I haven’t written about Richard Band in a long time, but he’s one of the “old guard” of the newsletter pundits and has been around forever — according to Hulbert, his Profitable Investing, which professes to be contrarian and “safe”, has indeed beaten the market by a whisker over 15 years — but has done worse than the market for all the shorter time periods they track (1, 3, 5, 10 years)…. albeit with a bit less risk than the overall market.
Band has been focused on dividends, with the line in his most recent ad being that “The rich can’t understand why anyone would buy stock in a company that doesn’t pay them cash.” And he’s got a new ad that sounds a little bit familiar — he’s pitching the “Swiss Savior” as one of those rare companies that has leverage over Walmart, and he uses that opportunity to lay out his “tough demands” for stocks:
“Don’t part with a penny until you know for sure you’re investing in companies that meet your demands, which these days must include:
- Rock-solid financial balance sheets, with loads of cash and little or no debt
- Cash flows so steady and huge that all business expansion and growth is easily supported with billions of dollars to spare
- Hefty cash dividends paid on a steady schedule to shareholders that keep increasing each year
- And last but not least, you must demand companies that are worth more right now than their listed prices.”
Well, I can’t argue with those — that’s what probably most of us think of when we imagine a “blue chip” company, a strong self-funding business that generates a lot of cash and pays dividends. And buying them for less than they’re worth, well, that’s a good idea too. Doesn’t mean I’m successful in doing it every time out, and I suspect Band isn’t either, but the goals are lovely.
So what stocks is he teasing now as the “Safest Stocks in the World?”
One is pretty clear and extra-easy to identify — partly because he lays the clues on pretty thick, and partly because he teased this same “Swiss Savior” as his safest stock in the world back in 2011. Here are a few clues just to catch you up with the group:
“Of all the dividend-paying companies you can buy, none of them packs the power of The Swiss Savior. That’s why I’m telling my regular readers to buy it today—for both safety and price share appreciation.
“This perfect safe haven has a wider global reach than even Walmart, whose executive VP of global e-commerce flew the coup to join The Swiss Savior, replacing their remarkably successful, but now retiring CFO.
“But even more important: This single stock is like owning a strategically diverse mutual fund managed by global market experts with more than a century of experience.
“It’s like owning a fund that, for the last 143 years, has maintained a laser focus on the only sector in the world that’s guaranteed to outlast and outperform all the others and any new ones that might emerge over time.”
Golly! So what’s the sector?
“I call it the fuel-of-life sector
“In 1860s, deep in the heart of Switzerland, the company took on its first customer, a premature infant who could not tolerate his mother’s milk or any other substitute. The customer would have died if not for the breakthrough product provided by The Swiss Savior.”
That almost certainly rings a bell for you, particularly if you were alive in the 1970s and 1980s when there was a big scandal over baby formula marketing — the Swiss Savior is, of course, Nestle (NSRGY). Band teased Nestle back in the Fall of 2011 as a safe stock that he thought would have a 30% pop largely due to the devaluation of the Swiss Franc (which, as an exporter, would help their costs), and it has gone up by about 35% now and pays a decent and growing dividend of about 3.2%… though it was not necessarily a quick “pop”. That 35% gain, of course, pales next to the broader market — the S&P 500 is up about 65% during that same timeframe, and even the Dow Jones Industrials “blue chip” stocks that are perhaps more comparable to Nestle are up more than 50%.
Nestle is one of the largest companies in the world, with a market cap of about $240 billion, and there aren’t many areas of the food and nutrition business where they don’t play a substantial role — so I suppose you can call them a “mutual fund” of that sector if you want to, though of course they have the concentrated management and performance risks that any other big “blue chip” individual company has. I don’t know any particular reason not to like Nestle, I would agree that they’re likely to be fairly resilient in a down market compared to smaller, more expensive, or more speculative stocks — but that’s true for most of the big “consumer staple” companies, too. Nestle is not growing very fast and is priced at a pretty stiff premium to the market (21X trailing earnings), so investors shouldn’t expect outsize returns — this is one you’d buy for the dividend and for its “sleep well at night” qualities. If it’s the candy part of Nestle’s business that you like, by the way, I’d argue that Hershey’s (HSY) is better-managed and it’s far more of a “pure play” on that sector.
