Tough times in the economy mean American families pull their collective belts tighter. Vacations become “staycations,” movie nights shift from the big screen to the TV and the once-a-week dine-out ends up being just another meal at home. And that’s before Treasury Secretary Henry Paulson introduced his $700 billion bailout plan. Try to imagine the situation if Congress fails to pass it.
That’s why Cramer’s been recommending “trade down” plays like spice-maker McCormick . People are poor. They’re saving money any way they can, especially at the grocery store. Grass-fed beef, organic gala apples and name-brand cereals are out. It’s all about generic private labels these days. And that’s where McCormick comes in.
This company controls 50% of the spice market in the U.S. and France, and 40% in the U.K. (Europe’s experiencing a slowdown, too, so that overseas exposure could mean big business for McCormick.) As families look to spice up the factory-farm chicken they’re eating every night, there’s a good chance they’ll be using McCormick spices. And even if they trade down to generic spices, McCormick is the largest maker of private-label seasonings in North America, so that industry is virtually cornered as well.
Aside of making cheap food taste better, and consumer sales make up 80% of the company’s business, McCormick sells to nine of the top 10 major food companies – McDonald’s , Pepsi, Yum! Brands, Anheuser-Busch and others. So there’s money being made on a B2B level, too. Plus, the company’s pushing itself as a trade-up spice maker by launching gourmet recipes by Cat Cora, the current Iron Chef, on its website.
Here’s how you play this stock: McCormick reports earnings Thursday. Do NOT buy after hours to get in ahead of the quarter. And if the earnings per share are more than just a few pennies off the 48 cents expected, forget Cramer ever mentioned MKC. Even if the results are better than expected and the stock goes higher, stay on the sidelines. In this market, you’re almost guaranteed to get a better price.
When that time comes, enjoy the 2.3% dividend yield a company that has a history of buying back stock to reward its shareholders. And regardless of how Paulson’s plan works out – and Cramer’s a big backer of it – this stock should still make you money during these tough economic times.
Jim's charitable trust owns Pepsi.
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