Dear Mr. Berko:
Jif peanut butter is my favorite snack food, and when I mentioned this to my broker, he said that Jif is owned by J.M. Smucker, which I didn’t know, and recommended that I buy 200 shares. So if Jif owned by J.M. Smucker, the people who make jams and jellies, would you approve of the purchase of the stock as a two-to-four-year horizon before I retire and have to load up on income issues?
M.J., Erie, Pa.
Dear M.J.:
If I were going to isolate myself in a mountain cabin for two years to write the Great American Novel, I would make certain that half the shelves in my pantry are stocked with crunchy peanut butter. (Did you know that it takes 851 peanuts to make a one l8-ounce jar of peanut butter?) It’s still my favorite snack food, and we’re not alone because 50 percent of the peanuts grown in this country are consumed in the form of peanut butter.
Yes, Jif is a J.M. Smucker (SJM-$61) product, a Jim-Dandy Orrville, Ohio company (not far from Mr. Redenbacher’s popcorn patch) that’s been selling quality succulents since l897. And the SJM strategy is to “own and market No. 1 brands sold in the center aisle of every store in North America.”
And these guys have succeeded, as revenues grew more than sevenfold in the last 10 years from $650 million to an anticipated $4.8 billion this year. That’s because SJM bought Jif and Crisco brands from Procter & Gamble for $790 million in 2002. SJM paid P&G $3.7 billion for Folgers in 2006. “The best part of wakin’ up is Folgers in your cup.” Now that’s good advertising — rather than the high-tech, high-power, over-loud, mind-numbing, sexually suggestive stuff we view today.
SJM also bought International Multifoods for $840 million, which included Pillsbury and Hungry Jack in 2004. And in addition to its trademark jams, jellies and preserves, SJM also owns Carnation, Eagle Brands, Borden, Millstone, Dutch Girl, Laura Scudder and Dickenson’s brands, so “if it’s Smucker’s, it’s gotta be good.”
SJM isn’t a rah-rah, go-go company, but management (mostly family) knows how to run this business. Debt is a minuscule l4 percent of capital; book value has grown fivefold since 2000; earnings should increase from $1.28 in 2000 to $4.68 this year; the $1.60 dividend, which was just increased 10 percent, yields 2.7 percent; and the stock trades at a reasonable 13 times earnings. Meanwhile, SJM’s prodigious cash flow will allow management to improve shareholder value via stock buybacks, acquisitions or a special dividend.
The Street’s consensus suggests that SJM could grow its revenues between 6 percent and 7 percent annually for the next five years. So, absent acquisitions, earnings could grow 8 percent (thanks to superb profit margins) annually to $6.75, and dividends could increase to $2.15.
I’m not positively certain, but I don’t see the stock rising above the $80-$82 level even though SJM also owns those Dunkin’ Donut stores that dot the streets, avenues and boulevards of a thousand American cities. (Have you ever tried a peanut butter cappuccino?)
And while I really like the company, admire its management and lust after its gustable comestibles, I don’t consider SJM a compelling buy at $60. But I would, with alacrity, own this stock in the high $40s. So consider placing an open order with your broker in the $47 range. And if the market tumbles again, you might catch 200 shares above the stock’s $37 lows of 2009, 2008 and 2006, and above its $46 low of 2007.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate Web site at www.creators.com.
© 2010 Creators Syndicate Inc.
