Every portfolio should be balanced and diversified to withstand different types of market environments. Since the start of 2020, for example, the Nasdaq Composite index has gained 47% in value, while the S&P 500 increased only 21%. After this outperformance in technology and high-growth stocks, a rotation to value and cyclical names has begun to take shape in the past month or so.
Investors can be prepared for these changing investment scenarios by holding a mix of stocks in different sectors, with different types of businesses. Such an approach can also help a company navigate through different economic cycles.
One company that is prepared to weather different economic environments is spice and seasonings producer McCormick (NYSE:MKC), and that's what makes it a good stock holding for investors worried about the next crash.
The 2020 test case
Many people know McCormick's consumer segment, which offers spices and sauces that cooks use at home. It also operates a flavor-solutions group that serves restaurants and packaged-food companies. In 2020, while the company's flavor solutions sales slumped as restaurants and commercial food services customers cut back or shut down during the pandemic, its consumer segment picked up the slack.
For the full year, overall sales grew 5%. In the second quarter, during the height of pandemic closures and lockdowns, McCormick's consumer segment grew sales 26%, while sales from the commercially focused flavor solutions segment declined 18%. The balanced business model paid off handsomely in circumstances that can similarly occur during economic downturns. For the full fiscal year 2020, consumer sales jumped 10% and the flavor solutions segment sales dipped 3.5%.
For fiscal 2021, the company predicts overall high single-digit-percentage sales growth, and management said it expects "strong underlying business performance and the acquisitions to drive significant operating income and earnings-per-share growth."
Steady and reliable
Investing in any stock involves risk. Owning a balanced business, particularly in the consumer staples sector, helps mitigate some of that risk. In the event of a recession or market crash, a company like McCormick should hold up better than most, giving risk-averse investors a higher level of comfort.
In addition to the reliability of the business, McCormick has been a reliable payer of dividends. The company most recently increased the payout by 10% in November 2020, giving the stock a dividend yield of about 1.5%. Last year was the 35th consecutive year that McCormick has increased its quarterly dividend, which is now double the amount paid in 2013.
Also investing in growth
McCormick has been steadily growing its business through acquisitions. The company bought the popular French's and Frank's RedHot brands with its acquisition of Reckitt Benckiser's food division in 2017. In November 2020, McCormick bought the parent of Mexican-made hot sauce Cholula for $800 million in cash, adding to its lineup of well-known sauce brands. It also grows organically by using its brand strength to expand its offerings, such as turning its Old Bay seasoning into a limited-edition hot sauce last year.
And just prior to year-end, McCormick announced the $700 million acquisition of FONA International to add products in the natural flavorings niche, grow manufacturing capacity, and expand its technology platform. The company expects the addition to increase the scale of its global flavors platform, and said in the fourth-quarter earnings report that it "expands our breadth in attractive categories and advances our health and wellness portfolio."
Like its business segments, the company itself gives investors an attractive mix of reliable income and potential growth. For those who want to own something less aggressive but more reliable, McCormick fits the bill. Shares are more than 17% below the high hit in early September 2020, making now a good time to make the investment.