I have been following Campbell Soup for almost a decade, mainly as a fixed-income play.  Its reliable earnings and very strong cashflow allow it to pay a very attractive 3.6% dividend, which is very secure, given that it represents just 30% of the company’s earnings.

Also, this “Old Faithfull-like” revenue stream that grows steadily over time allows Campbell to repurchase stock recurrently, boosting earnings per share.  And the  company’s undisputed dominance in soups and its strong positioning in other products – like Swanson broth and canned poultry, V8 vegetable juices, Chunky chili, Prego and Pace sauces – command almost 25% operating margins, which lead all its peers, including superb competitors like General Mills Inc. (NYSE: GIS), Kellogg Co. (NYSE: K) and H.J. Heinz Co. (NYSE: HNZ).

The only place Campbell Soup has been lacking is in its growth, but that is about to change.   On May 26, Campbell Soup announced it the signing of a distribution agreement with the largest consumer staples distributor in Russia and Eastern Europe: Coca Cola Hellenic.

Coca Cola Hellenic, which is currently distributing in the Moscow region for Campbell Soup, will enlarge distribution to more than 100 cities and twelve regions across Russia, beginning in August.

The immensity of this step cannot be missed as the company clearly points out:

“Soup consumption in Russia is more than double that of the United States, where U.S. consumers eat approximately 14 billion soup servings per year. In Russia, nearly 32 billion servings are consumed each year, or approximately 230 servings per capita, which are still predominately homemade, making Russia the world’s second largest soup consuming market after China.”

This comes less than two years after the simultaneous entry of Campbell Soup in both China and Russia.  Since most of those markets are homemade soups, the convenience, high quality, and health-oriented focus of Campbell Soup products will offer the Russian and Chinese consumers a very compelling value proposition.

We can only speculate about the effects that similar efforts to expand in China, which the company must surely be working on, will have.  It won’t be long before these foreign forays make an impact on growth and margins, and thus the company’s stock price.

Remember that in emerging markets, consumer staples companies enjoy growing populations, growing real income per capita, and an under-served market for Campbell Soup’s products.  It is a profit growth playground.  In addition, the longer winters in much of Russia and in Northern China will decrease the typical seasonality of Campbell Soups sales, only 30% of which are international today.

The stock suffered over the past year, tumbling from its peak of $42.45 share to a recent low of about $25, which is a strong support going back to the 2002-2003 recession and even the year 2000.  The fundamental valuation of the stock is in line with peers, considering the very meager growth assumptions for the industry.  This is where the surprise lies and the catalyst for earnings surprises starting in the second half of the calendar year.

The long term technicals also show the stock oversold and have just turned to the upside, indicating a medium term upside potential to at least $32 a share, a 19% gain excluding solid dividends of 3.7%.

The company reported last week that its third-quarter profit fell sharply from last year, when it sold its Godiva Chocolatier brand, but its adjusted profit rose 3.6%. Excluding one-time items such as the sale of Godiva, the nation’s largest soup maker earned $171 million in this year’s third quarter, or 48 cents a share, up from $165 million, or 43 cents per share a year ago.

The company also said the strong dollar pushed its results down 4 cents per share. But the dollar rally that lasted for most of that quarter is gone and so were most of the high commodity prices.  In addition, Campbell Soup, given its superb brand loyalty has what most companies envy: pricing power.

Recommendation: Buy Campbell Soup Co (NYSE: CPB) at market (**).

(**) – Special Note of Disclosure: Horacio Marquez holds no interest Campbell Soup Co.

Source: Buy, Sell or Hold: Campbell Soup Co. (NYSE: CPB) Looks to Profit From its Recent Overseas Expansion

We have been raking in huge profits in all our cyclical and aggressive plays since we called the turnaround in Brazil last October 27:  Petroleo Brasileiro (NYSE: PBR) — known as Petrobras – Vale (NYSE: VALE), Apple Inc. (Nasdaq: AAPL), BHP Billiton Ltd. (NYSE: BHP), Research in Motion Ltd. (Nasdaq: RIMM), IBM (NYSE: IBM), Amazon.com Inc. (Nasdaq: AMZN),  Diamond Offshore Drilling Inc. (NYSE: DO), and Ciena Corp. (Nasdaq: CIEN) have all done splendid.

And over the longer term, all of these companies are going to continue delivering, with some obvious profit-taking bouts along the way.

One of such profit-taking episode could be starting right now.  And it could be driven by Standard & Poor’s recent downgrade of United Kingdom’s sovereign debt rating.  This was in turn followed by the comments coming out from PIMCO that suggest the United States’ debt rating could be in jeopardy.  Even though S&P minimized that possibility, when Bill Gross speaks, the bond markets listen.