(If it’s the idea of buying Swiss exporters that you like, though the currency issue isn’t in the headlines the way it was a few years ago, I think Nestle is fine but I prefer Novartis among the big Swiss multinationals or you can buy a portfolio of most of the impressive Swiss-listed companies at a 10-15% discount through the Swiss Helvetia closed end fund, SWZ — haven’t looked at that one lately and they changed management, but I’ve liked it in the past.)
But the other two “Safest stocks” teased by Richard Band are different this time around — so what’s he teasing beyond Nestle now?
Here are our clues:
“One is the New Jersey Giant That Went Public in 2013
“The IPO price was around $20. After the first day trading on March 28, 2013, shares closed at $21.21. By mid-July 2014, the stock was over $31.00. ($31.07 on July 17).
“That’s a 30% surge, but we’re not chasing performance with this recommendation – we’re buying a potential takeover target!
“The company was just handed $163 million for doing nothing! Actually, they did do something. They made a decision not to merge with another giant and collected $163 million for their troubles.Are you getting our free Daily Update
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“The $163 million ‘thanks, but no thanks’ clause in the proposed merger sounds like a ton of money, but this is a $3.67 billion company. And though only on the market a little longer than a year, this new listing already pays dividends to its investors – yielding 2.50%.”
This one is in the food sector as well, so you can see where Band is looking for “safe” … here he’s teasing Pinnacle Foods (PF)
Pinnacle Foods is a big processed food company with a lot of brands — including well-known ones like Birds Eye, Vlasic, Aunt Jemima, Van de Kamp, Duncan Hines, and quite a few more that will sound familiar to most of you. They are relatively small compared to giants like Nestle, but they still have a $3.5 billion market cap and a fairly good chunk of debt ($2.5 billion). Birds Eye and Duncan Hines are their two biggest revenue drivers, it appears, and they’re quite profitable and growing profits — analysts expect them to be able to continue to grow profits at about 10% a year, which is right about where management has guided everyone for this year.
They did get a nice opt-out payment from Hillshire Brands (HSH) when Hillshire decided to abandon its merger with Pinnacle and to be taken over by Tyson Foods instead, so it might be that Pinnacle goes back to shopping for partners — but they are big enough to stand on their own if no other dance partners appear. They are trading for about 17X current year expected earnings, so they’re not cheap but are reasonably slotted in between smaller players like B&G Foods (BGS) and much larger players like Kraft (KRFT). They don’t have the kind of huge growth that entrances investors, but in the food sector that kind of growth is mostly concentrated among the natural and organic names that have much higher multiples like WhiteWave (WWAV) or Hain Celestial (HAIN). PF Looks reasonable to me if you dig into it and decide you like the growth potential of their brands or the company’s management, but not so cheap that you’d want to buy it without doing some research first — it’s probably not likely to make a really abrupt move unless there’s another merger/buyout in the offing, so I expect you’ve got some time to mull it over.
And one more from Mr. Band? Sort of — he doesn’t really provide clues but he does say that…
“The Other Gem Might Really Shock You: It’s an ETF Holding Small Caps that Pay Big Dividends”
There’s more than one ETF that holds small cap stocks which pay dividends, but I’d wager that he’s probably recommending the WisdomTree Small Cap Dividend fund (DES), which is fundamentally weighted (like other WisdomTree funds) to give more weight to higher dividend-payers (most other ETF families use the traditional market cap weighting, putting more money into the stocks that are larger). I haven’t ever owned this particular ETF, though I generally like the WisdomTree funds that use this kind of nontraditional weighting and it looks like it has done a bit better than the broader small cap market recently (that’s no surprise, they’ll probably underperform when small tech and biotech stocks are on fire because those stocks don’t pay dividends and won’t be in the index). You can check it out at WisdomTree’s website here if you’re curious (they also have several foreign dividend-weighted ETFs if that’s more your bag).
So that’s what we’ve got for you today — fine stocks, interesting ideas perhaps, but I know that many investors are worried about safety as the bull market gets older by the day, and I’m sure you all have different ideas of what “safe” means in a stock — so we’ll close with a question: what would your three “Safest Stocks in the World” be today? Shout ’em out with a comment below and we’ll see if we can find something better than Nestle, Pinnacle and a small cap dividend ETF.