Thursday, January 15, 2009
(Cont'd from above)...

Jim (cont'd):   

DLM, for all of you home gamers… how do you eat that stuff without washing it down…. alright, Del Monte is a food stock, both human and pet food… but I had not done my homework so I reserved judgment… on Mad Money, you report and I decide… what kind of lunatics would ever want it to be the other way around… anyway, what I have decided is that I like Del Monte the stock… which is nice and split between 55% people food and 45% pet food… although with more and more people eating pet food that might be a distinction without difference at the moment… would Cramer eat the Milk Bone… he already did… what about the meow mix… is he going to do it… how about this one real ocean white fish… I know many of you are watching… maybe I will, maybe I won’t… as I don’t feel like vomiting all over the set… and in the case of white fish, not until you throw me a bagel. I mean personally I prefer Del Monte’s fruit cocktail… which I was served almost every night for dessert… and really like the maraschino cherries in particular… went down very well with that classic drink, Tang...

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 Now, Del Monte is a single digit stock… $7.06... and even if you like the way that I do, you better use some limits here… the expectations are very low for this stock… of the seven brokers that cover this stock, only one has a buy rating on it… three holds, two sells… that is nuts… food plays like Del Monte, especially when the food comes in cans, that we can trade down to… are the bread and butter… or should I say, Milk Bones and Jerky treats, of a defensive portfolio… you do not stop eating just because you lost your house or even your job… and as for the pet food side… a cat or dog is a long term investment… I don’t know anybody who is will a pet to sleep… just to save a little money here and there on Kibbles… just because times are tight… Americans love their pets more than their children… sometimes, I think… or at least as much as they love their children… which is a little perverse… but it works for Del Monte. There is something like 88 million pet cats, and 75 million pet dogs in America… 67% of American homes have a pet… I have a goldfish… suits me fine… and in 2007 we spent $40 billion taking care of them… $16 was on pet food.

Here is what my homework turned up this company… back on December 3rd, Del Monte reported a better than expected fiscal 2nd quarter, beating the streets earnings estimates by .02 cents… Del Monte also raised its earnings guidance for its fiscal 2009 which ends in April… from the low end of .58 cents to .62 cents, to the mid point on its 8 to 10% sales growth… up from just its forecast of 68% sales growth in August… nobody is raising their guidance… this is pretty exciting… lot of insider buying here too… maybe they react to the fact that the stock hasn’t doing anything despite their doom well… the way I see it, they only buy to make money… Del Monte has been raising prices pushing for a 3% increase in fiscal 2007... another 3% increase in fiscal 2008... but price increases this fiscal year are running around 3 times those level… 9% increase in prices… at the same time during this last quarter, Del Monte pricing increases were able to offset its cost increases, a quarter ahead of schedule… you have got to thank the commodity closet for that.. and the commodities just keep collapsing.

What goes into this stuff… 40% of Del Monte’s operating costs consist of raw materials, 20% packaging, 15% logistics or transportation… I expect all of these to be down over the next 12 months… compared to where they were in 2008... as the prices of raw materials for gasoline, everything that goes into packaging, the cans, the food… all plummet… corn syrup way down… management at Del Monte has said that it expects its gross costs would go up $300 million in fiscal 2009... so I think there is going to be some room for some upside surprise… especially since the expectations are so darn low… Del Monte is one of those companies who is benefiting consumers higher prices… while at the same time its input costs have come down… this is what we have been looking for… well lets just say every since the commodity collapse last July… Del Monte has got solid marketing positions… #1 in fruit, #2 in canned tomatoes, #1 in vegetables, #2 in broth… that is that collagen stuff at the bottom… they are selling stables here… as for their pet food brands… all of them are in the top 5 of their categories.. over 30% of Del Monte’s revenue is from Wal-Mart… Cramer fave Wal-Mart which I own for ActionAlertsPlus.com, my charitable trust…you know years ago this would have been a red flag… we would have actually been concerned that it was too much concentration… I say it is a buy, buy, buy…. as Wal-Mart is one of the few retailers that continue to have positive same store sales month after month.

Now, let me give you a big booyah shout out to Frank Corgeo, who runs the stock center and the under 10 newsletter at TheStreet.com, where I am chairman, for lording us to that buy, to that Wal-Mart relationship… Del Monte by the way is one of those names in Corgeo’s under ten portfolio… Del Monte is trading at just 11 time earnings, that is at the low end of the stocks range over the last 5 years… where it traded at between 10 and 14 times earnings… hey, why don’t you slap on a 14 molp… this one goes to $9... 37% higher than current price… frankly, I do wish it were cheaper… certainly at $6... but if you buy above $7.50 you are a loon… use limits… now, I have to tell you… I like that my Mom served me this stuff, the fruit cocktail… and just like the right, the way the place, the stock is at $7... beggars can’t be choosers… of course, she never sent me Healthy Kids… and you know I only drank the corn syrup.

Bottom line...

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The Bottom Line!:     Rick in Wisconsin, like so many of our viewers, is on to something… for solid brands and recession resistant business in Meow mix… I think you want Del Monte Foods Co. (DLM)...   DLM offers brands that could endure a recession, you should consider sinking your teeth into it...

[verbatim recap]

[end of segment]

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