As an individual investor, I'm always thinking about stocks that can be bought and forgotten. Well, not exactly forgotten, but you know what I mean. I'm searching for companies that inspire confidence.
The future can never, ever be predicted, as today's record-shatteringly destructive hurricane blasting the Gulf Coast evidenced. Any event can come out of the woodwork at any time to stymie a company and its stock. Nevertheless, there are stocks out there that seem to have the potential to be dollar-cost-averaged up till retirement, and these are usually your well-known, blue-chip, big-brand stocks.
For some reason, Campbell Soup (NYSE:CPB) has been on my mind recently, so I decided to have a look at the company to see whether or not to buy.
One of the best things to do when following up on an idea is to visit the investor's site and have a gander at the annual report. Two things you should examine right away are annual sales and diluted net earnings per share. Here are the results for the years 2000 through 2004, from the latest annual report (sales data in millions):
|
Year |
2000 |
2001 |
2002 |
2003 |
2004 |
|---|---|---|---|---|---|
|
Sales |
$5,626 |
$5,771 |
$6,133 |
$6,678 |
$7,109 |
|
Diluted EPS |
$1.65 |
$1.55 |
$1.28 |
$1.45 |
$1.57 |
While sales have increased steadily, net earnings have been up and down. Free cash flow gives us a better understanding of the company, since non-cash charges are added back to the net-earnings scenario. Unfortunately, free cash flow has been on a downward trend the last few years. In 2002, Campbell saw $748 million of free cash. In 2003, that number decreased to $590 million. Ready for another drop? For 2004, only $456 million in free cash was recorded.
This makes it difficult for a company to grow dividends. In fact, Campbell has had a bit of a rough time returning value to shareholders in this format over the years. Check out its dividend history. The last several years haven't been too kind -- witness the dividend stagnation and the noticeable dividend cut. In fact, the Fool took note of that cut and used it in reasoning why it would be Foolish wisdom to eliminate the company from its dividend-reinvestment portfolio at the time.
Long-term investing isn't about predicting the future. It's about confidence. It's about checking the numbers and trends and making the best decision you can. After checking the annual report, you should read some current articles on the company of interest. W.D. Crotty checked in with Campbell this past May and presented an excellent bifurcation of the company. Still, I choose to take the pessimistic side, W.D.
Lately, the stock's been up, free cash flow has improved ($606 million for the first nine months ended May 1 of this year versus $434 million for the nine months ended May 2, 2004), and there has been positive movement in the dividend. But I just can't seem to get that warm fuzzy feeling about Campbell as a long-term position.
At least not yet. Nothing is static in the investment world, and perhaps I will become bullish at some point. But for now, Campbell is not my idea of the day.
For more soupy Foolishness, warm up to these:
- M'm! M'm! Better Than Nothing
- No Soup for You!
- Discuss at the Campbell Soup board.
Fool contributor Steven Mallas owns none of the companies mentioned. The Fool has a disclosure policy.
