

Conclusion

The three stocks reviewed above (Campbell Soup Company, Mondelez International, Inc. and Post Holdings, Inc.) each are currently facing flat to declining profit and earnings growth. In my opinion, the upward potential for these stocks are fairly limited and I have strong concern that money invested in them will see flat to negative returns in the next several years. None of the companies pay a high enough dividend or have made significant enough changes in their business operations for me to see them as stocks worthy of buying at the moment. I feel that all three stocks, especially Post Holdings, Inc. are currently priced to high and interested investors in these companies would be best served by waiting for significant drops in the prices of these stocks. As always, I suggest individual investors perform their own research before making any investment decisions.

Source: Consumer Goods Stocks To Avoid: Round 1