If indeed we are entering a protracted period of economic sluggishness, owning defensive stocks may just be the tonic for your portfolio. One of my favorites is Campbell Soup Company (CPB). It is indeed, Mmmm Mmmm good!
I was raised on a steady diet of canned soup from CPB that continued as a young adult. Its products were cheap, filling and tasty. In some ways it was comfort food. It was only as I became more financially stable that I consumed fewer cans of soup.
That financial stability is changing for many, and in my opinion will result in more interest in CPB. For many years during the economic expansion I would have to admit that I thought CPB was a very boring stock.
Now, that boring aspect of the company is a shining attribute. Food companies make for great investments during times of distress. People will buy food no matter what is happening in the world. It will be the last thing to cut in a budget.
CPB is one of the defensive stalwarts of the stock market. In tough economic times, people tend to eschew discretionary purchases such as dining out and instead "cocoon" themselves in their homes.
A key component of this cocooning trend is homemade meals, and Campbell’s soups are often the first course. Going further down the menu, CPB offers more than just soup. The company also sells essentials such as pasta sauces, gravies, chili, canned pasta, juices, crackers, cookies, bakery and frozen products, plus a myriad of other things that are likely sitting in your pantry.
Despite a year in which CPB faced unprecedented cost inflation, the company announced last month that it met or exceeded its financial guidance for the sixth consecutive year. The company earned $2.01 per share from continuing operations and excluding special items, a seven percent increase from a year ago. Sales grew eight percent to just shy of $8 billion.
Going forward, CPB expects earnings growth between five to seven percent in fiscal 2009. They say that fiscal 2009 will be another good year, and they have strong plans in place across its portfolio to win with consumers in its core categories.
For instance, in its U.S. soup business the focus on wellness is beginning to pay off as the lower sodium soup portfolio showed strong growth in 2008 and is poised for further growth in 2009 with the launch of "Campbell’s Select Harvest" ready-to-serve soups. The company is also encouraged by its "V8" brand, led by "V8 V-Fusion" in the healthy beverages category, and strong growth prospects overseas in Russia and China.
Now that’s comfort food for investors looking for defensive stocks to own. One will not get rich doing so, but you won’t get burned if you do. I would even go so far as to say that there is upside potential as its valuation expands due to more interest in owning such defensive positions.
Who knows, there may even be a mass movement to eating more soup at home. If so, CPB might even become a growth company. You should be able to sleep well owning CPB.
If the anticipated recession takes hold for an inordinate amount of time, CPB may be your safe haven.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com and check out:
