I am always on the hunt for "forever"stocks .
These are stocks that can weather the storm and grow even
during themarket 's darkest days. In fact, StreetAuthority
co-founder Paul Tracy has built a very successful portfolio using
It's easy to find stocks that can capture theupside of a
risingbull market , but what happens when we hit the next
financial downturn? How do you find stocks that can not only
weather the storm but also actually make youmoney while
theeconomy falls apart?
For many investors, 2008 was ayear thatwill not be forgotten.
Between Oct. 9, 2007, and March 5, 2009, the Dow Jones industrial
average lost more than half its value. Not only were thefinancial
markets collapsing, but scandals were rampant, and consumer trust
hit all-time lows. It truly was a time of panic.
Look how far the markets fell in 2008 and 2009:
Yet a well-known food company was up 42% between 2007 and 2010
while thestock market plummeted. With seven category-leading
brands in the United States and eight in Canada, this "forever"
stock clearly bucked the trend. How could one company experience
such a good fate while others suffered?
It starts with its recession-proof product lineup, which
consists of food staples such as coffee, peanut butter and jelly.
It not only sells high-demand products, it owns the lion's share
of the market, with more than 30%market share for coffee and more
than 40% market share for fruit spreads and peanut butter in the
You know the brands: From Folgers and Dunkin' Donuts coffee to
Smucker's fruit spreads, Jif peanut butter and Pillsbury cake
mixes, this company has a substantial presence in grocery stores
around the world.
The company I'm talking about is
J.M. Smucker Co. (
Here are a few more reasons I love this stock:
1. Strong market share:
Smucker's leading coffee brands give it the position to keep its
products at the top of retailers' lists and the negotiating power
to keep healthyprofit margins .
2. Improved outlook:
As the employment rate drops and consumer confidence increases,
this should lead to increased trading. Consumers should flock
back to name brands, which will help Smucker'svolume , pricing
3. Strong growth:
Smucker has transformed its business through acquisitions and
will seek to continue to increase profitability while boosting
Take a look at the stock's performance since 2008:
Smucker generates plenty ofcash flow . The price-to-free cash
flow ratio is 23.1, which shows a strong ability to generate. Its
target dividend payout rate of 40% ofearnings is its big way of
rewarding shareholders. The 2%dividend yield has maintained an
8.5% growth rate, increasing each year since 2001.Revenue has
increased more than 14% from 2011 to $5.5 billion in 2012 and is
projected to approach $6 billion this year.
The company's earnings have been quite impressive. During the
past fourquarters , Smucker has reported three positive earnings
surprises and one in-line report. Earnings per share dropped 1.6%
between 2011 and last year to $4.73 due toacquisition costs, but
this year appears to be heading in the right direction with a
projected $5.24 per share.
Smucker also shines compared with its peers in the packaged
foods industry. Not only is the company's trailing
12-monthprice-to-earnings ratio of 20.9 lower than the industry
average of 23.45, but its revenue growth of 10.4% is much better
than the 6.1% industry average. Smucker's gross margins are 32.8%
versus the industry's 30.4%, and its net margins are more than
double the industry average (9.8% versus 4.3%).
Smucker is in great financial health, with a debt-to-capital
ratio of just under 0.3. Despite its aggressive acquisition
strategy, itsleverage remains below most of its industry peers.
It typically usesdebt to finance its acquisitions, but its strong
cash flows allow it to quickly pay down this debt.
Risks to consider:
Commodity prices remain extremely volatile, posing a threat
to future expenses. Smucker has had some challenges integrating
acquisitions into its corebusiness model , which could also weigh
on future growth.
Action to take -->
Smucker closed at $99 a share April 10 and remains a good buy at
up to $102. My 12- to 18-monthprice target is $120, representing
a 20% rise from its current price. With a current dividend yield
of 2%, this stock provides a great combination of growth and