General Mills met earnings expectations in March and raised its earnings outlook.  It has been benefiting from the drop in commodities prices, especially agricultural. In addition, the firm, like many in the consumer business, has suffered from a strong U.S. Dollar, which reduced the value of the profits abroad.  The nice thing about consumer staples is that, since people have to eat in good and bad times, these companies are not cyclicals, but rather suffer very little in downturns.

That has been the case for General Mills, which in the last report showed a 4% sales increase from the same quarter in the prior year.  And this sales increase was achieved despite a 6% drop in the sales of food service and bakery products, where the firm nonetheless managed to increase pricing.  But this sector is being de-emphasized with some divestment.

Just think about the solid brands that allow General Mills to dependably keep chugging along every quarter, increasing sales as the population grows. General Mills also boasts well established and new brands that keep increasing its market penetration around the world.   Since then, the dollar has corrected in value and the commodities prices have dropped. That will show up in next month’s earnings report and the stock should perform nicely.

The company is dominant with its Pillsbury brand, which has more than two-thirds of the market.  Cheerios, which has come under some scrutiny for health claims by the FDA, is the top cereal franchise in the ready-to-eat segment.  In addition, we are going to see hundreds of new products being launched soon.

The global story is only beginning for this company, even though they are already in China, and many other fast-growing emerging markets.  This international presence, which right now accounts for only 20% of the company’s total sales, is likely to grow much faster in the near future.  This will be achieved with joint ventures and by leveraging the brands that have the highest international penetration, like Nature valley and Haagen Dazs.

The stock is trading with a price-earnings ratio of only 16 times and an attractive dividend yield of 3.3%. But looking at the company’s growth, it is trading at only 13 times future earnings.  This is a low-risk proposition, as both the company earnings and the dividend appear to be very safe. In addition, the stock has a small short ratio that should diminish if we see profit-taking in the cyclical.

Last but not least, in addition to the short-term technical turning bullish at the end of April, as the stock crossed its 13-day and 50-day exponential averages to the upside, the long-term technicals have also turned bullish and the stock is still way oversold.

Recommendation: Buy General Mills Inc. (GIS) at the market and accumulate more if you see weakness (**).

(**) – Special Note of Disclosure: Horacio Marquez holds no interest General Mills Inc.

Source: Buy, Sell or Hold: General Mills Inc. (NYSE: GIS) is a Wholesome Company with Profit Coming Down the Pipeline

• The U.S. Federal Reserve said yesterday (Thursday) that it will purchase up to $300 billion of longer-term Treasury securities over the next six months. The Fed will also purchase an additional $750 billion worth of government-guaranteed mortgage-backed securities.  The announcement accompanied its decision to keep interest rates at historically low levels.

• Sources told The New York Times that IBM Corp. (IBM) is in talks to buy Sun Microsystems Inc. (S) for at least $6.5 billion, which would be twice the value of Tuesday’s closing price of Sun’s shares. If a deal if reached, it would be IBM’s largest acquisition and one that would bolster the company’s standing among high-end computer server companies.

• About 1,471 hedge funds shut down last year, exceeding the previous record of 848 by 70%. In the fourth quarter alone, more than half of those hedge funds bellied up. “It’s been a great culling of mediocre managers,” Tammer Kamel, president of Toronto-based Iluka Consulting Group Ltd., which advises clients on hedge-fund investments, told Bloomberg. “Those funds that will be around this year are the ones with the right skill set.”

• Minnesota-based Food maker General Mills Inc. (GIS) posted fiscal third-quarter earnings of $288.9 million, or 85 cents a share. The numbers were below its expectations and caused by the effects of a strong dollar and high costs, Reuters reported.

• The World Bank said that China’s economy is showing “early signs” of stabilization, while forecasted the nation’s economic growth at 6.5%, Bloomberg reported. “The government’s stimulus is working,” said Louis Kuijs, a senior economist at the World Bank in Beijing. “China’s fundamentals are strong enough to ride out this storm.”

• Edward Liddy, chief executive of American International Group Inc. (AIG), has asked employees of the bailed out insurer that took home more than $100,000 in bonuses to return at least half, CNN reported. “It was distasteful to make these payments,” Liddy told members of the House Financial Services subcommittee. “This morning, I’ve asked the employees of AIG Financial Products to step up and do the right thing. Specifically, I’ve asked those who received retention payments in excess of $100,000 or more to return at least half of those payments.”

