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More Income from Solving a Global Crisis

November 21, 2019

Last week, I wrote about a huge crisis currently hitting global food supplies.

As my regular readers know, the crisis is African Swine Fever (ASF), a virus that’s highly infectious and takes down pigs in a matter of days.

I explained how Zoetis Incorporated (ZTS), a global leader in animal health medicines and vaccines, is addressing this issue and how it can help you generate more income and gains.

But today, I want to discuss two other companies that can also help you cash in on the crisis.

Feed is the Other Fight

Beyond vaccines, the other front on the fight against ASF is feed.

Feed and related fortified supplements are being tested as part of an immunity front to slow the spread of the disease as well as others.

In both Europe and the United States, there are plans to ban imported feed from China and other nations due to concerns over tainted product.

This brings in another company that I continue to recommend in my Profitable Investing advisory.

Nestlé (NSRGY), which you likely know as the successful Switzerland-based consumer food products company with products ranging from chocolates to coffee and well beyond, is already ahead of the ASF game.

Nestlé has a series of pet and livestock products, including pig feed, much of which came from its previous acquisition of Purina.

Revenue growth for this unit is the second-fastest next to beverages, currently amounting to $12.8 billion. That should continue to rise with the urgent need for safe and effective feed for pigs.

The stock has done well for Profitable Investing subscribers, with a return since it was added to the portfolio of 291.17%. It has generated a return of 32.91% this year alone, well outperforming the S&P 500 Index.

Nestlé ADR (NSRGY) Total Return—Source: Bloomberg Finance, L.P.

And yet, the shares are still a good value at only 3.30 times trailing (and rising) revenues. It is highly profitable, with operating margins running at 15.00%, which in turn feeds a return on shareholder equity of 17.40%.

It has cash on hand and little debt, with debt running at a mere 29.50% of assets. In other words, this is a solid company.

The dividend could be higher, but at 2.35% it continues to beat the average in the US market and has been gradually on the rise in distributions over the past five years. It has also announced plans for special additional dividends over the coming three years.

Nestlé (NSRGY) is a buy, ideally for a taxable account given its status as a Swiss company to avoid withholding tax recovery work.

Healthier Pigs & Alternative Meats

Hormel Foods (HRL) is the third ASF-focused company I’ve focused on in Profitable Investing.

As one of the major US meat products companies, Hormel has been successfully walling off its supplies of pigs and making its products prime for Chinese, European and other markets ravaged by ASF.

This doesn’t mean that the company will be immune from ASF. It may well face some losses in supplies as well as some rising costs, including higher-quality feed from the likes of Nestlé. But the company has been successful at thwarting the threats.

In addition, with pork supplies in jeopardy outside the US, including in Europe and especially in China, alternative proteins like beef, turkey and chicken are also adding to the product arsenal for Hormel.

Revenues have been on the rise, with exports and foreign markets leading sales growth by a wider margin. And overall international sales are where more growth should be expected given the ASF market.

For China, with its dire need for more protein over the coming months into the annual Lunar New Year celebrations early next year, look for tariff easements and allowances that will benefit Hormel.

It is profitable with operating margins running at 12.40%, and its return on equity is fat at 17.50%. It has lots of cash and miniscule debt running at only 7.70% of assets, making this a company that is very under-leveraged for credit sustainability and expansion as needed.

Hormel (HRL) Stock Price—Source: Bloomberg Finance, L.P.

Since being added to Profitable Investing, it has generated a return of 23.96%, but it is still a value at a price to trailing sales of only 2.30 times.

And with its dividend being modest at 2.07%, it has been working to increase its distributions, with gains on an average annual basis of 16.00% over the past five years.

Hormel (HRL) is a buy, ideally for a tax-free account.

More Problem-Solvers

Generating cash from problem-solving companies is just one of the of 65 income streams I’ve featured in my recent book: Income for Life.

If you’re looking for better returns in the market or just want to make some extra cash, I highly encourage you to check out Income for Life.

It includes nearly 400 pages of income-producing investment strategies for all economic conditions as well as additional income-generating “side hustles” that anyone can use successfully.

All My Best,

Neil George
Editor, Income Investor’s Digest & Profitable Investing
Author, Income for Life