newsletter signup


Smart Investing Newsletter Archive

Should You Be Thankful For These Thanksgiving Stocks?

Tuesday, November 21st, 2017

ConAgra Brands, Inc. (CAG): SELL
During Thanksgiving, everyone loves to have pie and with the Marie Calendar’s and Reddi-wip Brands, ConAgra has a great selection for Thanksgiving dessert. While the company has some sweet offerings, the stock price appears to be expensive. The current P/E of 25.8 is above the industry average of 24.3. Price/Sales of 1.9 is expensive when compared to the industry average of 1.2 and Price/Cash Flow of 19.4 is also above the industry average of 15.5. Due to the company’s wide assortment of brands, the company carries $4.3 billion of goodwill on the balance sheet. This results in the company having no equity if all the intangible assets were removed. Since there is no tangible equity, CAG has a Price/Tangible Book Value that is not material. The balance sheet for ConAgra looks decent as there is a current ratio of 1.03 and Debt/Equity is 86.7%. Looking forward to May 2019, estimated GAAP EPS of $1.97 would give us a target sell price of $32.51.

Kraft Heinz Company (KHC): SELL
Kraft Heinz has great brands for everyone to enjoy this Thanksgiving, including: Cool Whip, Heinz Gravy, Stove Top Stuffing, and Maxwell House. Although the company has great brands, investors appear to be overpaying. The current P/E of 24.9 is above the industry average of 24.3. Price/Sales of 3.7 is more than 3 times the industry average of 1.2 and Price/Cash Flow of 19.3 is well above the industry average of 15.5. Price/Tangible Book Value is not material due to the company acquiring many different brands. Investors receive a nice dividend of 3.1% and the company uses a reasonable amount of earnings to pay that dividend as the payout ratio is 75.1%. While the payout ratio is reasonable at the current time, it is starting to approach an uncomfortable level. Sales have struggled over the last 12 months as they have fallen 2%, but earnings have climbed 40.6% during the same time frame. While this earnings increase may look nice on the surface, it is most likely due to non-reoccurring items. Turning to the balance sheet, the liquidity is a concern as the current ratio is 0.77 and the quick ratio is just 0.43. On a positive note, Debt/Equity of 53.6% looks good as it is below the industry average of 67.3%. Looking forward to December 2018, estimated GAAP EPS of $3.84 would give us a target sell price of $63.36.

Hormel Foods Corporation (HRL): SELL
With the Jennie-O brand, Hormel has a great offering for your Thanksgiving turkey. While you may want to get your turkey from Hormel, you may not want to invest in this company. The current P/E of 20.7 is below the industry average of 24.3, but Price/Sales of 1.9 is expensive compared to the industry average of 1.2 and Price/Cash Flow of 17.6 is also above the industry average of 15.5. Over the last 12 months sales are essentially flat as they have grown by just 0.1%. During the same time frame, EPS has increased 5.2%. The balance sheet is a major positive for the company as there is a lot of liquidity with a current ratio of 2.5 and little debt with Debt/Equity of 5.3%. Looking forward to October 2019, estimated GAAP EPS of 1.64 would give us a target sell price of $27.06.

Constellation Brands (STZ): SELL
Constellation has many great brand names including Corona, Ballast Point, Mondavi, and Black Velvet. The company has witnessed nice growth over the last 12 months as sales have climbed 5.4% and EPS has risen 49.9%. While the company has been growing, the valuations are a concern. The current P/E of 27.8 is well above the industry average of 8.3. Price/Sales of 5.7 is very expensive compared to the industry average of 1.6 and Price/Cash Flow of 20.3 is also higher than the industry average of 10.7. The current Price/Tangible Book Value is not material due to the goodwill from acquisitions, but even the Price/Book value of 5.4 is more than I would like to see. The balance sheet looks decent as there is a current ratio of 1.6 and Debt/Equity is 112.9%. The liquidity is good, but the high debt level paired with a lot of intangible assets is a big concern. Looking forward to February 2019, estimated GAAP EPS of $9.24 would give us a target sell price of $152.46.

Lifetime Brands (LCUT): BUY
When cooking in the kitchen this Thanksgiving, you may find yourself using a Lifetime Brand utensil. The company has licenses with companies such as KitchenAid, Farberware, and Sabatier. The current P/E of 15.6 is favorable compared to the industry average of 24.9. Price/Sales of 0.4 looks phenomenal as it is well below the industry average of 2.9. Price/Tangible Book Value of 2.1 is favorable compared to an industry that is not material and Price/Cash Flow of 9.0 also looks good as it is below the industry average of 18.8. Sales have climbed 0.9% over the last 12 months and EPS has risen 29.1% during the same time frame. Given the wide discrepancy between the two growth rates, much of the EPS growth was most likely due to accounting rules. The balance sheet looks strong for the company as the current ratio is 3.3 and Debt/Equity is 61.8%. Looking forward to December 2018, estimated EPS of $1.55 would give us a target sell price of $25.58. An area of concern with this company is that it is small with a market cap of $245 million and it has just one analyst following it.

Whirlpool (WHR): BUY
Whirlpool manufactures home appliances such as refrigerators, freezers, and cooking appliances under popular brand names such as Whirlpool, Maytag, and KitchenAid. The valuation ratios are a positive for the company as the current P/E of 15.5 is the same as the industry average; Price/Sales of 0.6 is favorable against an industry average of 0.8; and Price/Cash Flow of 8.2 is inexpensive compared to the industry average of 10.9. The company pays a nice dividend of 2.7% and it has a reasonable payout ratio of 39.6%. Sales have climbed for WHR by 2.8% over the last 12 months, but EPS has declined by 7.5% over the same time frame. One area of caution would be the balance sheet, there is currently no tangible equity due to the company’s acquisitions. The company also has a low current ratio of 0.9. Much of this can be attributed to the short-term debt on the balance sheet. The current Long-Term Debt/Equity stands at 77.2%, but Total Debt/Equity is 121.7%. This total debt level is a little higher than I would like to see, and I would want to know what the company plans to do with the short-term debt that is coming due within the next 12 months. If I look out to December 2018, estimated GAAP EPS of $14.73 would give me a target sell price of $243.05.

Wishing you and your family a Happy Thanksgiving,
The WAM Family
Do you have a question or a company you would like us to take a look at?
Ask Us!

Upcoming Smart Investing Workshop
Thursday, Dec 7th

Register Now

The Smart Investing Radio Show

with Brent & Chase Wilsey

Saturdays 8am (LIVE)
Sundays 5pm (REPLAY)

Newsletter

Latest Newsletter

Video

Latest Video

Dec 4th, 2017: Brent Wilsey & Roy Robertson discuss how to select a financial adviser you trust and what kind of research you can do to make the most important financial decisions you will ever make.

How to Research Financial Advisors

Dec 6th, 2017

Wilsey Asset Management Inc BBB Business Review