Wow, safety costs an awful lot. That's all I could think about as I listened to today's disappointing presentation by General Mills (GIS) at the Barclays Global Consumer Staples Conference.
It's not often that you see a stock like Mills drop three points or 4% in one day's session. This is a company of the highest quality that usually has a very good hand on its own destiny.
But it sure didn't this time as it took down guidance it gave last month in part because of yogurt sales, a reminder of just how competitive anything in the supermarket is right now -- natural, organic, packaged, fresh or anything else that's sold. That's Danone in there taking share and taking names. But taking no prisoners.
I was wondering when the pressures on the supermarkets would get to these consumer packaged-goods stocks, because in the end they have moved so much that their yields are now meager.
It was only a matter of time, I guess, when you consider the startling decline in the stock of Campbell Soup (CPB) . This stock has lost 10 points in two months, almost all because of a quarter that was surprisingly weak and a dividend that doesn't protect a stock that's run so much on takeover talk and a false belief that its business was more immune to price cutting than any other in the space.
It's not like these are slug companies. Both have moved to do much more in the natural and organic space. But, guess what, the private-label guys have moved in aggressively, too. You can bet that when the accounting mystery of Hain (HAIN) is cleared up, you are going to see that it, too, has been hurt by private labels because it hasn't spent enough money defending its brands.
Look, they even got to J.M. Smucker (SJM) , which had been the most reliable, because of a price war in what had been one of the strongest aisles in the supermarket: pet food. That was a sucker-punch quarter for certain.
In the end, the consumer's gotten even more frugal, the supermarkets are trying to make as much as they can by pitting everyone against each other, Target (TGT) doesn't want to lose share to Walmart (WMT) , and the dollar stores are trying to underbid Walmart on food. Costco's (COST) caught in the same vise. Oh, and of course, Amazon's (AMZN) there beating everyone to death. The deflation in food is a dark hole that all of these companies are falling into. (Costco is part of TheStreet's Action Alerts PLUS portfolio. Amazon is part of the Growth Seeker portfolio.)
If you are in any of these stocks, whether it be Kellogg's (K) or ConAgra (CAG) or Church & Dwight (CHD) or even Kimberly Clark (KMB) or Clorox (CLX) , you have to have one finger on the trigger. We even sold one of my faves, Kraft-Heinz KHC, after a nice gain, because we didn't see the growth case going forward.
This safety group may prove to be the most vulnerable out there at the moment until the yields get to be more support and the takeover chatter ends.
Only then is it safe to be overweight in what's become a very treacherous segment of the supermarket and the market as a whole.