Source: Global Investment News Briefs Thursday, March 19, 2009

Of all food categories, prices for cereal and baked goods hit U.S. consumers the hardest, zooming 11.7% in 2008 over 2007. Prices for meats, poultry, fish and eggs gained 5.1%. Fruits and vegetable rose 3.4%, while dairy products advanced 2.7%.

It was the second straight year U.S. consumers were forced to pay a lot more for their groceries. In 2007, food prices at supermarkets rose 5.6%. Prices rose only 1.4% in 2006.

Consumers had to pay the price last year because food makers battled the largest spike in commodities they’ve ever faced, walloped by duel increases in key food ingredients and fuel, which all marched to historic highs in July, a month in which crude oil peaked at an all-time record of more than $147 a barrel.

This major escalation in food prices calls to question contentions that inflation is not a problem, a stance that – on the surface – appears to be supported by government statistics that appear to be fairly benign.

“The notion that U.S. government inflation statistics are accurate has been the subject of intense debate for years,” said Money Morning Investment Director Keith Fitz-Gerald. “My own belief, based on nothing more than what I feel in my wallet, is that those statistics are more cooked than a Christmas goose. I hear the same thing from tens of thousands of investors that I talk to around the world each year.”

The Lowdown on Inflation

For instance, inflation averaged 3.85% last year, according to InflationData.com, which offers investors statistics that are said to be more-specific versions of government figures. But just like stock prices, the inflation figures were whipsawed from one month to the next. The monthly U.S. inflation rate actually eclipsed the 5.0% mark in June, July and August, and was still above 4.9% in September. By December, however, the inflation rate for the month was a nearly imperceptible 0.09% – the lowest rate for any month in this decade.

The “official” consumer price index (CPI) – the measure of price changes that directly impact U.S. consumers – also seems to indicate that we’re right now in a fairly benign environment for prices.

On Friday, the Labor Department said that consumer prices dropped 0.7% in December, slightly smaller than the 0.9% drop economists expected, Yahoo! News and The Associated Press reported. For the year, consumer prices as measured by the consumer price index edged up by just 0.1%, down from the increase of 4.1% reported for all of 2007 and the smallest annual change since consumer prices actually fell by 0.7% in 1954.

The Labor Department said that the big yearly improvement occurred because of the sizable declines in energy prices that we’ve seen in recent months.

The so-called “core” CPI for December – which excludes volatile food and energy prices – was unchanged in December. For the year, the core CPI rose a moderate 1.8%, down from the modest 2.4% increase for all of 2007. Price pressures have eased as the recession intensified, The AP said.

Even back in July – the month in which crude oil prices reached their all-time peak – the overall CPI was only up a reported 2.1%.

The U.S. government actually has an incentive to understate inflation rates, since scores of payments – ranging from Social Security payments to retirees, to the interest payments on inflation-pegged Treasury bonds – are pegged to inflation calculations.

“The U.S. government is suffering from attention-to-deficits disorder,” Money Morning’s Fitz-Gerald says. “Scores of financial calculations are based on the inflation rate, and the additional increases could boost the deficit by trillions of dollars.”

The government contends that the decline in inflation is due to the economic slowdown. Further evidence of that slowdown came Friday in a separate report from the U.S. Federal Reserve that showed that production at the nation’s factories, mines and utilities plunged 2.0% percent in December, capping the worst year for manufacturers since 2001. Last month’s drop, double the amount analysts expected, came after a 1.3% in November, which was even sharper than initially reported.

For all of last year, industrial production declined 1.8%, a major reversal from the 1.7% increase reported last year. It marked the worst showing since a 3.4% decline in 2001, when the country last suffered through a recession.

The theory here is that a drop in industrial output means there’s an accompanying drop-off in demand for commodities used to make the products, meaning there’s no need for price increases.

But, as we’ll see, that’s not the case.

Food Prices Still Escalating

For December, gasoline prices fell by 17.2%, the biggest monthly decline on records that reach back 71 years. Overall energy prices also dropped by a record 8.3% as home heating oil and natural gas showed declines.

For 2008, energy prices fell 21.3%, with gas costs tumbling by 43.1%.

The story was different for food, however. While food costs were unchanged in December, they rose 5.8% for all of last year – including the 6.6% increase at the grocery store.

Some experts say these CPI figures drastically understate the real situation with regards to consumer prices. ShadowStats.com, for instance, has posted a chart on its Web site that shows an “alternate” CPI that peaked at better than 13% last year, and that ended 2008 at nearly 8% – far above the “official” government statistics.

