Kellogg looks to eat into General Mills’ market share
For risk-shy investors who are ducking into the pantry section of consumer staples, cereal king Kellogg is a natural idea. But food producers don’t guarantee a safe investment; meat mavens Smithfield and Tyson have both posted negative average operating cash flow growth over the past five years.
Still, with many consumers financially pinched and drawn to cereal as a cheap and easy meal, Kellogg’s status as the world’s leading cereal maker looks like a decoder ring for profits. Rival General Mills recently noted, “Industry growth in 2009 was the best we’ve seen in 14 years,” adding that there’s room for more growth, as cereal is still consumed at only a third of breakfasts.
Kellogg’s supermarket clout notwithstanding, the company does lag peers in certain areas. Sales growth in the Asia/Pacific region appears to be several percentage points behind that of General Mills. In addition, shareholders in H.J. Heinz (a Motley Fool Income Investor recommendation) have benefited from a faster-growing dividend in the past five years. Other competitors include Ralcorp, which owns the Post cereal portfolio. And a more immediate threat may come from private-label brands, which are growing briskly.
Right now, General Mills looks more attractive, thanks to its diversity in major food categories and its slightly higher dividend yield. But don’t count Kellogg out in the future.
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My dumbest investment
My tale of stupidity is from my purchase of stock in Taser, the maker of electronic protection and control devices. My wife told me about the company, and I liked its uniqueness. I bought $2,000 worth of shares at $13, followed by another $2,000 at $17. I watched it rise to a little over $20. Then word came out that airline pilots could carry guns in the cockpit. Well, I sold, making a few bucks and feeling like a genius as the stock dropped to $5 per share. Then it rose to $150 — and kept surging! I calculated that if I had just left well enough alone, I would have made more than $100,000 from a $4,000 investment. The moral of the story: If you really like and believe in a stock, leave it alone and maybe buy more on the dips. On occasion, you might take some profits. – M.S., online
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