Conagra Not All That Appetizing Right Now

It’s been a hard slog for Conagra (NYSE:CAG) shareholders for a while. Though there have been attractive pullbacks that have created good investment opportunities (particularly late 2018), long-term investors don’t have a lot to show for their patience, as the returns have lagged the S&P 500 by a pretty significant amount over the last five, 10, and 20 years. The performance has been better relative to packaged foods industry and consumer defensives sector, but still not exceptional.

Unfortunately, I don’t see much evidence that the trend is likely to change in investors’ favor any time soon. Concerns about brand equity seem at least partly valid, and while initiatives like modernizing plants would likely pay off down the road, it’s hard to see much reason to pay up for the shares and today’s price looks quite fair.

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Conagra Not All That Appetizing Right Now

Seeking Alpha: Not Exactly Cheap, Post Holdings Still Has Some Appeal

Cheap stocks aren't always (or even necessarily "often") the best performers, and vice versa. I think that's worth remembering when looking at Post Holdings (POST). Whether looking at EV/EBITDA, EV/revenue, ROE/PBV, or a discounted cash flow model, Post just doesn't seem very cheap and the stock has definitely been a strong performer in a sector that has weakened some in recent months.

I won't be surprised, though, if Post continues to stay fairly popular with the Street. Free of Ralcorp (now part of ConAgra (CAG)), Post is emerging from a prolonged period of benign neglect and management has already shown its willingness to leverage the balance sheet to grow and diversify the business. Competition from Kellogg (K), General Mills (GIS), and ConAgra, not to mention private labels, should not be ignored, but I believe that Post is likely to post growth rates on the upper end of the sector range, and I would expect that the Street will show its usual price insensitivity in the pursuit of that growth.

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Not Exactly Cheap, Post Holdings Still Has Some Appeal

Investopedia: McCormick Looks Premium-Priced Even With Premium Performance

I appreciate why McCormick (NYSE:MKC) has almost always carried a premium valuation in the packaged food sector. The company holds effectively two-thirds of the U.S. market for spices, and has multiple opportunities to generate above-average growth in areas like dry dinners and frozen foods, and not just in North America. Even so, there is a fair price for every asset and McCormick's valuation seems well more than “fair” these days.

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Investopedia: ConAgra Does Appear To Be On A Better Path

It's been easy to criticize ConAgra (NYSE:CAG) management over the years, as relatively ham-fisted management of junior varsity brands has led to pretty pathetic growth and margin performance relative to its peers. What's true about the past is not automatically true about the future, though, and I think ConAgra is in perhaps the best shape it has been in the time I've watched the company. There's still a lot of work to be done in improving margins and cash generation, but in an overvalued sector ConAgra looks like an interesting relative value.

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Investopedia: Diamond Foods Making Better Moves, But Large Uncertainties Remain

Diamond Foods (Nasdaq:DMND) is trying to get back on solid footing after a series of self-inflicted wounds threatened the survival (or at least the independence) of the company not so long ago. While rehashing the company's accounting issues and strategic missteps is beyond the scope of this article, the fact remains that Diamond Foods is still in the middle of its clean-up operations. Valuing these shares is tricky given all the factors at work, but they do appear undervalued provided that the company can continue to repair its margins and clean up its capital structure.

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Investopedia: Hormel Transforming, But Valuation Already Ahead Of It

Within the food and beverage sector there are certain stocks that just never get all that cheap, leaving investors with the uncomfortable choice of paying up (and hoping that the growth expectations come through) or waiting for the rare sell-off. In addition to companies like Nestle (OTC:NSRGY) and Coca-Cola (NYSE:KO), Hormel (NYSE:HRL) deserves a place on that list as the company has long combined good growth, improving margins, and strong returns on capital and delivered good stock market returns (more than tripling the return of the S&P 500 since the early 1990's).

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Investopedia: ConAgra Now Getting Almost Full Benefit Of The Doubt

It's been an interesting few months for packaged food companies. Volume trends have looked softer than expected as consumers continue to feel a pinch, but input costs have also eased up. Most significant, though, was the acquisition of Heinz (NYSE:HNZ) by Berkshire Hathaway (NYSE:BRK-A,BRK-B) and 3G and the near-immediate upward revaluation of the sector.

Against that backdrop, ConAgra (NYSE:CAG) continues to be a “yes, but...” company. As in, “yes, the RalCorp deal helps, but the company has to execute on the integration” or “yes, input costs are lower, but the company is having to spend on marketing/promotion to prop up weak volume”. While I liked ConAgra as an undervalued play in the sector back in December, I don't feel as strongly about it today given the significant move in the sector and this stock in particular.

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Investopedia: McCormick Continues To Defy Gravity

When I last wrote on McCormick (NYSE:MKC) in October of 2012, I liked almost everything about the company except the valuation on the stock. However, as I've mentioned repeatedly in the past, valuation is no impediment to further appreciation in the short term and McCormick shares have climbed a further 15% from that point (beating the market by more than 7% over that time).

Accordingly, the story on McCormick largely remains the same. While some investors will argue that the valuation of Berkshire Hathaway's (NYSE:BRK.A) and 3G Capital's deal for Heinz (NYSE:HNZ) “proves” that packaged food stocks are undervalued, I don't share that sentiment. The strong volume growth at McCormick is certainly positive, and I like both the company's commanding U.S. share and growth prospects, but today's share price suggests future appreciation potential more suited to bonds than an equity.