The problems emanating from the big increase in food and commodities prices weren’t limited to the United States, either. In April, the leader of the United Nation’s World Food Programme warned that a “silent tsunami” of hunger was sweeping the globe because of soaring food prices, a situation that threatened the well-being of an estimated 20 million children in the world’s most poverty-stricken areas. At that time, food prices had risen 83% in the previous three years, and rice – a staple of daily diets throughout Asia – had actually doubled in price in the prior five weeks.

Here in the United States, however, the reported 6.6% jump in food prices – and the increase in the producer prices that necessitated the increase in the price of the products at retail – had widespread implications.

For instance, Pilgrim’s Pride Corp. (OTC: PGPDQ), the No. 1 U.S. chicken producer, declared bankruptcy on Dec. 1, according to MarketWatch.com.

Analysts claim that relief is on the way – for producers and consumers alike. Commodity prices – particularly prices for corn, wheat and energy – have plummeted since peaking last summer. And inflation at the grocery store level has eased since prices reached their peak in September, the Labor Department says.

But real-world developments continue to contradict the predictions of research economists and the “official” government reports.

Price Hikes Play Out in the Marketplace

Just consider Kellogg Co. (K), the No. 1 U.S. cereal maker, and the producer of the Frosted Flakes and Rice Krispies brand cereals, as well as the popular Pop-Tarts breakfast pastries. Kellogg was to increase prices on all three plans to lift prices in the “low-to-mid single digit” range this week to help offset the increase in commodity costs. It won’t increase prices for its All-Bran and Special K brands, however.

Kellogg said it was raising prices because it sets pricing behind increases or decreases in the value of the commodities it uses. A spokeswoman said a 2008 price hike didn’t help the company recover all its manufacturing costs.

And that may not be the end. UBS AG (UBS) analyst David Palmer said in a research note that the price increases by Kellogg’s will likely be matched by rivaling companies – the ones that make branded products, as well as manufacturers that make so-called “private-brand” or “private label” cereals.

On Friday, Palmer upgraded Kellogg’s shares to a “Buy” from a “Hold,” noting the company’s price pricing actions and moderate input costs put the company in a good position to aggresively promote its products in 2009, The Wall Street Journal reported.

(Many analysts say that reasonably valued stocks can be sound buys during inflationary periods for this very reason – they can pass any increases in input costs along to consumers in the form of higher retail prices).

General Mills Inc. (GIS), Kellogg’s top cereal rival, would not say whether it will follow Kellogg’s lead, telling MarketWatch that it doesn’t comment on pricing decisions it may or may not take.

Ralcorp Holdings Inc. (RAH), marketer of the Honey Bunches of Oats and Raisin Bran cereal brands, increased prices last year.

Grocery-store operators often try and push back on price increases, something that discount retailer Wal-Mart Stores Inc. (WMT) is known for in the hardline goods world.

Supervalu Inc. (SVU) and the A&P Supermarkets (The Great Atlantic & Pacific Tea Co. Inc.) (GAP) have said they plan to negotiate lower prices with food suppliers, while Weis Markets Inc. (WMK) has instituted a price freeze through April 1 on 2,400 items it sells in 155 stores in Pennsylvania, Maryland, New Jersey, New York and West Virginia.

The mere fact that pricing is an issue with these supermarket chains underscores that price increases are a very real problem in the marketplace, meaning prices aren’t in the benign holding pattern many economists would have us believe.

Is the Financial Crisis Stoking Inflation?

Although the federal government says that the U.S. recession is reducing inflationary pressures, the opposite may actually be true – and the economic slowdown may actually stoke inflationary pressures, experts say. For one thing, even though stated interest rates are low, the fact is that there’s a credit crisis under way right now. That means banks aren’t lending. As a result, companies may be forced to look elsewhere for needed financing – financing that comes at a much higher cost.

And higher costs, as we’ve seen, are inflationary.

There’s also the massive bailout and stimulus packages the government is deploying to fight the financial crisis. To create the capital needed for these programs, the government is printing money. And that massive increase in the money supply can only be inflationary, says Money Morning Contributing Editor Martin Hutchinson, an expert on the global banking system. He believes inflation rates of 7% to 10% may well be in our future.

“Once the bottom has been reached, the excess liquidity that has been created over the last few months through the various bailouts – such the Treasury Department’s $700 billion Troubled Assets Relief Program (TARP), which is fueling bank takeovers, and not expansionary lending, and the follow-on $800 billion credit-market stimulus unveiled late last month – will combine with the huge federal budget deficit to spur inflation,” he said.

