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

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

Meanwhile, the wider US economy is sliding into a recession.

William Patalon III says there are four solid ways to protect your portfolio from these forces: 1) Buy dividend-paying stocks; 2) Buy gold; 3) Buy companies focused on overseas market; and 4) Don’t panic…

The following extract is taken from a research report published over the weekend by Money Morning…

No. 1 – Stock Up on Dividend stocks

Many investors are so scared by the wild gyrations the stock market has seen of late that they’ve jettisoned everything in their search for safety.

Not only is this a massive mistake from a timing standpoint, it’s also a major misstep because of all the dividend income those folks are going to forego.

Dividend-paying stocks tend to be more stable than their non-dividend paying brethren -particularly during rocky stock markets. In other words, stocks that have income streams attached are treated better, especially when the going gets tough.

They also outperform non-dividend paying stocks by even more in down markets than they do in up markets.
By consistently reinvesting dividends during down markets, investors can substantially expand their asset base, which puts them way ahead of the game when markets recover and stock prices soar – as they always eventually do.

And the savvy investors who owned them watched as their own portfolios easily outperformed the market averages and roundly trounced the returns of portfolios that were devoid of or light on dividend-paying shares.

And there are some excellent investment candidates. Two of the best are the PowerShares International Dividend Achievers Fund (PID) and the Alpine Dynamic Dividend Fund (ADVDX), two exchange-traded funds (ETFs) that we like a great deal.

The PowerShares International Fund is a global-income portfolio that can help you spread your risk, while also earning income. The Alpine fund is a more-specialized fund that uses a “dividend harvest strategy” that can boost the fund’s yield.

Both funds invest in companies that have survived countless business cycles, and that are likely to survive this downdraft, too.

Because dividend-paying stocks tend to be downdraft resistant, portfolios with higher yields tend to last longer and pay stronger. That’s something that’s important to all of us, but especially to investors who are nearing retirement, or who have already retired.

No. 2 – Go for Gold

When times are tough, gold soars.

And frankly, the economy has been tough: $4 gasoline, the housing crisis, rampant inflation, plummeting stocks…

But all the while, gold prices vaulted a cool 26.5% in the past year.

Missing out on gold is already costing investors a pretty penny. What’s more, most experts are forecasting gold prices to rise at least another 75.6% by the end of this year.

So, how does one profit from gold? It’s simple. You don’t have to wade through a plethora of flashy websites offering bullion or risk it all on a junior mining company.

Instead, here are five ways to profit from gold right away – from the most lucrative to the least risky.

Gold Fields Ltd. (GFI): South Africa’s Gold Fields Ltd. is the world’s fourth-biggest gold producer – with about 90 million ounces in reserve from its operations in Africa, South America and Australia.

It recently reported that its fourth-quarter production would beat its previous forecast by up to 120%.

Overall, the company has a solid balance sheet and ample reserves. But if anything scares investors away, it’s Gold Fields’ location.

South Africa mines are frequently a political tool between the country’s labor unions and state-owned utility provider Eskom Holdings Ltd. (OTC:ESKAY), which controls 95% of the country’s power.

Eskom recently jacked electricity prices up 27.5%, and unions decided to hit the government where it hurts – by striking- thus gutting the government of taxes from its vast gold profits.

That is just one example of why this stock is a risky gold play. Gold could reach another record but Gold Fields may not see a penny of it if its miners are on strike.

Yamana Gold Inc. (AUY): When gold prices are high, investors should pay extra attention to mining companies with increasing production levels because they translate into a bigger bottom line.

For its second quarter this year, Yamana Gold Inc. produced almost 10% more gold than it did in the previous quarter.

What’s more, its gold production is expected to double to 2.2 million ounces per year by 2012, primarily from its Brazil and Argentina mines.

That’s because Yamana Gold went on a spending spree in the past two years, buying up junior mines around the world to lock in reserves.

“Now it is about production, cash flow and earnings,” Chief Executive Officer Peter Marrone told Reuters.

It’s also about dividends. The company recently kicked up its investor payout by 300%, a strong vote of confidence to its production and stock performance.

]]> http://www.contrarianprofits.com/articles/us-economy-are-we-nearing-the-end-of-the-american-dream/5410/feed 0 http://www.contrarianprofits.com/articles/consumer-spending-threatened-by-high-prices-and-lower-wages/3973 http://www.contrarianprofits.com/articles/consumer-spending-threatened-by-high-prices-and-lower-wages/3973#comments Tue, 22 Jul 2008 15:13:17 +0000 Jason Simpkins http://www.contrarianprofits.com/articles/consumer-spending-threatened-by-high-prices-and-lower-wages/3973 Consumer spending, which accounts for more than 70% of the economy, will be seriously threatened in the months ahead, as prices continue to rise, wages plateau, and government stimulus checks wear thin.

Consumer spending has remained strong in recent months, even jumping 0.8% in the month of May. But that boost was largely inflated by the $50 billion in government rebate checks that were cashed and put to use in the month.

The stimulus will total $107 billion this fiscal year, but that may not be enough, as consumer prices are rising across the board. The consumer price index (CPI) increased 1.1% in June, driving the rate of inflation over the past 12 months to 5%, and it looks as though prices…

]]> Consumer spending, which accounts for more than 70% of the economy, will be seriously threatened in the months ahead, as prices continue to rise, wages plateau, and government stimulus checks wear thin.

