I love Thanksgiving because it’s 100% American.
It was first proclaimed by George Washington. It was used to celebrate the Union victory in the Civil War by Abraham Lincoln. The date was moved to the third Thursday in November by Franklin D. Roosevelt during the Great Depression, in order to create the Christmas shopping season.
Thanksgiving is also a feast of family and gluttony. Turkey, dressing, pies, alcohol and a good nap over the sound of a televised football game. Then, maybe, a shopping spree. What could be better than that? What could be more American?
If there’s anything even more American than Thanksgiving, it’s trying to make a buck. So, this year I decided to focus on companies that are strongly linked with Thanksgiving to see if there were any bargains for the Christmas stocking that might sprout profits by Easter.
Not all of these companies are going to be winners, but they’re all worth looking at before you watch the Lions lose to the Bears or the Cowboys fall to Buffalo.
Thanksgiving Bargain Stocks: Southwest Airlines (LUV)
Southwest Airlines (NYSE:LUV) is the most American airline in America. That’s because it has the most American route structure, with only a few routes outside the country, to vacation destinations in Mexico and the Caribbean.
The stock has been hurt in 2019 as its strength became a weakness. It flies just one plane, the Boeing (NYSE:BA) 737. This simplifies operations. But Boeing’s inability to deal with the 737 Max scandal has hurt both Southwest’s image and operations.
Any hint of an end to the problem sends Southwest stock toward its high for the year, which was almost $59 per share. Despite the scandal’s $210 million hit, however, Southwest had a great third quarter. This is thanks to its route system, which focuses less on hubs than on direct routes that keep planes in the air longer.
Rivals like Delta Air Lines (NYSE:DAL) have had decades to learn from what Southwest does right: simple pricing, no-nonsense service and website-only orders. This gives Southwest granular control over pricing and lets it do “flash sales” when planes look less than full.
Southwest’s financial results through 2019 have been stellar, with net income for the first three quarters at $3.30 per share. The dividend yields just 1.2%, but has tripled over the last five years. Shares are up 50% in that time.
Despite losing founder Herb Kelleher to cancer early this year, the company hasn’t missed a beat.
Macy’s (NYSE:M) stock traded below $16 on Nov. 11. The market capitalization is just over $5 billion. You will see its most valuable remaining asset early on Thanksgiving morning, the New York flagship at Broadway and 34th Street.
In this past decade the whole retail category has collapsed. Department stores aren’t seen as providing value. Shopping malls have been replaced by free-standing stores. Once the Christmas season is over, most Macy’s stores will be empty.
Macy’s tried to fight the trend by practically inventing the term omni-channel, integrating its physical and online selling. Its logistics weren’t up to the challenge an customers saw employees as costing too much.
Revenue has been declining for years. While it makes money, $3.56 per share last year fully diluted, its stock is seen as a yield trap. The dividend of about 38 cents per share yields a whopping 9% to current shareholders. The price-to-earnings ratio is now below 6.
Like many Americans I have a soft spot for the parade down Broadway. I saw it live as a child. My brother marched in it when he was in high school. But it’s what happens after the parade that matters, and the parade seems to have passed Macy’s by.
It’s because for more than a decade Pepsi has had a strategic alliance with Ocean Spray, a Massachusetts-based cooperative whose jellied cranberry sauce is more closely identified with Thanksgiving than any other condiment.
Besides that, it’s a good stock. Pepsi shares are up 22% so far in 2019 and pay a dividend of over 95 cents per share. That now yields 2.9% at a time when the 30-year U.S. Treasury trades at 2.2%.
Pepsi isn’t a fast-growing company. It’s a fat profits company, which last year brought 19% of its revenue to the net income line. Pepsi generates over $9.5 billion of cash from operations. It had almost $9 billion in cash at the end of its most recent quarter. It buys back about 2.5% of its stock each year, more than 80% of other beverage companies.
The alliance with Ocean Spray has been profitable for both sides and was extended to Latin America in 2012.
Maybe this doesn’t have much to do with Thanksgiving Dinner, especially if you’re from Southern states where the cranberry isn’t celebrated. Still, Pepsi stock is a long-term winner and deserves to be in your portfolio.
The centerpiece of every Thanksgiving dinner is usually a turkey unless, like some of my friends, you’re vegetarian and having a Tofurky.
The brand on that turkey is probably Butterball. Butterball is a joint venture between privately held Maxwell Farms and Seaboard (NYSEAMERICAN:SEB), a 100-year old Kansas company whose primary business is pork.
Seaboard has a market cap of $4.7 billion but just 1.16 million shares outstanding. Thus, each share costs about $4,100. They’re up 14% so far in 2019 and began paying dividends in 2017. Since then the dividend is up 50%, but it’s still just $9 per year.
Seaboard’s biggest move this year was buying out privately held Continental Grain’s stake in a joint venture in Peru, mainly involved in grain processing. That’s what meat companies do. They turn grain into feed, feed into animals and animals into dinner. Seaboard now has grain processing operations in 23 countries.
The turkey company reported earnings in late October, including a loss of $7 million, or $6 per share. For the year so far, however, it has earned $108 million. This means the dividend looks safe.
November is the big month at Butterball. Whole turkeys are often loss-leaders at supermarkets, priced at under $1 per pound.
