Jim (cont'd):     

What works in this everyone is feeling poor… take away the tie and the shoelaces… bring on the cheap scotch and the dirty linoleum floor kind of market… two words… trade down… in the high stakes game of Survivor Wall Street… the companies that make cheap products, the private label store brand discount stuff…you wouldn’t consider buying when times are good… but you can’t avoid when you are clipping coupons… that will make it… how do I know… because I listened to Wal-Mart’s conference call on Tuesday… and the pin action from the private label companies is enormous… Wal-Mart’s management talked about their progress in re-launching their private brand… Great Value Brand… with re-branded items arriving on shelves in late March… they are hiring… yeah, I am not kidding… hiring 75 people to handle the private label business… the move makes so much sense for Wal-Mart… because the margins for private label products are higher than on nationally branded ones… private labeled foods cost 5% to 20% less than nationally branded ones… so it will definitely move much more merchandise...

Plus come on… come on… let’s accept the basic fact the stuff tastes the same… if not better for just about anything… so what in this environment if people see it in your cart and think holy cow, you must have been laid off… I am a proud consumer of private label… because, of course, I have no pride whatsoever… and am generally an angry guy in the supermarket anyway… who benefits from this… Wal-Mart is pretty light on private label products, now 16% compared to 30% for Kroger and Safe-Way…. but it does deals with two of our favorite trade down private label companies… and I think it will get more business as Wal-Mart increases the amount of cheap private label stuff that it is selling.

The first one, we know it… Ralcorp Holdings Inc. (RAH)… we have liked this one sense inception… that makes the store brand cereal that looks and tastes exactly like the same that you buy from Kellogg’s or General Mills, but it costs a lot less… don’t believe me, I will do a blind taste test right here, right now… how is that for some purely anecdotal non-rigorous data…

Cramer does the taste test...

I like the first one… how did I do, can I take it off now… which one did I pick… (he picked General Mills)… oh shoot that defeats the whole purpose of the piece… well anyway they tasted the same to me… alright, there… oh darn… I have no taste.

And then there is Treehouse Foods Inc. (THS)… for private label pickles… soup, baby food, and the always essential non-dairy creamer… no taste test necessary here… the last time that I recommended these two stocks… here is the proof in the pudding… these two stocks on December 16th when I recommended them… Ralcorp is up 12.5% since then, and Treehouse is 15.8%… they crushed the market… the market is down 13.8% in the same period… and now that they have the Wal-Mart kicker making them even better… I am saying that we are going to get huge pin action off of this Wal-Mart… you don’t need buffers to make a strike in this… in this tape, I will even take a spare.

Ralcorp has already got 17% of its sales thru Wal-Mart, Treehouse 13%… with Wal-Mart trying to expand its private label offerings you just know that these two companies which dominate their respective private label niches will get more business… this is the added advantage of listening to the conference call to a big company like Wal-Mart… you will hear things that will give you great reasons to own completely different stocks… I am listening to Wal-Mart, and suddenly I am thinking holy cow, put me in a Treehouse… Wal-Mart is one of the few retailers that can still sell things… it wants to sell more of the cheap private label companies… the stuff that Ralcorp and Treehouse make… I think we have found a thesis that we can actually feel good about in this market.

Now, there is more going on for these two companies than just increased exposure to the great and mighty Wal-Mart… in the battle of shelve space between private label and nationally branded products, true trench warfare in the mode of World War I… where victory and defeat were measured in inches… private label is winning… I am going over the top on these recommendation… fortified by the fact that Barron’s called me a bonified genius…Citigroup estimates that in total private label foods… 40% penetration… much higher than the current 16% penetration of Wal-Mart… 30% in Safe-Way and Kroger… I think there is so much coming here… and people can’t afford the good stuff anymore… you save money, the supermarket makes money… and so do Ralcorp and Treehouse… now, Ralcorp is cheap 14.9 times earnings… Treehouse 15.2 times 2010 earnings… you are paying up a little bit for that one… but you have to pay up a little bit because of the recession… plus, there are very real possibilities of estimate bumps… as soon as people start factoring in the pin action on Wal-Mart.

Okay, what else is working for Ralcorp… remember this company is the largest private label cereal maker… it is not that private, huh… it also bought the Post cereal business from Kraft… the two companies have a transition agreement that allocated a number of overhead costs to Post and less Ralcorp… these costs go away when the agreement ends… oh, I smell number bump… plus Post hasn’t completely shifted to Ralcorp’s IT system or its sales networks… together these two moves should save Ralcorp .14 cents a share in the last quarter of the fiscal year 2009... .29 cents in fiscal 2010... that is according to my friend, buddy, pal Credit Sweiss… and Ralcorp’s commodity hedges, which have prevented the company from seeing the benefit of the major pullback… they expire in March… you should see earnings explosion.

Treehouse… last quarter stupendous… THS, .55 cents per share beating the streets consensus by .04 cents… salad dressing volumes, off the charts… 12%… salsa, up 12%… double digits… gross margins improved by 20 basis points… this is a company that I think has some serious UPOD… they under-promise, they over-deliver… as it gives very conservative guidance that still beats the streets consensus expectations.. the company only expects sales growth of 1%… looking for margin expansion to drive profits… but they weren’t counting on the big move from Wal-Mart… Treehouse is a company that likes to make lots of acquisitions…. creating a private label Beamyth… that is how you pronounce it… it is great on the sum of its parts… on their conference call they mentioned that their two most recent deals, for San Antonio Farm Salsa and Ed Smiths Salad Dressing, I call it Mr. Ed, are panning out… management emphasized that Treehouse has the potential to make more deals… they have got a real cheap credit agreement… that can be used to pay for acquisitions, cheaply, they got the money … and in this market there is a lot of low hanging fruit… Treehouse could pick off pretty much anybody… you know what… if they are listening to MIA and know that shot gun weddings make us money… of if they are watching yenta Cramer… sing me make me a match, make me a match, catch me a catch, find me a find… kind of both… hey, at MIA, mazal tov on the baby.

The non-fiddler on the roof bottom line…