Source: Big Jump in Food Prices the Latest Suggestion That Inflation is Much Higher Than the Government Says

This from Sovereign Society:

Several segments of the credit markets have come back to life in December after crushing losses recorded in September and October. Though it’s too early to celebrate a broad-based credit revival, the largest issuers of investment grade debt surged this month as yields plunged. Mortgage-backed bonds, or agency debt, have also rallied sharply in December on the heels of government guarantees and the Fed’s plan to spend $500 billion dollars to shore up the sector.

With the United States and other governments amassing a truckload of debt to finance state sponsored bailouts of financial services and fiscal spending plans, it is conceivable that investors will increasingly swap low-yielding T-bonds for high quality corporate debt in 2009.

Since hitting a post-crisis peak of 4.88% in October, three-month LIBOR (London Interbank Offered Rate) has plunged to 1.52% on December 19. On December 1, LIBOR stood at 2.22%. A lower LIBOR rate is the first indicator to finally emerge from stress amid the credit crisis. Banks are still largely hoarding cash but several large institutions have started to lend in overnight markets this month for the first time since late 2007.

The Growing Yield Dilemma

The Federal Reserve’s latest interest rate cut to effectively 0% on December 16 has laid the foundations for more trouble at money-market funds where yields for 30-day and 90-day Treasury bills continues to fetch just 0.01% – the lowest in more than six decades. Earlier in December, 30-day bills actually turned negative for the first time since 1940. That means investors are paying the government to park cash.

Money market funds are now sitting on potential losses as management fees erode the yield generated by Treasury bills and other short-term paper. Though other debt securities yield more than T-bills, investors might be embracing more credit risk as fund companies look to boost yield.

A better alternative to money market funds include one-year term deposits (CDs), short-term investment grade bonds and even intermediate-term corporate debt. Term deposits should be held only at the nation’s biggest banks, including J.P. Morgan Chase, Wells Fargo and Bank of America.

Yield Hungry? Here’s a Free Lunch

The Fed’s latest moves to spur lending in a massively credit-inflicted bear market since 2007 is forcing many investors to turn to distressed corporate investment-grade bonds. The effective yield on the benchmark Dow Jones Corporate Bond Index is 7.23%, down from a record high of 8.88% just a few months ago and down from 8.06% on November 30. A lower yield means corporate bond prices are rising in value.

In September, investment grade bonds were hammered following the collapse of Lehman Brothers Holdings and posted their single worst month of performance since February 1981. Many bonds plunged more than 15% in September alone.

More than half of the investment grade bond sector is comprised of financial services debt or bonds issued by some of the largest banks in the United States and Europe. With the Fed’s implicit guarantee on the largest issuers of such debt, investors can now tap into bank issued bonds trading at a 5.16% premium to expensive Treasury bonds.

For a portion of an investor’s liquidity, corporate high quality debt is literally a “free lunch.” The largest issuers of corporate paper have started to return to the market since November, including IBM and other large cap companies. In Europe, some banks without government guarantees have managed to raise sizable offerings – a positive development.

Corporate Debt: The New Safe-Haven?

Since October, governments in the United States and Europe have swapped government paper for toxic mortgage-backed assets previously held at banks. Despite these efforts, most banks are still laced with all sorts of other clogged credits like leverage loans, auction rate securities and repo credits.

The credit crisis has not disappeared because of aggressive government and central bank action; rather, swaths of credit risk has been transferred from bank balance sheets to government balance sheets, effectively polluting central bank coffers with largely illiquid and near worthless paper. Since August, the Fed’s balance sheet has mushroomed from $850 billion dollars to more than $1.5 trillion dollars – and still rising.

Indeed, credit default swap rates since October have risen sharply on government paper while swap rates have decreased for the highest quality companies. This suggests investors are starting to place a risk premium on government issued bonds.

Are we at the cusp of a major transition in the credit markets whereby investors might increasingly purchase investment grade debt as a hedge against rising yields on government bonds? After all, outside of the financial sector many industries harbour their highest net cash levels in more than a decade. For some companies, especially the food and beverages and fast-food companies, cash flow is largely generated internally and, in most cases, these companies don’t need to raise cash to finance operations. I would argue that companies like Kraft Foods (NYSE:KFT), General Mills (NYSE:GIS) and McDonald’s (NYSE:MCD) are a better long-term credit risk than most sovereign borrowers.

Failed Auctions Rising

To confirm the above theory that perhaps investors are starting to embrace riskier bonds like investment grade debt because of bulging government deficits, consider the trend in Europe since October whereby several governments have scrapped bond auctions.

