“A Healthy Choice…”
ConAgra Foods, Inc. (NYSE:CAG)
Recent Price: 22.56
Current Yield: 4.07%
Finally I get to write about CAG. Now, 4% isn’t necessarily “high yield”. However, it is more than the 10 year treasury and it’s a fairly basic idea. Healthy Choice frozen dinners, Banquet fried chicken, Orville Redenbacher popcorn, Hebrew National franks are just a few of their brands. Oh yeah…Hunt’s ketchup. While they’re the Avis, sometimes, to Kraft’s (KFT) Hertz, those are great, strong brands. In uncertain times, people still eat (my 8 year old could live on Slim Jims if allowed). The price has come back some from a high of 26.32 allowing the yield to drift up into interesting territory. Analysts expect Q1 2011 earnings to be up by 5% which is very good in the packaged food business. All in all, if you’re looking for a decent consumer staples name, CAG is worth a look see.
Thanks to mild to no inflation, CAG has had room to move. When commodity price inflation returns (supposedly it has for corn), margins will be squeezed without a doubt. To offset the rosy earnings forecast, sales are expected to decline by 1%. That’s nothing to sniff at. 1% moves on anything in the packaged food business is huge. Finally, over all, earnings forecasts are slightly soft.
H&R Block, Inc. (NYSE:HRB)
Recent Price: 10.85
Current Yield: 5.53%
There aren’t too many solid, national brands when it comes to the tax preparation business as it’s mostly a fragmented, mom-n-pop space. HRB became the national brand nearly 70 years ago and although Intuit’s (NASDAQ:INTU) Turbotax has a strong foothold among DIYers (do it yourself-ers), the company still fulfills a need. Shares are somewhat beaten up, but underneath the numbers are attractive: a stellar 34% ROE and a reasonable valuation. HRB has also been able to increase prices; impressive in tight times for consumers. But, there aren’t many true financial service stocks trading that have decent earnings, bargain multiples and a decent dividend.
There are many. The biggest concern is the FinReg rulings on refund anticipation loans and their tax treatment. When things were full tilt boogie this was a huge money maker for HRB. Going forward, not so much. Speaking of the full tilt boogie days, the company had the wild-n-crazy idea to be a small financial services supermarket. Aisle one: tax prep. Aisles two through six: investment services, insurance, mortgages (Hey! Seemed like a good idea at the time) and more. They even got a federal savings bank charter back in 2006. Good timing there. Thanks to the previously deregulated nature of that business, the proverbial chickens, dressed in their lawsuits, are coming home to roost. Class action lawsuits can hang over a company like a cloud and currently, there are a couple affecting HRB concerning securities sales. The company did sell its brokerage unit in 2008. However, they’re still responsible due to an indemnification clause in the deal.
"An Old Standard..."
Standard Register (NYSE:SR-OLD)
Recent Price: 3.11
Current Yield: 6.43%
Think back to the last time you were lucky enough to go to the hospital as a customer. Remember the neat little wristband with your name on it? What about the label on the specimen cup you were asked to fill? SR makes that stuff as well as other forms and documents used by healthcare providers as well as the financial services industry and other businesses. It’s an old company founded in 1912. While one could argue that a printing company is a dinosaur caught in a proverbial tar pit before the asteroid strikes, keep in mind that one of their biggest business lines is healthcare which, let’s face it, is a growth industry. No shortage of paperwork there despite the move toward digitization. The numbers have been atrocious over the last five years thus the cheap price. SR was a $35 stock 12 years ago. However, Q2 2010 results were break-even and they’ve invested heavily in technology to stay competitive. This idea is definitely speculative. Not for those with a weak constitution. Still, it’s interesting. The deep value, private equity types love these types of situations.
See the sentence that references the “atrocious numbers” in the previous paragraph. They’ve been shriveling steadily for more than a decade. A $10,000 investment in SR five years ago is now worth a blinding $2,999. On a macro level, big commercial printing is probably past the mature phase and starting to shop for good hospice care. SR’s price chart is indicative of that. It’s such an outdated idea that The Simpsons own Montgomery Burns probably owns the stock in his portfolio alongside Amalgamated Spats. Again, this is an extremely speculative idea. The odds aren’t in your favor. Will that decent yield stick around? I’m a pessimistic optimist. Hope’s good but, one shouldn’t load the boats with this one.
“A Healthy Choice…”
Disclosure: Long SR