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Ralcorp Basks in Slump: Under the Radar

Ralcorp, the generic-food purveyor, has risen about 7% in the past month, while the S&P 500 has fallen by the same amount.
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BOSTON (TheStreet) -- When investors panicked a year ago, we scanned more than 5,000 stocks and recommended shares of four small companies that resisted the recession. Here are the stocks and their returns since publication on Feb. 18, 2009.

4.

Java hustler

Green Mountain Coffee Roasters

(GMCR)

delivered a 197% return.

3.

Film studio and comics seller

Marvel Entertainment

(MVL)

soared 115%, helped by

Disney's

(DIS) - Get Report

acquisition.

2.

Specialty retailer

The Buckle

(BKE) - Get Report

advanced 20%.

TheStreet Recommends

1.

Store-brand food seller

Ralcorp

(RAH)

climbed just 2%.

As the broader stock market advanced, recession-proof Ralcorp stalled. But since fear is again influencing market participants, this stock is worth another look. Ralcorp just released its fiscal first-quarter numbers and the results speak to the economic woes of the American consumer, who apparently is still hungry for generic-brand food. Ralcorp's quarterly revenue climbed 2.4% to $992 million.

Its cereals segment, which includes the Post brands, suffered a 1.9% sales decline as frozen-bakery-products revenue fell 5.2%. But Ralcorp's snacks, sauces and spreads segment boosted sales 13%. Total operating profit soared 24% to $147 million, but net income increased just 2.6% to $67 million, or $1.19 a share, due to one-time gains in the year-earlier quarter from a

Vail Resorts

investment. Excluding the gains, profit rose 38%.

Investors seeking a defensive small-cap are advised to consider Ralcorp. Its stock advanced 6.8% over the past month as the

S&P 500 Index

dropped 7.3%. The shares are still undervalued relative to those of food-products peers based on all of our valuation measures, including trailing earnings, projected earnings, book value, sales and cash flow. The stock receives an overall score of 7.4 out of 10, placing it in our top 50.

Ralcorp has a beta of 0.2, indicating low stock-market correlation.

UBS

(UBS) - Get Report

just increased its price target on the stock to $72, implying 13% upside, and reiterated its "buy" rating. Ralcorp offers a hedge against prolonged unemployment since the company is a direct beneficiary of consumer retrenchment. Of 11 analysts surveyed by

Bloomberg

, eight recommend purchasing the shares.

-- Reported by Jake Lynch in Boston.