I admit it, when I came across Campbell’s Soup (CPB -2.47%) stock, I skipped it because it didn’t seem like a company that made soups and sauces was the most exciting investment. But I’ll also be the first to admit that I couldn’t have been more wrong.
There’s nothing boring about a company raising its sales outlook for the coming year at a time when many others are cutting their forecasts. Nor is there anything boring about a stock that has risen 37% in the past year at a time when the S&P500 and Nasdaq Compound are in bearish territory.
The defensive nature of his business, reasonable valuation and market-beating dividend add to Campbell’s investment appeal. Let’s dive into it.
Campbell’s is as well positioned as any company to weather a challenging economic environment. Soups and sauces are consumer staples, and demand for these types of products is expected to remain stable even during a recession. On the contrary, these types of staples could see a surge in demand as consumers seek to cut costs by cooking at home instead of eating out.
CEO Mark Clouse said, “With consumers preparing approximately 80% of meals at home, our brands are well positioned for continued growth, providing customers with the quality, value and convenience they seek to simple meals at home and quick cooking.
The company points out that a consumer can use its products to prepare a meal like spaghetti carbonara or chicken parmesan for average prices of $1.51 and $2.31 per serving, respectively, against a cost of $21.89. $ and $18.15 for the same average restaurant meals. You can’t underestimate these kinds of savings and the difference they can make to the average family at a time when most consumers are trying to be sensible when it comes to spending.
In addition to its strong performance over the past year, the title defense is evidenced by the fact that Campbell’s increased organic sales by 15% and adjusted EBITDA by 15% this quarter. The company says it has been able to mitigate the effects of inflation by raising prices and improving productivity.
More than just soup
Campbell’s is not limited to soups of the same name. The company offers a thriving snack business, which includes brands such as Goldfish, Pepperidge Farm, Snack Factory Pretzel Crisps, Emerald Nuts and many more. Products like Pepperidge Farm’s Milano or Chessmen cookies are the kinds of small everyday luxuries that some consumers turn to as a small reward or indulgence instead of larger luxury purchases they could afford in a better environment. economic.
Meanwhile, Goldfish has ranked as the #1 snack brand among teens for three consecutive years in Piper SandlerAnnual survey Taking stock with teenagers. Goldfish stays fresh in the minds of consumers by launching innovative new collaborations like its limited-edition Pumpkin Spice Grahams with Dunkin’ Donuts, which seems well-suited to the current era of viral media.
Pleasant valuation and tasty dividend
Campbell’s is trading at a valuation of 21x earnings and 17x next year’s earnings, which isn’t necessarily cheap but is acceptable for a high-quality defensive stock that preserves investors’ capital during the downturn. recession.
In addition to this reasonable valuation, Campbell’s Soup is also attractive with an above-market dividend yielding almost 3%. Although the dividend hasn’t increased much in recent years, Campbell’s has been paying a dividend since 1989, and there’s something to be said for that consistency.
While it’s not the type of stock you buy expecting outrageous returns a year from now, Campbell’s Soup is well positioned for the current market environment. The company’s products will continue to sell even in a recession, and it is working to refresh its brands and stay relevant with young consumers. Its valuation is reasonable and the long-standing dividend adds to the stock’s appeal.
Campbell’s Soup has been around since 1869, so investors need not worry about it disappearing for the foreseeable future. These are the type of stable stocks that investors can buy to add ballast and stability to their portfolio in a choppy market.
Michael Byrne has no position in any of the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.
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