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J.M. Smucker: Buy The Dip

L&F Capital Management profile picture
L&F Capital Management


  • SJM stock has fallen hard after AMZN acquired WFM.
  • The stock is now in a relative valuation trough while the dividend yield is as high as it has been in 5 years.
  • The Street estimates seem reasonable, and so we think SJM is worth a look here.

J.M. Smucker (NYSE:SJM) has had a rough year. The stock is off some 10% YTD, while the S&P 500 has rallied more than 8%. A large part of those declines have come in the wake of Amazon's (AMZN) acquisition of Whole Foods (WFM). The prevailing fear is that Whole Foods normally high-cost goods will soon cost a lot less, and that this price drop will cause consumers to start choosing WFM's organic-focused brands over SJM's brands.

ChartSJM data by YCharts

While the logic there seems reasonable, we think that SJM stock is worth a look here after this recent sell-off. We aren't alone in this thinking. Hilliard Lyons lifted SJM to a Long-Term Buy rating on Tuesday, 7/11.

SJM's current under-performance of the S&P 500 is as big as it has been since 2012. Looking at a 5-year window, such under-performance usually doesn't last very long. Per the chart below, the last time SJM significantly under-performed the S&P 500 was in 2014. That under-performance preceded a huge 2-year run-up in the stock. Today's dramatic under-performance looks like a similar set-up for a big stock run higher.

ChartSJM data by YCharts

Moreover, SJM's EBITDA multiple has fallen into a trough, and history shows us that such valuation troughs are near-term "buy the dip" opportunities.

ChartSJM data by YCharts

The recent price drop in SJM also means the stock's yield has climbed to 2.6%. That is as high as it has been in the past 5 years. The last time the stock's yield was near this high was back in mid-2012, before the stock took off from $70 to $150 by mid 2016.

ChartSJM data by YCharts

Overall, we think SJM stock has several buy signals at these levels.

Fundamentally, we also think the stock is undervalued. The organic, health food trend isn't really working

This article was written by

L&F Capital Management profile picture
L&F Capital Management, LLC, is a quantitative investment management group located in San Diego, California. Our multi-strategy investment approach comprises a mix of event-driven trades and long-term value investments, utilized together to maximize profit in both short and long term scenarios. We maintain consistency in portfolio mix through our long-term value holdings, but stress flexibility in portfolio mix from our daily event-driven trades. We believe this mix of flexibility and value generates both short and long term profits while reducing exposure to market volatility. L&F also shares various trade and investment opportunities through Seeking Alpha. For more information, visit www.lfcapitalmanagement.com.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in SJM over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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