Why Hormel Foods Corp (HRL) Stock Is a Better Buy Than The Coca-Cola Co (KO)
April 21, 2017 – by Richard Band
Hormel Foods Corp (NYSE:HRL) started selling pork products in Austin, Minnesota, in 1891, and opened its first sales branch in downtown Minneapolis in 1901.
By the 1920s, HRL was disrupting the way companies sold meat. Instead of shipping products on refrigerated trains, Hormel products were shipped by ‘sausage trucks’ driven by salesmen so that they could find new customers along the way.
And then, in 1926, Hormel sold the world’s first canned ham. By the late 1930s, it launched its most iconic brands, Hormel Chili and of course, Spam. Spam had an 18% market share a year after its launch and hasn’t looked back since.
HRL now has over 30 brands in its stable, including names like Skippy, Chi-Chi’s, Dinty Moore, Herb Ox and the No. 1 natural meat brand Applegate Farms. HRL is now doing over $9 billion in sales a year all around the world, although international sales only make up about 6% of its business.
How Does HRL Stock Stack Up?
On its face, it would seem that HRL’s recent performance, combined with a dividend in the 2% range, doesn’t hold a candle to The Coca-Cola Co (NYSE:KO), which is a dividend aristocrat that has increased its dividend (which currently stands at 3.4%) for the past 55 years.
But HRL is also a dividend aristocrat that has raised dividends for the past 50 years and has paid a dividend since its initial public offering in 1928.
So, why the nod to HRL over KO?
Because KO, while doing well as it transitions out of soft drinks to healthier beverages, is still going to have troubles long-term. It has to find a way to keep up with the changing tastes of consumers across the globe. And its iconic products aren’t going to be the steady income and growth streams they were for decades.
Hormel, on the other hand, has proven that it can grow through all sorts of challenges to its products. Whether it is high grain costs or recessions or avian flu, HRL has been able to pivot successfully and continue to grow steadily.
More than 50% of its revenue comes from its refrigerated products division and it has moved into hot new sectors like organic foods, and more recently, the boom in turkey sales as an alternative to red meat. Its Applegate and Jenny O segments are doing very well and are perfectly targeted for Millennials who have no idea what Spam is.
Also, since 94% of its business comes from U.S. consumers, it has a good handle on its customer base and has a proven distribution network. It’s certainly not a sexy company but it is a proven grower. And if the markets get choppy, HRL stock is a very safe port in the storm.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.