Over the last sixty days, Germany, the Netherlands, Italy, Spain, Austria and the United Kingdom have either scrapped bond auctions or reduced their planned offerings because of tepid investor interest. These governments, including Germany, the largest and most liquid, are paying higher yields to draw institutional buyers. This could mark the beginning of a bear market for government bonds at some point later in 2009, once credit markets stabilize and risk taking is resumed.

In the United States, demand for Treasury’s remains strong because of fears of deflation. The current environment – a disaster for just about every asset class except T-bonds – has supported the dollar to an extent. Foreigners are chasing Treasury securities as they scramble for safe havens. Yet even Treasury is not immune to the deluge of supply coming our way in 2009.

Over the next 12 months Treasury estimates it will have to raise about $1.5 trillion dollars to fund gargantuan fiscal spending plans, bailouts, and possible tax cuts. Treasury will re-introduce one-year, three-year and five-year T-bonds in 2009 to finance part of this spending spree. At some point, investors will force long-term rates higher. The Fed will try to influence the long end of the yield curve but will ultimately be unsuccessful. The Fed can only control short-term lending rates.

Investment grade bonds shouldn’t supplement T-bills. The risk spectrum is normally quite significant in a normal economic environment. Yet these are anything but normal economic times. It is possible that as 2009 progresses and, assuming credit markets continue to grudgingly normalize, the new safe haven in bonds will be high quality investment grade bonds at the expense of super low-yielding Treasury debt.

Source: Is Investment Grade Corporate Debt Safer Than Government Bonds?

Warren Buffet continues to show investors why his name is consistently at the top of the list of richest Americans. The man makes deals that simply work, no matter what happens in the industry or economy surrounding him.

Take this week’s news as a prime example. Buffet wanted to diversify into the nuclear-power industry, so he offered to buy Constellation Energy Group (NYSE:CEG) for $4.7 billion. It was a pretty low bid and drew plenty of criticism from shareholders.

But most importantly, it drew bids from other competitors.

Shortly after Buffet made his bid, French utility giant Electricite de France stepped in and made an offer for just 50% of Constellation’s nuclear operations. It was willing to pay $4.5 billion.

Naturally, you would think Buffet would walk away from the deal with his tail between his legs. But you do not become a multi-billionaire without the savvy to hedge your bets. Buffet had a termination clause in his contract with Constellation that allowed him to prance away with almost $1.6 billion in profits after the proposed deal went sour. Not bad.

How does he do that?

With Buffet’s kind of investing intelligence, it is certainly no surprise to see another one of his prized holdings making bold moves today. Coca-Cola Enterprises (NYSE:CCE) boosted its 2008 earnings estimates this morning and issued a strong forecast for 2009. As I write, shares of the iconic company are up by more than 10%.

The economic maelstrom is having dramatic effects on the cola manufacturer, but the impact appears to be nothing the company’s management team cannot handle. The company is cutting unnecessary operations, increasing brand integrity and reducing supply chain waste. They are margin-increasing moves that will lower the company’s exposure to economic headwinds.

What is most intriguing is the impact macroeconomic factors are having on the company. With a well-known, inexpensive product, Coke does not have to worry about declining sales. It is not as if people need credit to buy a two-liter bottle of Sprite.

So while most firms are struggling from a lack of demand, Coke has the enviable position of actually being able to take advantage of the deflationary pressure storming the economy.

Today’s report shows how falling commodity prices are a boon to the company’s bottom line. The cheaper its inputs, the higher the company’s profit margins.

Repatriating profits

But what investors really need to pay attention to are currency fluctuations. Coca-Cola has a huge global exposure. Its products are sold through an array of currencies, but its profits are calculated in dollars.

If the dollar continues the downward spiral it is enduring this week, revenues repatriated from euros and yen could be significantly higher this time next year. Instead of one euro buying $1.37, right now the company can get $1.43. The story is even more dramatic with the yen.

The news from Coke is more proof that Buffet’s buy-what-you-use strategy has increasing merit.

Throughout the last few months, consumer staples like McDonalds (NYSE:MCD), Campbell Soup (NYCE:CPB) and General Mills (NYSE:GIS) have all proven to be strong, market-beating investments. That theme’s importance will only increase as the economy continues to slow.

If you are a traditional value investor like Buffet, look in your pantry for investing ideas. Stick with companies with broad economic exposure and a product lineup that will remain in high demand no matter how bad the economy gets.

It is how Buffet got rich and it is how you will boost your portfolio into something worth bragging about.