Consumer spending has remained strong in recent months, even jumping 0.8% in the month of May. But that boost was largely inflated by the $50 billion in government rebate checks that were cashed and put to use in the month.

The stimulus will total $107 billion this fiscal year, but that may not be enough, as consumer prices are rising across the board. The consumer price index (CPI) increased 1.1% in June, driving the rate of inflation over the past 12 months to 5%, and it looks as though prices will continue to rise as many businesses grapple with higher raw material costs.

Sara Lee Corp. (SLE), the maker of many American food products, such as Jimmy Dean sausages, said yesterday (Monday) that it would be forced to boost the prices of its meat products by one-fifth this year.

“Price increases vary a lot by type of products but the increases will be as low as zero and some products we will decrease on and other increases [will be] in excess of 20%,” C.J. Fraleigh, Sara Lee’s chief operating officer for North America told the Financial Times.

Kraft Foods Inc. (KFT) said prices for its products will jump by 12%-13% this year, and even as much as 25% in some of its cheese categories. Kellogg Co. (K), ConAgra Foods Inc. (CAG) and Tyson Foods Inc. (TSN) are some of the food companies also planning price increases that will invariably contribute to inflationary pressures in the United States.

Meanwhile, the high price of oil has contributed to a sharp escalation in the price of gasoline and many other consumer products. For instance, global chemical producer Dow Chemical Co. (DOW) recently raised prices on all 3,200 of its products, some by as much as 20%, in the single-biggest price increase in the Michigan-based company’s 111-year history.

The problem is going to get worse in the months ahead, as a survey by the National Association for Business Economics (NABE) has found that almost four times as many businesses plan to charge more for their goods and services next quarter than expect to reduce prices.

The poll of the 101 NABE members was taken between June 19 and July 10, and found that a record 75% paid more for materials last quarter and expected to pay more this quarter as well. A net 28% of respondents said they were forced to increase prices from April through June as a result.

Worse, only 20% of the businesses surveyed said salaries increased in that time, the lowest number in four years and an 11% drop from the group’s previous survey in April. Only 9% of the respondents said they would increase payrolls over the next six months, the fewest in five years.

The information corroborates a separate report from the Department of Labor last week, which said wages, adjusted for inflation, were down 2.4% in the 12 months ended in June.

Employers have cut jobs each month in 2008, with payrolls tumbling for the sixth consecutive month in June. The total number of job losses in the first half of the year was 438,000.

The national unemployment rate has gone up by a full percentage point in the past year, to 5.5%.

Source: Consumer Spending Threatened by High Prices and Lower Wages

]]> http://www.contrarianprofits.com/articles/consumer-spending-threatened-by-high-prices-and-lower-wages/3973/feed 0 http://www.contrarianprofits.com/articles/grain-spike-crushes-corn-flake-king/3500 http://www.contrarianprofits.com/articles/grain-spike-crushes-corn-flake-king/3500#comments Thu, 03 Jul 2008 19:29:30 +0000 Adam Lass http://www.contrarianprofits.com/articles/grain-spike-crushes-corn-flake-king/3500 The US dollar isn’t the only thing shrinking these days. After struggling for months to keep margins up in the face of skyrocketing grain prices, Michigan cereal giant Kellogg Co (K:NYSE) has decided not to raise prices (again) for several popular brands.

Rather, they are charging the same price for less of the crunchy sweet stuff. As of early June, cartons of Apple Jacks, Cocoa Krispies, Corn Pops, Froot Loops and Honey Smacks were reduced by an average of 2.4 ounces.

“This price adjustment on select ready-to-eat cereal brands was taken to offset rising commodity costs for ingredients and energy used to manufacture and distribute these products.” – Kellogg spokeswoman Susanne Norwitz.

Kellogg last increased prices in January. It didn’t help then: Q1 profit still fell…

]]> The US dollar isn’t the only thing shrinking these days. After struggling for months to keep margins up in the face of skyrocketing grain prices, Michigan cereal giant Kellogg Co (K:NYSE) has decided not to raise prices (again) for several popular brands.

Rather, they are charging the same price for less of the crunchy sweet stuff. As of early June, cartons of Apple Jacks, Cocoa Krispies, Corn Pops, Froot Loops and Honey Smacks were reduced by an average of 2.4 ounces.

“This price adjustment on select ready-to-eat cereal brands was taken to offset rising commodity costs for ingredients and energy used to manufacture and distribute these products.” – Kellogg spokeswoman Susanne Norwitz.

Kellogg last increased prices in January. It didn’t help then: Q1 profit still fell 2%, quarter over quarter. And shrinking boxes won’t help now: look for K shares to complete their 38% retracement over the next six to eight weeks.

Will $43.06 mark the bottom for the Corn Flake King? Only for a month or so, as we are not expecting the dollar fall to end – or dollar-denominated commodities like oil and corn to

plateau – until at least January 2009.  Kellogg share price at $34.68 is entirely possible over the next few months.

Adam Lass

Senior Editor, WaveStrength Options Weekly

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Source:  Grain Spike Crushes Corn Flake King

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