Cramer's Mad Money - The Magic Of Private Label (11/28/12)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday November 28.

The Magic of Private Label: Ralcorp (RAH), Costco (NASDAQ:COST), ConAgra (NYSE:CAG)

ConAgra (CAG) announced it is buying Ralcorp (RAH) to increase its exposure to private-label brands. While CAG produces brands that have been loved for decades or even generations, branded food has declined in popularity since the recession. One reason for the decline is the increased prices on branded products. In addition, many consumers traded down and decided not to trade back up when the economy improved. Third, stores like Costco (COST) improved the image of private label. In the old days, private label products had very bland, unattractive packaging that was almost embarrassing to consumers. Costco launched the popular price club and made its private label packaging more attractive and similar in appearance to the mainstream brand. ConAgra has an attractive business model, with exposure to both branded products and private label, and the acquisition should be a success.

Trimble Navigation Limited (NASDAQ:TRMB)

Trimble Navigation (TRMB) used to be just another global positioning company, but has moved into modeling, analytics and other segments to become "a data productivity automation powerhouse." The stock is up 38% for the year and is a smart secular growth story. TRMB collects, processes and analyzes data that helps its corporate customers become more productive. Its information allows clients to cut labor, fuel and other costs. The company reported a 6 cent earnings beat with rising revenues. TRMB is thriving even with strong European exposure and expects to grow at a 15-17% clip for the next few years. Trimble has the competitive edge that allows it to take market share and raise prices. It trades at a multiple of 17.8, with an 18.3% growth rate.

Supervalu (NYSE:SVU), Safeway (NYSE:SWY), Kroger (NYSE:KR), Whole Foods (WFM), Wal-Mart (NYSE:WMT), United Natural Foods (NASDAQ:UNFI), Hain (NASDAQ:HAIN), The Fresh Market (NASDAQ:TFM)

Cramer hasn't liked the supermarket space, with the exception of Whole Foods (WFM). Competition is fierce among conventional supermarkets, and the price wars that result lead to lower margins. Whole Foods is an exception, because its unique concept allows it to charge more and not less. Most supermarket stocks have declined: Supervalu (SVU) is down 64% for the year and Safeway (SWY) declined 19%. However, Kroger (KR) has risen 3%, which isn't enormous, but it is performing better than the competition.

The secret to Kroger's success is its private label exposure and strategic pricing. Kroger is the leader among supermarkets of private brands, with 27% of its products sold with the Kroger label. This is a profitable business for Kroger, and might be a factor in its 3% rise in same store sales, while competitors saw declining same store sales. Kroger sells gasoline at half of its locations, and this is a great way of attracting customers. Kroger, like other supermarkets, has had to lower prices occasionally, but the company has the knack of timing these sales right and getting in early on the price reductions. Since Kroger reports on Thursday, it is too late to buy, but Cramer would view the next decline in the stock as a buying opportunity.

United Natural Foods (UNFI) is a second-rate player compared to Hain (HAIN), which is a buy.

The Fresh Market (TFM) plays second fiddle to Whole Foods; "The way to play Whole Foods is Whole Foods."


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