Topic: How To Invest

One of our top stocks to buy in the U.S. aims to turn around a takeover

Top Stocks to Buy Conagra

Every Thursday we bring you recommended U.S. stocks. These picks come from our newsletter on U.S. stock investing, Wall Street Stock Forecaster, or from our advisory for more aggressive investing, Stock Pickers Digest. This week we look at one of our top stocks to buy in the U.S., a former Stock of the Year whose shares are rising as it works to improve the performance of a big 2013 acquisition. 

CONAGRA FOODS INC. (New York symbol CAG; makes packaged foods, including Chef Boyardee canned pasta, Hunt’s tomato sauce, Peter Pan peanut butter, Orville Redenbacher popcorn and Reddiwip whipped cream.

The company also owns 50% of a plant in the Netherlands that makes frozen potato products; Holland-based Meijer Frozen Food owns the other 50%. The partners now plan to increase this facility’s capacity by mid-2016. That will help them meet fast-food chains’ rising demand for french fries.

Consumers supply 70% of ConAgra’s sales. Businesses, including restaurants and other food makers, provide the remaining 30%.

Recently, Conagra agreed to settle charges related to a February 2007 salmonella outbreak at a plant in Sylvester, Georgia, that makes its Peter Pan peanut butter. In response to the outbreak, the company installed new equipment and upgraded its food-safety procedures. The plant resumed production in August 2007. Under the settlement, ConAgra will pay a total of $11.2 million in fines.

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Top stocks to buy: As Conagra works to improve Ralcorp performance, shares rise 13%

In January 2013, the company bought Ralcorp Holdings, the largest private-label food maker in the U.S., for $4.75 billion.

Since then, strong competition has hurt Ralcorp’s sales and earnings. As a result, ConAgra wrote down its value by $1.3 billion in its fiscal 2015 third quarter, which ended February 22, 2015.

This charge was the main reason why ConAgra lost $954.1 million, or $2.23 a share, in the latest quarter. A year earlier, it earned $234.3 million, or $0.56 a share. Without unusual items, earnings per share fell 4.8%, to $0.59 from $0.62.

Overall sales fell 1.8%, to $3.88 billion from $3.95 billion. Sales to businesses (27% of the total) rose 1.4% on strong demand for frozen potato products. But sales of branded consumer goods (47%) fell 1.9%, while private-label food sales (26%) were down 4.7%.

ConAgra plans to improve Ralcorp’s performance with better packaging, faster delivery times and new products. It will also boost its efficiency so it can better handle rising ingredient costs. These moves should begin to increase Ralcorp’s earnings in fiscal 2016.

The company now expects to earn $2.15 to $2.19 a share for all of fiscal 2015, and the stock trades at a reasonable 18.0 times the midpoint of that range. The $1.00 dividend seems safe and yields 2.

As ConAgra continues its efforts to improve Ralcorp’s performance, the shares have risen over the past three months. They rose another 11% last Friday on news that activist investment firm Jana Partners now owns 7.2% of the company. Jana will probably push ConAgra to sell or spin off its private-label food business.

Recommendation in Wall Street Stock Forecaster: BUY.  


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