The Last Bastion of Defense

06/11/2004 12:00 am EST


Gregory Spear

Editor and President, The Spear Report

"Consumer staples are the last bastion of defensive investing," says Gregory Spear. "They're relatively stable stocks that grow slowly but steadily. It is not too late to park some money here." Here's a look at Starbucks, Wrigley's, and Smithfield Foods.

"While accounting for just 7% of the coffee consumption in the US, Starbucks (SBUX NASDAQ) is a leader in its field. It definitely wants to be your coffee company. Despite the fact that it already has 8,000 stores (6,000 in North America and 2,000 overseas), the company is opening up 1,300 new stores a year. It is also diversifying its offerings beyond coffee and attempting to fulfill its destiny as a destination, rather than a commodity transaction business. The Seattle-based outfit just reported second-quarter earnings that were up more than 50% over last year's numbers with revenues growing 29% and the best quarterly same-store sales gain (11%) in 10 years. Further, in a market that is now known for selling the good news, the stock's performance is also outstanding. It is near all-time highs and appears to be able to resist short-sellers, despite the p/e multiple of 47.

"Another mid-cap niche player with a dominant position is Wrigley's (WWY NYSE). The company is proud of its product, reminding us that gum improves concentration and eases tension. In fact, the US Armed Forces has supplied chewing gum to its soldiers ever since World War I, and it is still included in field and combat rations today. It also freshens breath, which you might need if you are on a ketone-generating low-carb diet. Speaking of which, gum provides a satisfying low-carb snack, with less than ten calories per stick. And it helps fight tooth decay by stimulating the production of saliva to neutralize acids from foods. But here's the bottom line: Wrigley earned $111 million, or 49 cents per share in the most recent quarter, up 13% on a 21% revenue increase. About seven percentage points were due to positive currency benefits from a weaker dollar. The chart looks great and WWY is one of the only consumer staples able to make new all-time highs in the last month.

"Smithfield Foods (SFD NYSE) is ‘high on the hog’ as the US food market is undergoing sharp changes due to the Atkins diet and the dozens of high-protein, low-carb spin-offs. With annualized sales of $9 billion, Smithfield Foods is the leading processor and marketer of fresh pork and processed meats in the US. Its Smithfield Lean Generation Pork is the first fresh pork to be certified by the American Heart Association for its low fat, sodium, and cholesterol content. Smithfield is highly conscious about food safety and their vertical integration gives them a valuable competitive advantage in this area. The company tracks data on each hog they raise, including their genetic makeup, nutritional and medical regimens, and when and where they were processed. By being both supplier and processor the company has smoothed out some of the peaks and valleys in their earnings. Technically, SFD has a chart of beauty, having just broken out to new all-time highs."

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