Although Southern California is firmly in the grip of summer, today's pick has me looking forward to the cool fall evenings that are just around the corner. Campbell Soup (CPB) - Get Report not only has excellent brand recognition but has complete dominance over the soup category.
It's not surprising that is the largest producer of soups in the world. Domestically, the company outsells the next leading soup brand by a margin of nearly 7 to 1. This has allowed Campbell to generate 25% operating margins in this segment, making it one of the most profitable businesses in the packaged food industry. Here in the U.S., it holds an 80% market share in condensed soups and a 70% share of ready-to-serve and microwaveable soups.
Gravity-fed shelving at grocery stores has helped increase sales of condensed soups and allowed Campbell to stock 15% more inventory and generate double-digit sales gains in the category, even with intense competition from Progresso and other labels. Other key products owned by Campbell include Pepperidge Farm cookies and crackers, V8 juice beverages, Pace Mexican sauces, Prego pasta sauces and Godiva chocolates.
Campbell has begun the process of selling Godiva Chocolates, a transaction projected to net $1 billion to 1.5 billion.
The company booked revenue of $6.6 billion last year and has a price-to-earnings ratio of 14.63; return on equity is a staggering 49.77%; and total debt to equity is 0.526, making this a fundamentally strong choice. The stock was recently trading at $35.45.
In its recent earnings statement, Campbell's reported quarterly sales increases of 9.6% vs. the prior-year period, and annual revenue tops $7.7 billion.
In the past few months the stock has been creamed, presenting me with a hearty deep in-the-money opportunity. I will buy 10 March 30 (CPBBF) calls, setting my limit order at $5.00 or better.
Now, as I do every Friday, let's take a look at your emails.
Fielding Reader Email
Lenny,Can you do a quick column on MEE andMOT? I fear that the Fed will holdsteady on Sept. 18 and the Street will bebloody that day. With MEE Oct 20 andMOT Oct 15 so close to our originalinvestment, should we sell now and movethem out, similiar to your BAC move?
As we get closer to expiration, if we haven't scored a win with the three remaining October calls I will do a column explaining the procedure to roll the options into a longer-dated position. I am still holding out for wins across the board; they have the potential to be late bloomers and produce some fruit prior to Oct. 19. What's important now is that we still have time.
However, if you are anticipating the street to be bloody on Sept. 18, you should be saving your money and getting ready to buy, buy, buy. Quality will always rise back to the top.
Hi Lenny, thanks for all your advice. I'm new tooptions but have been following yourarticles. Ihave a question:1. If your limit order does not getfilled, do you increase your buy orderif you see the stock going higher thanoriginally expected (i.e., Amgen)?
Dear Benny,I don't believe in chasing a stock, so if the limit order on a deep-in-the-money call does not fill at the price listed in the column, I will let it go; there will always be some trades that get away. I don't waste time running after a particular stock.
Additionally, I always keep in mind my rules for purchasing and keep limit orders for DITM calls within the guidelines of $1 or less in premium -- meaning, the strike price plus the option price need to be less than a dollar more than the stock price. If you chase a stock, you will quickly be trading outside the limits for a purchase.
Not so LD, the home-equity tap is shutfor good and you can expect massive credit carddelinquencies. COF to 50.
Look at COF this week; it jumped 4 points in the past five days alone. Keep in mind that my DITM calls strategy isn't a buy and hold strategy. With the exception of Bank of America, each DITM calls pick in the financial sector have been wins within two weeks or less, adding more than $15,000 in profits to
the Stat Book
in a very short amount of time.
At the time of publication, Dykstra had no positions in stocks mentioned.
Nicknamed 'Nails' for his tough style of play, Lenny is a former Major League Baseball player for the 1986 World Champions, New York Mets and the 1993 National League Champions, Philadelphia Phillies. A three time All-Star as a ballplayer, Lenny now serves as president for several privately held businesses in Southern California. He is the founder of The Players Club; it has been his desire to give back to the sport that gave him early successes in life by teaching athletes how to invest and protect their incomes. He currently manages his own portfolio and writes an investment strategy column for TheStreet.com, and is featured regularly on CNBC and other cable news shows. Lenny was selected as OverTime Magazine's 2006-2007 "Entrepreneur of the Year."