Source: Coca-Cola (CCE) teaches us a valuable lesson

This is great news for investors, says J. Cristoph Amberger. “History has proven time and time again that the seeds of wealth are sown during market crises… by buying good companies at crash valuations.”

He recommends investors buy shares of Ford Motors (NYSE:F), Alon (NYSE:ALJ), Stewart Enterprises (NASDAQ:STEI), General Electric (NYSE:GE), General Motors (NYSE:GM) and General Mills (NYSE: GIS) now.

This from Today’s Financial News:

The worst crash since 2001… 1987… 1937. As the National Debt Meter ran out of digits on Time Square earlier this week, the comparisons of the current crash with earlier catastrophic events are on a sliding scale backward.

Tomorrow morning, they may compare today’s performance to 1929.

And yet it doesn’t quite feel like anything’s amiss. Stores are abundantly full of goods. So are the parking lots in front of them and the bags of supermarket shoppers. And as I was stopped at a red light driving my daughter to her violin lesson yesterday, I couldn’t help but marvel at the Latin American construction workers putting the last touches on a new Cheesecake Factory in a brandspanking new addition to our mall… across from a bransdpanking new complex of apartmnts they’re finishing.

Next to me, a college girl in a $30,000 Mini Cooper was yakking it up on her cellphone, wearing $200 Jackie-O shades with lenses like saucers.

How odd, I couldn’t help thinking. We’re in a war that we’re unaware of in our daily lives… and we’re in a market crash nobody but the talking heads seem to notice.

Yet.

This is going to change today. Come Monday, companies all over America will start laying off people. It’s a reflex, and a natural one. Portfolio valuations have been destroyed by up to 20% on real estate… and 50-60% on stock portolios. Even if the destruction of value is mostly theoretic for most people who don’t trade daily, it’s a chiller.

Come next week, we’ll see a spike in new unemployment filings. We’ll see a downturn in spending… and a collapse in company earnings across the board that will last through January… and probably well into the first quarter of 2009.

Now, my general recommendation is not to panic during market downturns like this. To the contrary, history has proven time and time again that the seeds of wealth are sown during market crises… by buying good companies at crash valuations.

This is exactly what you need to be doing over the next couple of months. Buy judiciously and in controlled quantities, mind you… maybe by investing a fixed amount in stocks every week. Set aside fifty or 100 bucks of beer money… skip the kids’ video games, don’t allow them to buy another CD or iTune… cut down on their Christmas list… take the money you’d spend on pizza or lunches until Christmas… and religiously invest it in stocks.

Buy shares of Ford Motors (NYSE:F)…. refiner Alon (NYSE:ALJ)… “death services” provider Stewart Enterprises (NASDAQ:STEI)… buy General Electric (NYSE:GE) and General Motors (NYSE:GM) and General Mills (NYSE: GIS).

Buy them share by share. Instead of coffee… instead of gum… instead of your daily newspaper. WALK INSTEAD OF TAKING THE BUS. Buy $10 worth at a time… heck that buys you five shares of Ford today. Buy stocks at prices your father wishes he had bought them for back in the seventies.

But buy them gradually… and be prepared to experience some despair even then: No stock is ever cheap enough that you can’t lose another 90% of your principal!

Let’s not make any mistakes about it: Times will be tough. Your own wife will tell you you’re crazy. So compromise: Make sure you have cash on hand. Easier said than done, in many families: So cut down on expenses.

Keep the kids home for a semester rather than hand over tens of thousands of dollars to some college next term. Think their degree in Chicano Poetry or “International Relations” is important? Not if nobody’s hiring! Nobody cares!

Instead, take 10% of the tuition you saved and buy stocks in their names.

Did I say it often enough? Stop buying useless things: Start buying stocks! Start buying — and don’t stop! — NOW!

If you stay employed, keep paying into those 401(k)s and 403(b)s. In fact, max out your contributions. Invest for the long term.

And for crying out loud… don’t start buying gold now. Buy a gun instead!

The markets are wreaking havoc not only with your retirement nest egg, but with the balance sheets of hedge funds and the billionaires who’re propping them up. In the weeks ahead, dozens of funds will close. There will be a run on on principal. Funds will sell off everything they’ve hoarded over the past six years. Oil. Molybdenum. Copper. Indium. And gold.

Today is the turning point in global economic expansion. Be prepared to suffer. But think ahead: Over the next three months, the seeds of great fortunes will be sown. Cash is king in the coming weeks. But part of that cash needs to be converted into capital.

