Question:
I’ve been Holding General Dynamics for a while. Dividend is OK, but I wanted to see if I should seek something better.
Answer:
General Dynamics (NYSE: GD) an aerospace and defense company, looks cheap, relative to its historical price to earnings ratio, as it currently trades at a little under nine times earnings. The company pays a pretty attractive dividend of a little more than 3%. However, the price is currently down as a result of budget cut fears. The United States may trim up to hundreds of billions in defense and non-defense budget cuts at the beginning of 2013, if congressional panels cannot reduce our country’s spending. Depending on what the other investments in your portfolio looks like, we might recommend holding General Dynamics. We do not, however, recommend buying it.
Question:
I’d like to get your comparison of two brands I’ve been looking at: Unilever and Sara Lee. I know their products, but don’t know much about the companies.
Answer:
Sara Lee Corp (NYSE:SLE) is an international manufacturer and marketer of brand-name consumer products with operations in beverages and specialty meats. The names include Ball Park, Hillshire Farms, and Jimmy Dean, in addition to its Sara Lee bakery division. The company is scheduled to separate into two companies by the end of this year, spinning off its international coffee and tea business. Currently, Sara Lee trades at 21 times earnings, which we find pricey compared to its peers, who are trading for 17 times earnings.
We prefer Unilever Plc ADR (NYSE: UL), as the company is more diversified in both foods, personal care and home products. The company’s brands include Knoor, Hellmann’s, Wish-Bone, Bertolli, Slim Fast, Dove and Axe. Unilever trades at 15 times earnings, which is about 25% cheaper than Sara Lee. The company also has nearly 50% of its sales coming from emerging market countries like China and India. For the past several years, the company has grown organically, by double digits in those emerging areas. We hold Unilever in our Dividend Growth Model Portfolio, and expect the dividend to continue to grow over the next three to five years.
Question
What is your opinion on Lexmark?
Answer
We own Lexmark International (NYSE: LXK) in our Small & Mid-Cap Model Portfolio. We find the company very cheap right now, trading at six times earnings. However, it is trading so low for good reason: It is abandoning the unprofitable consumer printer market to focus on business users where more pages are printed per machine. The expectation is that the company’s earnings will fall by about 9%, but if the company can right its ship, it can be profitable.
Additionally, Lexmark’s competitor Hewlett Packard Company (NYSE: HPQ) is hurting, which can be good for Lexmark. Hewlett Packard has seen three CEOs in a span of 18 months, and is looking at a 20,000-employee layoff soon.
Of the two, we prefer to own Lexmark, the smaller of the two, as it is not as much under the market’s microscope. Considering HP’s management turmoil, we’ll continue to own Lexmark.
Question:
I’ve been looking for a good Mid-Cap holding, but it seems everything in my screen is a bank or financial corporation. Are you still avoiding banks, or are any of these worth looking at? What do you suggest as a good Mid-Cap holding?
Answer
We have a Small & Mid-Cap Model Portfolio. We agree that there are more banks in that space than anything else. We have several quality screens. Banks are highly regulated businesses that are required to maintain fiscal responsibility, which in turn pushes them into our criteria screens. That said, we are not all negative on banks. We recently added PNC Financial (NYSE: PNC) to our Traditional Model Portfolio. However, there is plenty to be careful about banks. Recently, some government sponsored loans are being pushed back on the banks. There is also still a lot of overhang in the market.
As for Mid-Cap names we like, we own shares of Polaris Industries (NYSE: PII), Hormel Foods Corp. (NYSE: HRL), Panera Bread Co. (NASDAQ: PRNA) and True Religion Apparel (NASDAQ: TRLG).
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
