This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

McCormick Stock Is Full of Flavor

Stocks in this article: MKC CAG DMND NSRGY CPB MCD YUM

NEW YORK ( TheStreet) -- Investors in the packaged food industry continue to starve for operational improvement. With weaker-than-expected earnings results and poor guidance coming in from ConAgra (CAG) and Diamond Foods (DMND), I can't blame the Street for crossing these names off its shopping list. While the sector's overall performance has been hard to digest, McCormick (MKC), whose stock has been up on the year by as much as 20%, has been spicing things up with improved margins and solid returns on capital.

The problem is that despite McCormick's recent outperformance, the company just couldn't escape the wrath of a market that's ready to punish anything that carries a nutrition label. Consequently, since reaching a 52-week high of $75.26 per share in May, McCormick stock -- which has carried a higher valuation than both Nestle (NSRGY) and ConAgra -- has lost roughly 14% due to weak growth prospects and poor volumes.

As much as I've wanted to like McCormick, its "non-discounted" price has always kept me on the sidelines even though the company holds about two-thirds of the market here in the U.S. for spices. But following this recent selloff, which occurred on the heels of the company's third-quarter earnings report, coupon or no coupon, this stock is now a must-own.

The Street believed McCormick's earnings results were a disappointment, seeing as the stock price had lost as much as 6%, falling to $63.38 last week. Since then, cooler heads have prevailed. And while the stock has recovered slightly, we can't ignore that in this weak macro environment where McCormick's rivals are not only missing estimates, but lowering guidance, the company's in-line results should -- in my opinion -- have counted as a beat.

Revenue grew 4% year over year, which is more than double the growth output of the company's June quarter. While it's true that much of this revenue was driven by the acquisition of Wuhan Asia-Pacific Condiments, which McCormick picked off in May, I was encouraged by the extent to which sales in the consumer business improved as the quarter progressed.

In the past, I've spoken about the importance of organic growth, which measures a company's operational performance using only internal resources and excluding events like acquisitions. As much as I've liked, say, Campbell Soup (CPB), I've taken issue with management's perpetual "growth by acquisition" strategy. I'm not going to change my tone on this. But by acquiring WAPC, which is a leading seller of products like chicken bouillon, I do see an exploitable advantage here for McCormick, which now stands to increase its sales in China by more than 60%.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,890.30 +85.50 0.48%
S&P 500 2,072.51 +1.86 0.09%
NASDAQ 4,773.9560 +8.5760 0.18%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs