Hello, in a world of debt with a probable 'recession by design' coming,
I have some parameters of low-debt consumer staples and some defensive names.
These are what I am most interested in now. This is due to
*- declining USA consumer confidence
*- Bankruptcy of property development majors in China
*- the fastest rise in interest rates in decades
*- The end of student loan payment respite
*- The continuation of the end of eviction protections (yes those were still in
place this year in some liberal states !)
*- The 150,000 jobs added recently was not bad, but it is a declining trend
*- The debt ceiling debacle returns in December
When a company stares down the barrel of rising interest rates and they
want to take on more debt to work on a project like a new product, the situation
is much worse of the company already has a lot of debt. So being in a state of
low debt gives more growth potential in addition to the obvious safer situation.
Comsumer staples stocks do well when people become convinced that a recession
is coming, and during the recession they tend to stay stable.
Then you sell these stocks when layoffs start to decline as you are well into the recession itself.
There are some industries that carry more debt than most. These are the
ones who consider their revenue streams predictable and reliable. They can
take on debt and be confident that they will be able to meet the financing payments.
Consumer staples fall into this category, as do utilities.
Cyclical industries such as semiconductor capital equipment are ill-advised to
take on a lot of debt.
Numerous consumer staples stocks have debt to equity higher than 100%.
Surprised? I still grapple with the fact that Circuit City went under with only
25% debt to equity reported, and yet many companies trudge on for years with debt
to equity higher than 100%. I highlight ones I found that according to Reuters
have less debt than that. I will perhaps stretch perception of what 'low debt'
means and call this <100% = low debt (at least it is in consumer staples land).
Sometimes you see web sites with financial metrics put a '0' for debt, but often
that is wrong. It is better to see a small non-zero number for debt to equity.
Naturally to be worth investing in it we would like to see a non trivial dividend.
Here is the list, with valuation metrics as of 11/11 thrown in:
'Back PE' refers to 'Backward looking PE' as opposed to forecasted PE
pr/sls refers to price to sales. Theorists argue this is the most important value metric.
I can endeavor to follow up with debt to EBITDA. EBITDA is 'earnings before interest, taxes,
depreciation, and amortization'. This is another important measure of debt.
The two measures of debt total and long term I separate with double slash
and it does not mean division.
A main motivation here is that if you truly believe (as I do) that USA bonds have
transitioned to something one should refuse to own at any yield, then these stocks are
one of the best options left to be a store of value in the future.
percent
symbol | Dividend | Back PE | pr/sls | debt to equity |
| | | | total//long term
——–|————–|————–|———|—————-|
Hormel Foods
HRL | 3.38% | 20.4 | 1.46 | 43//31%
Archer Daniels Midland (remember the “Supermarket to the World” sound byte?)
ADM | 2.48% | 10.1 | 0.40 | 34//33%
Kraft Heinz
KHC | 4.86% | 13.6 | 1.49 | 40//39%
Tyson Foods
TSN | 4.09% | 50.0 | 0.31 | 50//47%
Bunge (A seed producer and more for aggie)
BG | 2.54% | 8.1 | 0.25 | 51//39%
Pfizer
PFE | 5.56% | 16.2 | 2.43 | 66//63%
Johnson and Johnson
JNJ | 3.23% | 28.1 | 4.05 | 42//37%
Mondelez
MDLZ | 2.46% | 20.7 | 2.65 | 70//58%
Some consumer staples and defensives with high debt to equity, for comparison:
percent
symbol | Dividend | Back PE | pr/sls | debt to equity |
| | | | total//long term
————|—————|————-|———|———————|
Abbvie
ABBV | 4.47% | 37.9 | 4.44 | 502//460%
Sysco (not to be confused with Cisco the networking company)
SYY | 2.97% | 18.9 | 0.44 | 512//503%
GIS, CPB, and CAG have debt to equity that might be viewed as
reasonable. Someone pointed out to me that CAG has a high debt
to EBITDA.
PG, MCD have decent debt levels but their valuation is higher and their
dividend is less than 2.5%
Clearly Bunge is a great stock deal in terms of value metrics. I know these numbers aren't everything, but the above companies are recognized at being competent at making their products.
Thanks for reading, non-TLDRs !
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