Kamis, 04 Juli 2019

A July 4 Portfolio For Your Financial Independence

"We love baseball, hot dogs, apple pie, and Chevrolet!" Although it's bee...


A July 4 Portfolio For Your Financial Independence
By Jim Pearce

"We love baseball, hot dogs, apple pie, and Chevrolet!"

Although it's been 45 years since it first ran on television in 1974, that advertising jingle runs through my head every year around Independence Day. If you are too young or just don't remember, here it is.

That commercial was a huge success, equating an automobile with some of the true exemplars of American popular culture. At that time, the General Motors (NYSE: GM), was a titan of U.S. manufacturing and Chevrolet was one of its top-selling brands.

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Of course, 1974 was the year of the OPEC oil embargo. Gasoline prices skyrocketed, sending shock waves through the economy. As a result, U.S. automobile production was 24% lower than the year before. It was also the year that President Nixon resigned as a result of the Watergate scandal.

It's hard to believe that such an upbeat advertising campaign was launched in the midst of so much economic and political calamity. But as another U.S. president, Calvin Coolidge, once proclaimed: "After all, the chief business of the American people is business."

Since then, GM has seen its fortunes rise and fall. After emerging from bankruptcy nine years ago, shares of GM have been stuck in neutral while the overall stock market has more than doubled in value.

That may soon change. Now priced at only six times forward earnings, GM appears undervalued. Its price-to-earnings/growth (PEG) ratio of 0.35 is far below the 1.0 limit legendary mutual fund manager Peter Lynch considered a fair price to pay for a growth stock.

I like GM at that price. Here are three more stocks I'd add to my "Independence Day" portfolio to complement the all-American themes from that iconic advertising jingle.

Baseball

There aren't any pure plays when it comes to investing in baseball. Sure, you could buy a major league franchise if you happen to have a few billion dollars lying around. If you don't, capitalizing off the considerable television revenue that it generates may be your best bet.

In that regard, I like Sinclair Broadcast Group (NSDQ: SBGI) as a play on baseball. Two months ago, Sinclair purchased a package of regional sports networks from the Walt Disney Company (NYSE: DIS) for $10.6 billion. After this deal is consummated, Sinclair will own the broadcasting rights to 14 Major League Baseball teams.

Although SBGI has already doubled in value this year, it does not appear overvalued priced at less than 11 times forward earnings. Sinclair pays a quarterly cash dividend of 20 cents, which works out to a yield of 1.5% at a recent share price of $55. Look at this way; the next time you pay $11 for a lukewarm beer at a baseball stadium, at least you may be getting some of that money back the next time Sinclair pays you a dividend.

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Hot Dogs

According to The National Hot Dog and Sausage Council (yes, there really is such a thing), in 2018 Americans spent more than $3 billion on hot dogs in U.S. supermarkets. Surprisingly, the folks that bought the most hot dogs are the health conscious trendsetters of Los Angeles. Not surprisingly, the more prosaic food consumers of New York, