2 More Reasons To Buy J.M. Smucker


Back on July 15th 2020 I showed you 5 Reasons To Buy J.M. Smucker (SJM).

Here’s a brief recap of what I said then about avoiding the stock before we get to today’s article…

If you want to read the full article use the link above.

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JM Smucker (SJM) is a packaged food company that mainly operates in the US.

Its largest operating segment is pet foods and treats in some of the following brands…

  • Milk Bone
  • Meow Mix
  • 9Lives
  • Kibbles n Bits
  • Nature’s Recipe
  • Natural Balance
  • Rachael Ray Nutrish

And it also sells human consumable foods like Folgers Coffee, Jif Peanut Butter, Smuckers Jellies, Uncrustables, and various other products.

Based in Orrville Ohio, SJM is a $12.2 billion market cap company that pays a 3.4% dividend.

SJM’s 3.4% Dividend

Over the last decade SJM’s paid out a total of $25.80 per share in dividends.

At today’s share count of 113 million that’s equal to $335.4 million paid out to shareholders in the last decade.

Plus, the dividends increased in the last 10 years from $1.64 per share to $3.49 per share as of this writing.  This is a total increase of 113% or an average increase of 11.3% per year.

These dividend payments will help you earn cash if you take the money out.  Or by allowing you to buy more shares over time if you reinvest the dividends.

SJM’s Enormously Profitable

Over the last decade it earned an average operating income margin of 16.4% per year on average.

I look for anything above 10% on a consistent basis so SJM well surpasses this number.

Why 10%?

Because after evaluating thousands of companies over the last 13+ years of my career I estimate fewer than 5% of all companies in the world produce consistent operating profit margins above 10%.

This makes SJM a great operating business.

But it also means the company earns enough money from its operations to continue investing in the business for growth… Without having to issue debt or equity.

Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 10.5% per year.

This is enormous.

I call this the “Cash Machine” metric.

I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above.

If companies consistently earn above 5% on this number, it makes the company a cash machine that spits out more and more cash from its operations.

SJM earns enormous profits that make it an incredibly safe investment.

These profits also allow it to continually reinvest in operations.  And to pay you a large and continually growing dividend as well.

The enormous operating profits and cash flow allow growing dividend payments over time make SJM a safe income play in whatever is to come in the next few months or years.

SJM’s Low Debt Levels

With SJM being a multibillion company, you’d expect it to have debt.

And it does…  But its debt levels are extremely low compared to its profits and the equity in the company.  This makes SJM an even safer investment.

As of this writing its debt/equity ratio is 0.67.  I look to invest in companies with numbers below 1 on this metric.

Why?

Because the lower debt levels the company has means the lower chance it has of going bankrupt.  And this makes it a safer investment.

This gives the company a ton of options in how to run and grow the business.  Which further allows the company to work in creative ways to continue growing revenue, profits, and cash flows.

The Coronavirus Won’t Harm SJM

Something people won’t stop during a depression is eating and feeding their kids and pets.

They may stop paying their mortgages.

They may stop paying their credit card bills.

And they may stop paying for their vehicle loans.

But they won’t stop feeding their kids and pets.

This was proved out on June 4th, 2020 when SJM released its most recent quarterly data where revenue improved by 10% when compared to the same period in 2019.

Because SJM’s in the necessary food and pet food industries its business won’t be affected by the coronavirus in any large way.  Even if this pandemic lasts for years.

This gives enormous stability to SJM in these highly uncertain times.  And it also means you should expect it to continue earning enormous profits and cash flows.  And this means you should expect the large dividend payments to continue as well.

But what about its valuation?  Is it cheap? 

SJM Is Also Cheap

This is reason#5…

With the markets at or near all-time highs you’d expect a fantastic stock like SJM to be selling at an enormous valuation.

But it’s not.

As of this writing its P/E is 15.3.

Its P/CF is 9.5.

And its Forward P/E is 12.7.

On all these metrics I look to buy investments below 20 to consider them for investment.

And SJM’s current valuations fall well below this number putting it into the cheap valuation category.

This means SJM stock offers you a margin of safety in investing terminology.

A margin of safety means you’re buying a safe investment… And this makes the investment even less risky.

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Today, I want to show you 2 More Reasons To Buy J.M. Smucker After its most recent quarterly report released on August 25th, 2020.

The first reason is due to its spectacular quarterly results that just came out.

  1. Its Quarterly Results Were Fantastic

Its sales rose 11% to $1.97 billion in the 1st quarter of its 2021 financial year compared to $1.78 billion in the 1st quarter of 2020.

Its operating profit rose 40% to $361.1 million in the 1st quarter of its 2021 financial year compared to $257.6 million in the 1st quarter of 2020.

Its net income rose 53.9% to $237.9 million in the 1st quarter of its 2021 financial year compared to $154.6 million in the 1st quarter of 2020.

And it produced 124% more free cash flow in the 1st quarter of its 2021 financial year was $332.4 million compared to $148.5 million in the 1st quarter of 2020.

This isn’t good… It’s fantastic.

Especially when you consider most other companies on Earth or facing major issues due to the ongoing pandemic.

And this should continue forward for the reasons mentioned above in the prior article.

The second new reason to buy its stock is because its still cheap… Even after its stock rose a lot since July 15th.

2. It’s Still Cheap

From July 15th, 2020 to today Smucker’s share price rose from $105.88 per share to $121.02 per share as of this writing.

This is an increase of 14.3% in a little over 2 months.

On an annualized basis this would be a return of 123%.

If you’re earning 10% investment returns every year, you’re doing well so this is phenomenal.

Its stock rose so much because of its fantastic earnings… See the huge spike toward the right of the chart above.

But it’s still cheap…

As of this writing its P/E is 17.7

Its P/CF is 10.9.

And its Forward P/E is 14.8.

On all these metrics I look to buy investments below 20 to consider them for investment.

Smucker’s is below all these which means its undervalued.

And this means investing in its stock today gives you a margin of safety in investing terminology.

When you invest in stocks that have a margin of safety it makes the investment safer.  And it also means you should expect to earn higher returns owning its stock in the coming years.

The inverse of this is also true…

When you invest in a stock without a margin of safety it makes the investment riskier.  And it also means you should expect to earn less owning its stock going forward.

With Smucker having a margin of safety it makes the investment safer… And it also means you should expect to continue earning higher returns owning its stock going forward.

For the 2 reasons in this article and the 5 in the previous article I recommend you buy J.M. Smucker for the long term to help Depression Proof Your Portfolio.

Click the links below to see other stocks we recommend helping Depression Proof Your Portfolio.

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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