Why Cramer Is Bullish on Dean Foods
In today’s tough market environment, “Mad Money” host Jim Cramer thinks it’s wise to consider stocks with “domestic security.” In other words, look for stocks that do the majority of their business in the United States.
Take Dean Foods, for example. From its headquarters in Dallas, Dean Foods operates as the largest purveyor of milk in the United States. It does 97 percent of its sales within the U.S., so the company has little to no exposure to Europe.
The only problem is that Dean Foods’ stock has held up too well, Cramer said. Having rallied 27 percent year-to-date, the stock is currently flirting with its high. Needless to say, Cramer doesn’t recommend buying the stock at current levels. Instead, he suggests investors wait for the stock to fall to the $13 level. At that point, he’s a buyer.
That said, Cramer explained why he’s bullish on Dean Foods. To start, the company has really turned itself around. It is a huge beneficiary of lower raw costs, Cramer noted. Its Fresh Dairy Direct business, for example, accounts for 54 percent of the company’s profits. Within that segment, 78 percent comes from milk. The actual price of milk that Dean pays has decreased significantly from its peak in the third quarter of last year and is expected to go even lower, possibly declining 20 percent year-over-year for the remainder of 2012. A lower cost of milk directly helps Dean’s bottom line, as dairy inputs account for nearly two-thirds of the company’s costs in its Fresh Dairy Direct business.
In addition, Dean Foods is a part of the healthy eating trend. With a majority of Americans overweight, if not obese, Cramer said that more and more people are trying to eat healthy. Dean Foods sells a variety of health-conscious products, including organic offerings.
Dean Foods is also improving its balance sheet. Two week ago, it delivered a massive 10-cent earnings beat off a 21-cent basis. Revenues were also better-than-expected, posting a 5.4 percent year-over-year increase thanks to higher volumes and higher prices. It also reported increased operating margins and gave bullish guidance for next quarter and the full-year.
So what’s the bottom line? Cramer recommends investors stick with stocks that offer “domestic security,” meaning they do a majority of their business in the United States. He thinks Dean Foods is just the stock to keep on your shopping list, if ever it pulls back.
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