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Seeking Alpha: Heinz May Be A Buffett Stock, But This Isn't A Buffett Price

I was not surprised to see that Warren Buffett chose to use Berkshire Hathaway's (BRK.A) considerable cash hoard to acquire another high-quality consumer brand that sees shoppers buy the same products over and over across decades. Insofar as brand quality, return on capital, and high-return growth potential, H.J. Heinz (HNZ) is a Buffett stock through and through. That said, the price that Buffett was willing to pay is pretty shocking to me.

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Heinz May Be A Buffett Stock, But This Isn't A Buffett Price

Investopedia: Yum! Brands Knocked Off Stride In China

For those investors who've been waiting for a pullback in perpetually expensive Yum! Brands (NYSE:YUM), here's your chance. Tougher consumer conditions in China, combined with a scandal related to excess antibiotics in chicken served by YUM's Chinese KFC stores, have led to a major slowdown in Chinese sales and taken the shares with them. Given that the impact of this scandal/scare will almost certainly be fleeting, this could be a rare opportunity to get shares at a more reasonable price.

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Seeking Alpha: Hormel Buys Skippy: Bold Move Forward, Or Future Sticky Mess?

Give credit where due - Hormel (HRL) is not just playing lip-service to the idea of being a more diversified packaged foods player. While many companies talk about wanting to make bold moves, Hormel has shown over and over again that its management team is actually willing to do it. The question, though, is whether the company's $700 million purchase of the Skippy peanut butter brand from Unilever (UL) is a bold move forward for the business, or a step too far outside of its competency.

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Hormel Buys Skippy: Bold Move Forward, Or Future Sticky Mess?

Investopedia: ConAgra Improving Margins, But Elasticity Is A Challenge

As investors have seen with General Mills (NYSE:GIS) a couple of days ago and now again with ConAgra (NYSE:CAG), the packaged food industry is still facing pretty challenging conditions. In particular, it looks as though companies can raise prices if they want, but they see an almost immediate hit to volumes. At the same time, give credit where it's due - ConAgra has continued to make progress with its margins. With Ralcorp (NYSE:RAH) now coming into the fold, the next year or two could be pretty interesting for ConAgra, even as the retail environment remains challenging.

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Investopedia: Dean Foods Checks Another Major Item Off The To-Do List

The restructuring/repositioning of Dean Foods (NYSE:DF) has taken another significant step forward. On Monday before the open, the country's largest dairy processor announced that it had reached a long-awaited agreement to sell its Morningstar business. While Dean Foods got a reasonable price for this asset, it's still an open question as to whether Dean Foods' overall operating strategy can reward shareholders.

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Investopedia: ConAgra Wins Ralcorp After A Long Chase

With Wall Street's quarter-to-quarter obsession, it's often thought that corporate America no longer has the luxury of thinking and planning for the long term. ConAgra's (NYSE:CAG) eventual success in winning over Ralcorp (NYSE:RAH) to a friendly bid shows, though, that patience can still play a significant role in business. Although ConAgra is not getting a great bargain here, this should be a value-additive deal for the company over the long term.

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Investopedia: Has The Market Already Noticed ConAgra's Improvements?

Investors make money on turnaround stories by coming in ahead of the curve, taking on the risk of being wrong in exchange for the possibility of outsized gains. Once the notion that a company has made real progress and improved its operations is generally accepted, usually the stock has already run up. In the case of ConAgra (NYSE:CAG), the stock is up strongly on better first quarter earnings, but more gains could be on the way if the Street accepts that these improvements are here to stay.

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Investopedia: Heinz Doing OK, But Can It Squeeze Out Better Profits?

I really try not to fall into the Wall Street trap of always looking for something to complain about when looking at companies. To that end, I think Heinz (NYSE:HNZ) ought to get its due for its strong emerging markets position, its valuable market-leading brands and its ability to maintain respectable volumes in North America. Nevertheless, while Heinz is a solid enough long-term dividend play, I do believe that the company has to wring more profits from its sales for the stock to be worth substantially more than today's level.

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Investopedia: General Mills May Be Making A Mistake With Its Spending

Nothing changes all that fast in packaged food, and the trends that drove General Mills (NYSE:GIS) in the fourth quarter are basically the same that we've seen from ConAgra (NYSE:CAG), Nestle (OTC:NSRGY) and the rest of the sector. While this company's focus on building its international business is a smart move for the long-term, I do wonder if the company is under-spending on promotions and putting 2013 sales performance at risk.

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Investopedia: Stable Volumes Support Premium Valuation For McCormick

If investors want to find a bargain in packaged food, they have little choice but to go with small up-and-comers that aren't fully appreciated yet or dip into the box of broken toys. Companies like Kellogg (NYSE:K) and Kraft Foods (NYSE:KFT) offer some potential on the basis of past missteps and/or restructuring potential, but a well-run company like McCormick (NYSE:MKC) doesn't come cheap these days. Although I believe there's still upside to the McCormick story, these shares aren't priced to permit many mistakes.

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Investopedia: ConAgra Doing Better, But Can It Last?

ConAgra (NYSE:CAG) didn't pick the easiest time to start changing its business, but there's never really a bad time to try to fix an underperforming business. Although macro trends in the food sector aren't doing the companies any particular favors, and a lot of Street analysts have already bought the story on the turnaround, the company does seem to be making some sound moves.

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Investopedia: TreeHouse Foods And The Good Business / Good Stock Gap

More and more these days, and seemingly especially in sectors like food, there is a growing gap between good companies and good stocks. TreeHouse Foods (NYSE:THS) is another good example. While management has built an increasingly diversified and competitive private label packaged food business, and private label brands continue to gain share at supermarkets, investors seem to be overestimating just how valuable that market exposure is.

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