Sometimes the best defense is a good offense. When things look uncertain for the economy, Wall Street turns to defensive stocks–companies that should have good earnings no matter what the economic climate. Food makers like ConAgra, an Omaha, Nebraska-based company that appeared in BE’s October 1996 Stockpile column, fit that description. After all, in recessions as well as boom times, everyone has to eat.
Since our recommendation, ConAgra, however, went on a tear, roaring from a price of $42.25 a share to $67.88, a hearty 61% increase. That means a $1,000 investment in ConAgra would now be worth about $1,610. That’s partly due to a strong economy. More importantly, though, ConAgra won Wall Street over with a thorough restructuring to cut costs and benefit shareholders.
The outlook remains strong, says Douglas Hansford, a stockbroker for M.L. Stern in Los Angeles who picked ConAgra last year. “This company does nothing very flashy,” he says, “but you can bet that they’ll grow at a steady 10% clip.”
Long-term trends surely won’t hurt. In the U.S., ConAgra and its packaged food peers have kept up with changes in consumer tastes for more health-conscious products. Additionally, rising U.S. and international standards of living are providing important avenues for growth worldwide. For those reasons, Wall Street’s optimism remains relatively strong. ConAgra is projected to grow earnings at a rate of 12.5% over the next five years, compared with 7. 1% for the S&P 500. And ConAgra’s recent run has pushed its stock price to 24 times projected 1997 earnings, compared with 20 for the S&P 500. Eight out of 15 brokerage analysts that cover the company still rate It a buy, according to Zacks Investment Research. That’s a sign that ConAgra could still have value to come as a long-term holding.