The Prudent Investor

Decision Time
May 10, 2007, 8:12 am
Filed under: Consumer Goods, Update

In trying to decide which excellent company I was going to add to the Prudent Investor Portfolio, J. M. Smucker Company or Corn Products International, I decided to look at the annual report for each. Annual reports are an important view to the company. The first part, which I normally skip, is filled with smiling faces and flowery rhetoric extolling the virtues of the company. There is little value here, and the real meat is found toward the end, within the management’s discussion of the quarter’s results. The Smucker report appeared as expected, with explanation of the company’s products, and nice pictures to accompany the articles.

Not all annual reports are like this, however. I recently received my Berkshire Hathaway Annual Report, which is a publication where I love to read the opening section. Warren Buffett’s writing is unique within business, and any investor would be wise to at least read what he has to say.

I certainly was not properly prepared, however, to look at the Corn Products annual report. Instead of seeing what is expected at the beginning, I read an explanation as to the strategy the company formulated in 2004, their Pathway Strategy. This tells the investor how they are planning to get from where they are to where they want to be. Most important, however, is that they established measurable goals. When was the last time you heard of a company do that? They have published a means by which one can tell whether or not they are on track.

It is not uncommon for a company to establish measurable goals, but to announce them to the world is just something I have not seen. They have accomplished four of the five goals, and expect to reach the fifth by the end of next year.

This is the sort of thing that impresses me – to see management place themselves before the world and offer a way to judge them, and this is the reason why I have selected Corn Products International as the next entrant into the portfolio.

There is good news here, as well as bad, and I’ll look at the bad news first.

On April 24 CPO filed their quarterly report before the bell and it was a “knock your socks off” report. The stock almost immediately shot up more than 8% for the day. Had I come to the conclusion of adding the company to the portfolio just a little earlier, then I would have been able to start things with a nice profit. Not much that can be done here but to move forward.

The good news, however, is more important. The biggest concerns I have had about the company has been the price of corn. With a rising demand for ethanol, the cost of corn has accordingly risen and I would not expect to see it fall any time soon. According to Chairman and Chief Executive Sam Scott, the key to the strong report was not only strong North American business performance, but also the company’s ability to pass the increased cost of corn to customers in international markets. It appears to me that my biggest concern may not be much of an issue.

So later today I will make my initial purchase of Corn Products International.

Update: I purchased 12 shares at $40.59, and have updated the Portfolio link to the left.


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