What Butterball isn’t offering is profit. Seaboard investors will thank goodness for pigs.
General Mills (GIS)
General Mills (NYSE:GIS) is to Minneapolis what Coca-Cola is to Atlanta. It’s where the story of the city starts.
The company’s heyday was during the post-World War II boom. That’s when General Mills staff members first published the Betty Crocker Cookbook. And doesn’t every family have one of those? I know I often make the banana nut bread.
Pillsbury and General Mills merged in 2001, for $5.9 billion. Today the combined company is worth $32 billion.
So far 2019 has been a very good year for GIS stock, which is up 36%. Despite this its 49 cent per share dividend still yields 3.7%.
While it’s on this list because of the cookbooks and Pillsbury biscuits, the company’s financial fate today is more tied to brands like Haagen-Dazs ice cream and Old El Paso dinner kits. Last year it paid $8 billion for Blue Buffalo pet food.
Growth segments like pet food compensate for weakness in areas like snack foods, where revenues are down. Still, the company has managed to eke out bigger profits on those lower volumes, which makes it a good defensive play for conservative investors.
Constellation Brands (STZ)
The key ingredient in my father’s famous chestnut stuffing, which he always spooned right into the bird, was Taylor Wine. This was a New York burgundy that came in half gallon jugs and disappeared in 1995 after being, for a time, owned by Coca-Cola. A successor company now operates the brand as Pleasant Valley wine. The recipe is a glass for the bird, and two for the cook.
One of Taylor Wine’s owners was Constellation Brands (NYSE:STZ), which agreed to sell its low-end wine brands to E & J Gallo early this year for $1.7 billion. The deal is still pending. Constellation is a company worth a good look.
That’s because of where Constellation put the Gallo money, and more. That would be Canopy Growth (NYSE:CGC), a marijuana producer into which it poured $4 billion last year. Constellation had lost nearly $600 million on Canopy by the middle of this year. The company isn’t expected to turn a profit until 2022. I recently called Canopy the best in a bad hand of pot stocks, as all players wait for talk of legal weed to become street reality.
Despite the pot problems, beer brands like Modelo and Corona, wine brands like Robert Mondavi and spirit brands like Svedka vodka, have Constellation shares up 9% so far in 2019. The market cap is $33.8 billion. Constellation took responsibility for its pot losses by dumping Canopy’s founding managers. It’s in the process of hiring a new team.
Enjoy the stuffing, maybe have a little mixed drink afterward, then wait a few years to roll the joint and cash out of the stock.
The Dallas game has become almost as much of a TV tradition as the Lions’ game against the Bears.
The game is on CBS (NYSE:CBS) and the game is changing there as well. The “Tiffany Network” merger with Viacom (NASDAQ:VIAB) is expected to close before the end of the year. The deck chairs are already being rearranged.
The new ViacomCBS is still just a broadcast and cable caster. In addition to the main broadcast network, which has become number one by default, the new company owns a host of cable channels including MTV, Nickelodeon and Comedy Central.
Neither stock has done well in 2019. Viacom is down 11%. CBS is down 12%.
The merger was reported to be worth $28 billion, but on Nov. 18 the companies had a combined market cap under $25 billion. The trailing price-to-earnings ratio for CBS was under 5, that for Viacom just 6. Wall Street doesn’t believe in this merger.
Maybe analysts are right. CBS reported its earnings on Nov. 12, with earnings per share of 85 cents. But total revenue of $3.3 billion was up just 1% from a year ago. On top of that, CBS stock missed estimates by 2% and the traded down.
But maybe you should take another look. These companies have assets. CBS has a streaming service, Viacom’s BET is getting one and the cable companies have plenty of assets for one or two more. How might those assets look inside Amazon (NASDAQ:AMZN) or Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) YouTube? The price of the combined company would be seat cushion money, and Alphabet could pay for it in cash.
The game, in other words, has well and truly changed.
Target (TGT) and Walmart (WMT)
Target and Walmart used to be the same store, but that’s no longer true. Target is focusing on urban centers and college campuses. Walmart is obsessed with taking down Amazon, which I’ve compared with Ahab’s search for Moby Dick.
In 2019, the right place for investors was Target. Shares are up over 69% so far in 2019, while those of Walmart have gained just 29%. They’re helped by the fact that Target is a much, much smaller company. Its 2017 revenue of $75 billion was barely half Walmart’s quarterly sales of $130 billion. That math means Target’s sales increase of $5 billion represented growth of 7%, while Walmart’s additional haul of $14 billion in sales was just 3% growth.
Assuming there’s no recession, this math should operate in 2020 as well. Bigger numbers are harder to grow than smaller ones, whether you’re talking sales or income.
I still think the best reason to own Walmart is its dividend, although the 53 cent per share payout represents a yield of just 1.8%. That means I consider Walmart overpriced. Many analysts think Target its overvalued, but its 66 cent per share dividend is yielding 2.4%, better than a 30-year Treasury. I think it’s still the play.
Still, in many parts of the country, where Walmart is strongest, Black Friday is still a big event. I remember going into a Walmart on Black Friday once in the early morning and finding it nearly picked through, with long lines at every cash register. Good times.
Black Friday is coming earlier than ever. Walmart opens Thanksgiving evening at 6 p.m. Take the kids.
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental story, Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.