Source: Cancel Christmas! Crash will squeeze economy… and create opportunity for legacy wealth

Cashing in on Commodities: Three Ways to Profit From Record Meat and Dairy Prices

By Jennifer Yousfi

Last week, Tyson Foods Inc. (TSN) announced it would sell its Canadian plant to XL Foods Inc. for $105 million, pending regulatory approval. Canadian livestock farmers were sad to see the American firm go.

“It’s very disappointing to see Tyson leaving Canada,” Rick Paskal, a feedlot owner in southern Alberta, told Reuters.

“We had three bidders for our cattle. Today we’re down to two. That’s a pretty black day, as far as I’m concerned,” Paskal said, referring to the only two major beef packers left after Tyson’s planned exit.

While the move may be bad news for Canada’s beef farmers, it’s quite the opposite for investors: This shift is part of a “back-to-basics” refocusing strategy for Tyson, which made its name in the poultry market.

“Without hesitation, we believe the sale … is a positive, as the Canadian beef business not only has been a material drag … but likely would have continued to generate losses for the foreseeable future,” wrote BMO’s Kenneth Zaslow in a note to clients after the sale was announced.

And while it continues to struggle to make money with its domestic chicken business, Tyson is looking to capitalize on powerful global trends — one being the so-called ‘BRIC’ economies of Brazil, Russia, China and India.

Its BRIC market of choice: India.

Just this week, Tyson announced it had acquired a 51% stake in India’s Godrej Foods Ltd., which sells retail fresh chicken, chicken nuggets and patties, MarketWatch.com reported. It is a subsidiary of Godrej Agrovet Ltd., an agri-biotech company that has yearly sales of about $250 million.

Tyson, one of the largest U.S.-based producers of poultry products, says the joint venture will be situated in facilities in such key India cities as Mumbai and Bangalore, and will generate $50 million in annual sales. The U.S. company will use its production methods to help Godrej improve and expand production, build newer facilities to expand the duo’s reach, and to develop new kinds of products.

“We believe the timing is right for us to bring our expertise and resources to this emerging market,” Rick Greubel, international president at Tyson, said in a statement.

Once largely a backyard enterprise, poultry is now one of India’s fastest-growing agriculture-related markets. India is the world’s sixth-largest poultry producer and is watching as chicken consumption advanced at an average annual pace of 11.3% between 1990 and 2000. Now India’s consumers are shifting their tastes – from only eating fresh chicken, to embracing frozen poultry products.

Tyson’s shares have plenty of room to rebound: At yesterday’s closing price of $14.31 each, they’re down 40% from their 12-month high.

General Mills Inc. (GIS) is another of the food-manufacturing firms to be hard hit by the soaring cost of raw ingredients. For its fiscal fourth quarter ended May 25, a 12.9% increase in sales wasn’t enough to offset the bottom-line damage brought on by rising commodity costs.

Net income declined 17.4% to $185.2 million, or 53 cents per share, down from $224.1 million, or 62 cents per share, for the same period a year prior, Forbes reported.

But investors who strike here may be buying into a high-quality company whose fortunes are about to turn: General Mills is one of those rare companies that appears to be passing its increased costs along to its customers by raising prices – but without taking a big sales hit.

Remarkably, the company may actually be boosting its overall sales via this initiative.

“General Mills is justifying the premium it has to charge to make it through rising input product cost… and seeing higher sales volumes even as it is raising prices,” analyst Matt Arnold of Edward Jones analyst Matt Arnold told Forbes.

It’s the kind of company we like here at Money Morning: It has a terrific brand name, offering such products as Pillsbury breakfast pastries and baked goods, Green Giant canned vegetables, General Mills cereals, and Yoplait yogurt.

Chief Executive Officer Ken Powell spent 20% more on U.S. marketing, spurring higher sales during the most recent quarter – one of the five keys to picking a bear market stock. And it just announced a 10% increase in its dividend payout – a second of those five bear-market investing secrets [Check out our related story on bear-market investing by Investment Director Keith Fitz-Gerald in this issue of Money Morning].

Dean Foods Co. (DF) is another firm that has felt the harsh sting of high commodity prices, but the Dallas-based firm has also slashed costs at the same time it increased prices — and boosted its profit outlook.

We also like Dean because it’s carving out a solid niche in the organic food portion of the food market – a niche that’s gaining popularity as a graying U.S. population becomes more concerned about what it eats. Organic products command a market premium, making it easier to raise prices in an inflationary environment.

Source: Cashing in on Commodities: Three Ways to Profit From Record Meat and Dairy Prices