Sell Block: Time to Spring ConAgra?
The crushing weight of raw costs forced ConAgra into the Sell Block last June, as corn, wheat, oil and gas virtually eliminated the company’s earnings. But the recent commodity collapse has put this stock right back in the buy column, Cramer said Thursday, especially now that the dividend yield is so high.
From September 2007 to June 2008, corn prices soared 74%, wheat jumped 41%, oil increased 63% and natural gas surged a whopping 110%. ConAgra and its margins took a big hit. But those costs are now on the retreat. And with the price increases the company pushed through, across 95% of its brands, ConAgra’s in good position to regain those lost earnings.
Plus, CEO Gary Rodkin has a strong track record with Pepsi , General Mills and Tropicana, and he’s putting that experience to good use at ConAgra. The company sold its trading and merchandising division for $2.2 billion in cash and $550 million of payment-in-kind debt securities. The proceeds paid down $1.1 billion of commercial paper and bought back $900 million in stock, a good attempt to clean up the balance sheet.
There’s also the Wal-Mart exposure, which accounts for 15% of sales. And ConAgra’s Peter Pan peanut butter – the company also makes Orville Redenbacher, Swiss Miss, Chef Boyardee and other well-known brands – isn’t at risk for salmonella. ConAgra doesn’t buy its ingredients from the Peanut Corp. of America, the center of the salmonella outbreak investigation.
The other good news for investors is that expectations for ConAgra are low. Two analysts have downgraded the stock, and another two rate it a neutral. The share price has fallen all the way to $17, which pays a healthy 4.5%, and the price-to-earnings multiple is at just 10. Not even Sara Lee – and no one likes Sara Lee, Cramer said – is that low.
So Cramer’s releasing ConAgra from the Sell Block. A recession-resistant play with a nice dividend yield is just what investors want right now.
Cramer's charitable trust owns General Mills, Pepsi and Wal-Mart.
Questions for Cramer? email@example.com
Questions, comments, suggestions for the Mad Money website? firstname.lastname@example.org