Del Monte: Snacks for People, Pets and Investors

Producing strong second-quarter results, Del Monte has established itself as a price leader, with stronger product pricing and new products. Net sales growth was 11.5% in the most recent quarter and 2009 revenue guidance increased from the 6%-8% to the 8%-10% growth range. The company is expecting additional price increases with 2009 guidance of 58 to 62 cents a share.

Investors should note that Del Monte does compete with some large companies such as General Mills (GIS - commentary - Cramer's Take) Green Giant in vegetable and Dole in the tomato category. Yet Del Monte maintains a large position overall in the vegetable and fruit business, which gives it the scale to compete effectively.

Productivity gains offset large cost increases due to high grain and fuel costs. Del Monte is typically 80% hedged on its commodity costs, but will be in a position to reap the rewards of a deflation in input costs in its next fiscal year.

Del Monte fits my recent investing theme of well-positioned food and beverage companies such as Diamond Foods (DMND - commentary - Cramer's Take), Fresh Del Monte (FDP - commentary - Cramer's Take)(different company) and Central European Distribution (CEDC - commentary - Cramer's Take), which are all positioned to leverage their established brands and infrastructure to gain additional market share during the recession.

I typically do not like buying a stock after a big run but there will be money flowing into defensive sectors such as foods. Buy 50% of your position in the $6.00-$6.50 range and look for an opportunity to scale down if possible.

Know what you own: Del Monte operates in the processed & packaged foods sector; other companies in this field that may interest investors include ConAgra Foods (CAG - commentary - Cramer's Take) and Kellogg (K - commentary - Cramer's Take).

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At the time of publication, Gear had no positions in the stocks mentioned.

Steve Gear was director of capital markets at Stockhouse.