I'm going to take a brief look at two stocks that traded on Friday based on earnings reports. Both can be found in the foodstuffs industry. And both beat Wall Street's projections. But which one do I prefer?
Hormel Foods (HRL), the company behind the Spam and Dinty Moore brands, made 63 cents per share in the fiscal third quarter, which, according to Reuters, was three pennies ahead of the estimate. But the good news doesn't stop there: guidance for the full fiscal year was increased.
The press release indicates that cash flow experienced an 18% drop. Shareholders need not worry too much since the cash-flow figure was more than enough to cover capital expenditures and dividend payments combined.
Hormel didn't get much attention from traders on Friday. They only thought the earnings release was worth an eleven-cent increase on the share price. The stock closed at $43.48, not far at all from the 52-week high of $44.26. Perhaps the market participants didn't want to go much higher than that level for fear of a potential retreat; we are in tough, bearish times, to be certain. The chart doesn't look bad, though. Still, I would rather get this one at a higher dividend yield; the current 1.9% doesn't satisfy me, I'm afraid. Yet, I don't believe that long-term investors should dump the stock if they already own it.
The J.M. Smucker Company (SJM) also beat analyst projections. According to DailyFinance, the peanut-butter-and-jelly entity produced adjusted net income of $1.04 per share during the fiscal first quarter; the call was for 96 cents per share. Management was right to watch the margins carefully, considering that sales growth unfortunately wasn't there. I had a problem with the sales growth back in June as well.
Friday, Smucker's shares closed up 2.8% to $59.65. Volume was above average. The 52-week high for the stock is $63.75. The chart appears to be a little rocky. What does it all add up to?
If you're a patient investor willing to hold a stock for a long time, then you could consider this business. It has a more attractive yield than Hormel; at better than 3%, I like it. I don't believe the equity will race past the 52-week high anytime soon, but I won't hold that against the thesis. This is a story of brand power at the supermarket shelves; products like Folgers and Jif should be worth something over time, I would think. One thing to note: the press release says that cash was utilized for operations during the quarter. Presumably that situation will change; if you check out the full-year money flow, you'll note that operational cash was fine.
Bottom line: Both stocks are doing okay in this choppy market, but I'll give the edge to Smucker. Perform your own due diligence before buying any name.
Disclosure: I don't own any company mentioned; positions can change without notice.
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