Known for Pepperidge Farm snacks, Spaghettios and V8 products, Campbell Soup stock has trailed both the Dow Jones Industrial Average and the S&P 500, which have posted gains this year of 7.7% and 11.47%, respectively. But as the curtain drops on the year, Campbell Soup is looking for a resurgence, and with plans in place to increase margins in 2015, now is the time to warm up to one of the forgotten names in the packaged-foods industry.
Campbell Soup, which pays a strong yield of 2.80% and has purchased about 25% of its outstanding shares in the past 10 years, is a solid defensive play in a market that is always waiting for a pullback. Add the positive effect of higher grocery spending as consumers save more at the pump due to lower oil prices, and buying Campbell Soup stock makes a lot of sense.
Take a look at the chart below:
When compared with rival food companies such as General Mills (GIS) , Kellogg (K) and Mondelez (MDLZ) Campbell Soup shares have followed a similar pattern, supporting an argument that struggling with weak volumes and compressed margins has affected the entire industry.
And with shares down 3.73% over the past six months, Campbell Soup has become cheap.
The valuation story has changed.
In the past three months, the trailing price-to-earnings ratio has dropped to 17 from about 26 or more than 4 points lower than the average P/E ratio of companies in the S&P 500, according to CNN Money.
In fact, Campbell Soup's P/E ratio is 2 points lower than General Mills and is about half that of Mondelez, which has a P/E ratio of 36.4.