NEW YORK ( TheStreet) -- If you were to assign human characteristics to the stock market -- reasonable since it is the sum of its participants' thinking -- it's an idiot savant. Unbelievably skilled at ferreting out (and punishing) greed and less than reasoned speculation, but then at times missing the writing on the wall.When that happens, it takes an outsider to come in and show the market what it is missing. One such moment happened on Valentine's Day this year, when Warren Buffett announced he would acquire food company H.J. Heinz ( HNZ) with 3G Capital for $72.50 a share. Just before the deal was announced, HNZ was trading at $60.48, or about 17 times the April 2013 consensus earnings per share forecast of $3.55. Buffett's $72.50 bid valued the company at 20.4 times the forecast. I don't know what Buffett's thesis is per se, but his valuation estimate is interesting and instructive. Specifically, since he doesn't chase companies that lose money and he only invests in companies that generate increasing amounts of cash over time, I think he's posited, and put his money where his posit is, that money can be made today and in the future by paying $20 for a dollar of earnings. Buffett's speculation has been well digested in the market since there has been an across-the-board jump in the multiple for food companies, as the chart below demonstrates.
More important, over the past 10 years GIS has grown its dividend from 55 cents per share to the current $1.55 share, for a very heady compound annual growth rate of 10.7%. Similarly, J.M. Smucker Company ( SJM), yielding 2.1%, has also grown its dividend by 10.7% over the past 10 years, far outpacing inflation. Below are the food companies we like, with the associated earnings date in case you want to tune in. Note Kimberly-Clark ( KMB), which released earnings Friday showing higher profit and also raised its forecast.
- General Mills ( GIS), June 26 Procter & Gamble ( PG), April 24 Kimberly-Clark ( KMB), April 19 Kraft Foods ( KRFT), May 2 Kellogg Company ( K), May 2 Hershey ( HSY), April 25 J.M. Smucker ( SMJ), June 6 Dr Pepper Snapple Group ( DPS), April 24 Green Mountain Coffee Roasters ( GMCR), May 8 Dean Foods ( DF), May 9