Happy Thanksgiving!
Food for Thought
Two Solid Companies with Good Value
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Thanksgiving is a great time of the year, especially because it brings back many fond memories of yesteryear. This year, my wife and I will be traveling to Port Orange, Florida, to camp out for a few days in our trusty two-person tent. I’ve never been to Port Orange, so I look forward to seeing another new place.
In years gone by, I can recall going to my grandparents’ house in Lynnfield, Massachusetts. Joining Grandpa and Grandma for Thanksgiving dinner was always special. Great food (I still love turkey), fun and games, and a long walk made for an idyllic day. I have spent Thanksgiving in many different places with various friends and family, but few compare with those old Thanksgivings in Lynnfield.
I hope that you will have a great feast and a memorable day with friends and family!
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Switching gears, let’s talk about making money.
Sometimes I get frustrated when investors don’t understand my intended role in the investment world. After many years, ok, decades, I have found that the best way to make money in the stock market for me is to invest in conservative stocks for long-term holding. No market timing, no charts—just buy blue-chip companies at low prices and wait patiently until the stock price becomes overvalued. I simply want to take advantage of the natural ebb and flow of the stock market.
If you are thinking my profits are minuscule because of my conservative style, then I offer this evidence. For the 12 months through the end of September, my Modern Value Model stocks are up 44% compared to a gain of 24% for the Dow Jones Industrial Average! That’s significantly better than most mutual funds, most investment letters and even hedge funds. During the past decade, the Model has increased 130% compared to the 78% increase by the Dow. When you invest in stocks with very little downside risk, good things happen!
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In the November issue of my Cabot Benjamin Graham Value Letter, I suggested buying 18 stocks. Included in the list were Celgene (CELG), Cognizant Technology (CTSH) and Mindray Medical (MR). Rather than buy these three stocks at the current price, I strongly urged my faithful subscribers to buy only if the stock prices declined to their Maximum Buy Prices (targets) of 71.54, 64.33 and 32.96 respectively.
CELG, CTSH and MR briefly declined to my computer-generated buy price targets, and have since produced profits of 7%, 1% and 1% in just three weeks, while the Standard & Poor’s 500 Index has dropped 2%. The three stocks, as expected, are on their way to producing more profits for my happy subscribers.
These examples are very good illustrations of what the Cabot Benjamin Graham Value Letter is all about: buy at the suggested Buy Price, Hold, and Sell at the suggested Sell Price. No, the system doesn’t work perfectly every time, but the results over the past several months and years indicate that this is the most profitable system with the least amount of risk anywhere!
I also publish Minimum Sell Prices for CELG, CTSH and MR, plus 247 other stocks. One of our recommendations is very close to its Minimum Sell Price after gaining 101% during the past 29 months. To find out how you can increase your profits and dividends using a safe, sensible system, CLICK HERE.
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In keeping with the season, I offer two companies that likely sold thousands of turkeys before Thanksgiving Day. Both companies sell at a very reasonable price and pay solid dividends.
Ingles Markets (IMKTA: current price 15.92) is a leading supermarket chain with operations in six southeastern states. Founded 47 years ago in Asheville, North Carolina, the company operates 203 supermarkets located typically in smaller towns and cities. In addition, the family-run business owns and operates 71 neighborhood shopping centers, 59 of which contain an Ingles supermarket. Ingles also operates 74 in-store pharmacies and 70 on-site gas stations.
Ingles opened a newly built distribution and warehouse center in Asheville to replace its outdated (and only) facility. The new center will increase efficiency and add to profitability.
The company is expanding its selection of private label items under the Laura Lynn name. Private label goods are clearly more profitable. The company is enjoying a surge in demand from consumers who are opting to buy groceries and cook at home rather than spend extra money to dine at restaurants.
The transition to the new distribution facility and higher food costs will hold back earnings growth during the next quarter or two, but I expect 5% sales and 15% EPS (earnings per share) growth during the next 12 months. Cash flow of more than $5.00 per share is more than enough to expand Ingles’ store count, and at the same time, pay down its high debt load and reduce interest expense.
At 8.2 times my EPS estimate of 1.95 for the next 12 months ending 9/30/13, IMKTA shares are a bargain. Ingles has been paying quarterly dividends since 1987, and the current yield of 4.1% adds substantial value and stability. I recommend buying IMKTA below 16.85.
Kroger Co. (KR: Current Price 24.53), founded in 1883 in Cincinnati, is one of the largest U.S. grocers with 2,476 supermarkets in 31 states. The company also operates 779 convenience stores, 393 jewelry stores, and 737 supermarket fuel centers. It also operates 41 food processing plants providing 15% of total grocery sales.
Kroger’s typical format includes food and drug stores containing bakeries, delis, seafood, meat and floral shops, pet centers and high quality fresh items such as organic produce. Supermarket fuel centers are also located at many locations. The company’s “Customer First” strategy emphasizes consumer service.
Management recently introduced a new program to boost the number of new stores significantly. Kroger’s will also expand its business to include discount stores and restaurants. Management is committed to improve sales and earnings growth considerably during the next couple of years.
During the past 12 months ended 8/31/12, sales increased 6%, and EPS rose 14%. In the most recent quarter same-store sales climbed 3.6%, which is noticeably better than previous quarters. Kroger is taking market share despite formidable competitors such as Walmart.
At 9.8 times my one-year forward EPS estimate of 2.50, KR shares are undervalued. Stronger same-store sales and multiple new store openings will lead to sales and earnings gains of 7% and 12% during the next 12 months ending 8/31/13. Kroger shares are less volatile than the shares of most companies. The dividend yield of 2.4% is generous. The company has been paying a dividend since 2006 and has increased it every year since. I recommend buying KR below 26.02.
I will continue to follow Ingles and Kroger, as well as many other blue-chip, high-quality companies in my Cabot Benjamin Graham Value Letter. My next issue, coming soon, will focus on undervalued stocks with low P/E to growth (PEG) ratios. I hope you won’t miss it!
Sincerely,
J.Royden Ward
Editor of Cabot Benjamin Graham Value Letter
Editor’s Note: You can find additional stocks selling at bargain prices in our new and improved Cabot Benjamin Graham Value Letter. Find out why our subscribers are showering us with compliments!
In every issue, you’ll find Roy’s legendary Maximum Buy and Minimum Sell Prices for over 250 well-known stocks. Just buy at the Max Buy Price and sell at the Min Sell Price—it’s that easy. Click here to get started today!
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