We had a quiet fourth quarter, making just one swap within our consumer staples sector. We sold our position in Hormel (tkr: HRL). Hormel has seen tailwinds from the pandemic, as the maker of Spam and Skippy peanut butter has experienced higher demand from nervous consumers seeking out products with longer shelf lives. The stock had risen 18% year-to-date and its price-to-earnings (P/E) ratio had expanded from 25x to over 31x. Hormel pays a 2% dividend which is lower than many of its peers in the consumer staples sector. Furthermore, Hormel’s Jennie-O Turkey brand has experienced disruption in recent years as raw material over- or undersupply has caused large swings in revenue that lead to unpredictability. We decided to seek out better opportunities within the sector, particularly looking for a more attractively valued company that pays a higher dividend and sells everyday products that people will buy even in times of economic distress.

To replace Hormel, we purchased a position in General Mills (tkr: GIS). General Mills is a manufacturer and marketer of branded consumer foods and pet food products sold mainly through retail stores. It has greatly benefited from the “people eating at home” theme during the pandemic. Although this growth driver is likely to persist through 2021, that is not the main reason to own General Mills. The management team has done an excellent job diversifying product lines, and has successfully identified new trends and brought products forth accordingly. Some notable brands and products include Annie’s, Cheerios, Betty Crocker, Blue Buffalo, EPIC, Pillsbury and Yoplait. General Mills has maintained a healthy balance sheet, consistent with industry practice. It is relatively inexpensive with a P/E ratio of 15x (about half that of Hormel) and pays a 3.4% dividend, making it a great core holding within the consumer staples sector.

Individual investment positions detailed in this post should not be construed as a recommendation to purchase or sell the security. Past performance is not necessarily a guide to future performance. There are risks involved in investing, including possible loss of principal. This information is provided for informational purposes only and does not constitute a recommendation for any investment strategy, security or product described herein. Employees and/or owners of Nelson Capital Management, LLC may have a position securities mentioned in this post. Please contact us for a complete list of portfolio holdings. For additional information please contact us at 650-322-4000.