Editors' pick: Originally published Feb. 22.
Wow, after the best week of the year, the charts are screaming what's going on right now. They aren't mincing words. They show some key patterns.
First, investors see deflation coming, not inflation, despite whatever discordant hawks from the Fed say or what the consumer price index indicates. Second, some fear that central bank tactics to relieve deflation will lead to inflation. Third, some are willing to stretch for yield in a low-yielding world. Fourth, some see a nascent industrial turnaround or believe certain managements can navigate the moment better than others. Fifth, there a couple of turnarounds or secular growth stories out there -- very few of them -- that inspire aggressive buying. Sixth, some of these stocks are twice blessed and are probably the best place to begin.
Which stocks seem to have it all right now? It's the consumer packaged goods segment where people are buying into a deflationary environment where there's yield and even conceivably a weaker dollar, although I am not yet willing to call that a trend.
The ones with the best charts? Campbell's Soup (CPB) - Get Report , Church & Dwight (CHD) - Get Report , Clorox (CLX) - Get Report , Coca-Cola (KO) - Get Report , ConAgra (CAG) - Get Report , Dean Foods (DF) - Get Report , Estee Lauder (EL) - Get Report , General Mills (GIS) - Get Report , Hershey (HSY) - Get Report , Hormel (HRL) - Get Report , Johnson & Johnson (JNJ) - Get Report , Kellogg (K) - Get Report , Kimberly-Clark (KMB) - Get Report , PepsiCo (PEP) - Get Report , Procter & Gamble (PG) - Get Report , Smucker's (SJM) - Get Report and Tyson Foods (TSN) - Get Report .
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Each has a pretty good story to it. Campbell's, after years of having little to no growth, has a moderately positive earnings trend, some natural and organics to its lineup, with the Bolthouse Farms brand being the best, and a decent dividend. Many of its raw costs, whether it be transportation or packaging or ingredients are all coming down in costs, but it doesn't seem to have that much pricing pressure at the store level. This stock has been perhaps the strongest in the market, save a couple of others on the list and, to me, has gotten ahead of itself. Nobody seems to care though, as it just won't be stopped.
Church & Dwight shows you the great lengths investors will go to get into any consumer packaged goods story, even one with disappointing earnings, provided it had some organic growth, which was the case with this quarter as it gave you 2.6% organic growth. The company has a virtual flotsam and jetsam of consumer brands ranging from Arm & Hammer products to Nair, Trojans, yes the contraceptives, and First Response Pregnancy tests, a nice companion if the condom was absent.
Clorox just reported a terrific quarter and CEO Benno Dorer is doing a remarkable job growing the company even faster than Donald Knauss, the previous CEO, although we have to credit Knauss with doing the brightest thing you could possibly do as a consumer packaged goods CEO on the way out, get the heck out of Venezuela. Why so many other companies stay is beyond me. They should go to Cuba, which has nothing, rather than stay in Venezuela, which is going the way of Cuba. Clorox is clicking on all cylinders through innovation and social media, which now accounts for more than 30% of its spend. Look out for its underperforming Brita Filter division, which I think is about to get hot through celebrity endorser and American family favorite Steph Curry. Benno was the only CEO in this whole group who said, out loud, that energy is a real tailwind. I think he's thought it through and has decided that energy costs will be lower longer. He also has among the least strong dollar exposure. You need more than one reason when your stock has been this strong.
A couple of underperforming food companies make the list and I find that they are directly blessed with good yields, which keeps investors in them while they turn around: General Mills, Kellogg and ConAgra.
Mills is a perennial favorite as it has been slow and steady wins the stock race even as it has repeatedly disappointed on the earnings front. It is getting much more natural and organic though and investors love that. ConAgra's a restructuring story having just offloaded the disastrous Ralcorp private label division. The company fleeced itself in that acquisition, one of the worst of the new millennium. Kellogg just reported and it had a nice beat and raise, but still doesn't have its old growth back, although it did say that cereal sales are rising. Boy did that get people salivating. It yields 2.65% and it is one to go to on the next oil- or China- or Fed-related selloff. Yes, that's how strongly it is now perceived.
Coca-Cola and PepsiCo are often regarded as competitors. I think that's ridiculous. They both make carbonated soda drinks and the price wars seem to be over. Coca-Cola has improved its marketing and changed its cost structure while perennially boosting its dividend. I think it's going to do quite well in a deflationary environment. PepsiCo has amazing large-cap growth, but that comes more from snacks, notably Frito Lay and a resurgent Quaker. It had an amazing quarter and it has a generous dividend policy. It's best in show.
Procter & Gamble and Kimberly are often talked about in the same breath, presumably because they both make diapers. That's a sophomoric way to look at it. P&G is in the midst of a multi-year turnaround and everything it makes and everything it transports is a huge beneficiary of lower energy costs. The turn is very real, the yield will support you if there are bumps and the country club atmosphere at this giant apparently is a thing of the past.
Kimberly has become the deliver-and-beat company with the most pro-shareholder characteristics in the group when it comes to returning capital. Its raw costs are plummeting and it ditched its underperforming Halyard Health Group (HYH) not that long ago. Smart.
There are four fast-growing consumer packaged goods companies that the market adores: Estee Lauder, Hershey, Hormel and Smuckers. Estee Lauder just keeps making the numbers and is the No. 1 cosmetics growth engine in the world. Fantastic management here. Hershey's spent the time in the doghouse it has needed to courtesy of high cocoa costs and an even higher valuation. It's done going down. Hormel's reinvented itself even faster than Campbell's and it has shed the Spam-only moniker that has dogged it, sealing that terrible processed meat tag with its purchase of the natural and organic Applegate Farms. This stock's one for the ages and like many of these companies, when the CEO comes on he dazzles. What a terrific quarter. Someone recently threw this stock under the bus in TheStreet.com's Worst Stock in the World contest and all I can say is that perhaps it has been too hot of late. Otherwise, this is a very forward-looking company that was the exact opposite not that long ago. Smucker, like Hormel, has bought growth, including coffee, peanut butter and most recently Big Heart Pet Brands and they have all come out splendidly. Oh my, is this company loved, even as the growth is more purchased than organic.
Dean Foods and Tyson are pure deflationary plays as milk, chicken and beef are all part of the declining commodity complex. If you believe that commodity costs are coming down further, something you have every right to believe, especially after the horrendous Deere (DE) - Get Report quarter, these should be your two favorites.
Finally, here's the oddity in the group: Johnson & Johnson. Oh my, here's a consumer products company that has one of the fastest-growing drug divisions, a cost-cutting margin-improving medical device business, a fantastic buyback, a bountiful dividend and exposure to a potential weaker dollar. It has it all, which is why the stock never sells off any more. Watch this stock. On a down day it is always the first to turn. It's become the most go-to name among drugs, devices and packaged foods and its balance sheet, the strongest of any in the United States, one of the lone Triple As, gives everyone the lovely blanket that they so crave.
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, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.