The Prudent Investor

Selecting An Industry In The Consumer Goods Sector
March 22, 2007, 7:22 am
Filed under: Consumer Goods

Having narrowed things down quite a bit, it is time to select an Industry in the Consumer Goods sector.

Here is what I have been looking at:

Industry P/E ROE % Div.Yield % Debt to Equity Net Profit Margin (mrq) Price To Free Cash Flow (mrq)
Beverages – Soft Drinks 25.7 18.2 2.37 0.656 8.1 75.0
Food – Major Diversified 18.4 11.5 2.928 0.69 6.0 114.9
Processed & Packaged Goods 12.9 28.3 2.547 0.799 9.3 45.2

I have highlighted the values that beat the rest of the group. The key to understand here is that I am looking for something that will give me comfort, which might not necessarily be meaningful to someone else. For instance, a P/E of 12.9 is certainly lower than 25.7, but the companies that offer the lower P/E may not necessarily be better companies to purchase. That said, I am looking to make money and be able to sleep at night.

In that respect, how do these industries react to a major decline. Well, we very recently had one – the worst since 9/11 – so let’s look at how they reacted.

Industry 27 Feb Open 27 Feb Close % Decline in Index
Beverages – Soft Drinks 996 972 2.41%
Food – Major Diversified 995 965 3.02%
Processed & Packaged Goods 1000 977 2.30%

Food – Major Diversified acted more severely than the other two. All of these are better than the 3.27% drop on 27 February, with Processed & Packaged Goods reacting least severely.

So Processed & Packaged Goods will be the industry in which the next purchase will be made. Others may offer greater possibilities, but when it comes to safety as well as potential, I am confident that this is a good direction to take. Certainly, there is a company within this industry that will prove itself worth as the second company to enter the Prudent Investor portfolio.


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