Campbell's is in the soup

[True Federalist (진정한 연방 주의자)]

Now that tax season is done, I'm in the midst of adjusting my stock portfolio. (I do individual stocks for mid-to-large cap stocks, and mutual funds for small cap stocks and bonds, as I have enuf to be able to diversify stock risk on my own, but I don't put a large enuf share into bonds into be able to do that and it's just not worth the time it would take me to research small caps to buy them individually.)

Campbell's (CPB) had attracted my attention as a possible purchase.  After all, Campbell's soups will still be around a century from now, so it's a good solid business, but the shrinking market for prepared foods does mean that you do need a business plan that can condense things appropriately.  It has a nice dividend and the earnings and cash flow to pay it, but since the business is shrinking, the question is, can the company adapt so that I'm not likely to end up with the lovely dividend I get being offset by a capital loss when I sell the stock five to twenty years from now.  (To the despair of my stockbroker, I'm not by any stretch of the imagination what one would consider a day trader.) It had made the list of a hundred-odd stocks that passed my initial screens and I settled down this weekend to look more deeply into them and decide what to buy (I purged some poor performers a couple weeks ago to free up cash and see what I would have available to buy with.)

Anyway, if you follow stocks far more closely than I do, you will have already heard that the CEO made a surprise resignation Friday with lower earnings guidance as well.  I'm definitely glad I didn't buy last week but I do think the stock oversold on Friday (down more than 12%). Other than the CEO's departure, there wasn't anything surprising in Friday's report, just disappointing. The stock already had a hefty discount for its declining earnings (and the earnings reported were actually above analyst expectations).  So what's going on is a company that's firmly facing reality by having more realistic earning expectations and it clearly will be doing something to address that problem on a quicker timetable.  Whether it will be the right thing remains to be seen, but I'm cautiously optimistic now, tho I still need to complete my due diligence.  I tend to be conservative, so I'll likely wait and see who they get as their new CEO before deciding whether to buy it.  The dividend is likely safe for the rest of this year, but I see little short-term upside in the stock price, so I don't think I need to buy immediately to partake of the long-term recovery.  Hence I've got time to decide whether Campbell's recovery will be flavorful enuf to put in my investment stock pot, or if I should just let it simmer on its own.

[True Federalist (진정한 연방 주의자)]

Do you really think there's a strong case (other than whatever the fun of it justifies) for buying and selling individual stocks?

Ding ding ding we have a winner.

Ernest, why don't you just buy index funds and avoid all the work and likely lower returns of stock picking?

Index funds are good if you don't have enough time and/or funds to intelligently diversify your portfolio. If I were just starting out, then mutual funds would definitely be the place to be, but I'm not there. I do have the money to diversify my stocks and I have the time to be able to screen them so that over time I do modestly better than a pure index fund.  Also, by buying individual stocks instead of a mutual fund, I've got ready access to the cash flow if I need to do something other with it than reinvest it, and I don't have continuing expenses the way I would if I were in a mutual fund.

Also as I pointed out, when it comes to small-caps and bonds, I don't have the time to do the picking (nor sufficient funds that I want to invest in bonds to diversify a bond portfolio on mine own), so in those sectors I do use funds. I will admit to getting some entertainment form this form of hunting, but it does put meat on my table.

[True Federalist (진정한 연방 주의자)]

I don't know enough about the details of Campbell's balance sheet or future outlook, but I would implore you not to buy a stock just for a dividend. It can be one of the first things to be reduced in tough times.

The dividend looks to be safe for now.  Campbell's has more than adequate free cash flow and earnings to pay it plus the Dorrance family that owns some 40% of the stock wants dividends paid to them.  The primary risk in owning Campbell's in the next few years should be what happens with the stock price, not its dividend. 

[True Federalist (진정한 연방 주의자)]

Yeah, if you are just starting out, index funds are the way to go, and start with an IRA, especially if you are getting health insurance thru the Marketplace. (A traditional IRA lowers your AGI so that you qualify for a higher premium tax credits. )  Even if you can't afford the full $5,500, try to do at least $2,000 a year if you are aren't a dependent on someone else's tax return.  While the Retirement Savings Credit that is available to lower income taxpayers on the first $2,000 of retirement contributions isn't a refundable credit, anyone who can qualify for it should definitely take advantage of it as even without the Marketplace, it can mean that out of that first $2,000, the government is paying up to $1,200. (Up to $1,000 in credit, $200 in less tax (if you do a traditional IRA).) That's before considering the effect on State income tax and the Marketplace premium tax credits.

(Note, if you aren't in the Marketplace, you're probably better off going with a Roth IRA than a traditional IRA if you are at an income level that qualifies you for the Retirement Savings Credit.)