I’ll say it. September’s stock market was a nasty. And it’s not clear the selling is over. October trading has been choppy as well.
As for the “why,” take your pick:
- Bond yields continue to rise.
- Inflation is showing no sign of abating.
- Employment numbers look weak.
- And it looks more and more like the post-COVID recovery is trailing off.
Rising bond yields hurt high-growth tech stocks because higher rates equate to less future cash flow and slower growth. In most cases, cyclical stocks also lag when the economy is cooling.
So… where is it safe to put your money?
Take a look at Campbell Soup Co. (NYSE: CPB).
Campbell Stock: A Pantry and Dividend Portfolio Staple
Campbell isn’t exciting. It’s one of the most boring stocks in the entire American stock market. But that’s what is appealing. It’s a steady-Eddie workhorse stock that sells canned goods and then turns the cash into a consistent dividend.
At current prices, Campbell stock yields a respectable 3.5%. And the company has a history of raising the dividend over time. It hasn’t lowered its dividend in more than 20 years.
Campbell isn’t immune to post-COVID inflation. In its last earnings call, management mentioned rising ingredient and transport costs. But the company has managed to pass on the costs in the form of higher retail prices.
Americans ate at home more during the pandemic, and Campbell enjoyed a nice windfall in sales last year. That will fall off this year and next, though perhaps not as much as you might think.
If the economy hits a rough patch, Americans will keep eating at home a little longer. The company won’t see sales like 2020 again for a long time, but that’s OK. Investors are well aware that 2020 was an outlier.
Looking at the numbers, Campbell rates a neutral 45 on our Green Zone Ratings system, putting it in the middle of the pack with expected returns over time in line with the S&P 500.
Campbell Soup Co.’s Green Zone Rating on October 12, 2021.
Let’s dig a little deeper.
Growth — Campbell stock rates a lot higher on growth than you might expect with a factor rating of 79. There’s no mystery here. The massive COVID-related spike in sales skewed the numbers a bit. But all the same, the company does rate a very respectable 65on its 10-year average compound annual earnings growth and a 55 on its 10-year average compound annual sales growth rate. So even if COVID-19 had never happened, Campbell would still be a respectable grower.
Quality — The stock also rates well on our quality factor at a 73. Campbell carries solid ratings across its returns on assets, equity and investment, though it loses some points for its higher debt level. Overall, the story here is positive and makes sense. Because of its strong brand names, Campbell is able to price its goods at a premium. Can you name another soup brand off the top of your head? Yeah, neither can I.
Volatility — If the rough patch in the market still has further to run, then you want a stock with lower than average volatility. Campbell delivers here as well, with a score of 67. Remember, the higher the score, the lower the volatility.
Value — Campbell stock isn’t a bargain with a value rating of 57. But it isn’t expensive either. Owing to its strong profit margins, Campbell’s best value metric is its price-to-earnings ratio , where it rates at an 86.
Size — Campbell might be a soup company. But it’s still a stock with a $13 billion market cap. It rates an 11 on our size metric. That’s not great under normal circumstances, but given that the market is in risk-off mode, it’s not such a bad thing.
Momentum — And finally, we get to momentum. Campbell isn’t wowing anyone with its 10 rating here. But given our objectives, that’s not the end of the world. We’re looking at Campbell because there is a risk that the bull market might be going into reverse, so it makes sense to own a defensive stock that investors may look to buy as they flee higher-momentum stocks.
Bottom line: Campbell stock is not exciting, but it doesn’t have to be. It’s like a can of chicken noodle soup. You always want to have a few cans stored in the pantry for when the going gets rough.
To safe profits,
Charles Sizemore
Co-Editor, Green Zone Fortunes
Charles Sizemore is the co-editor of Green Zone Fortunes and specializes in income and retirement topics. He is also a frequent guest on CNBC, Bloomberg and Fox Business.
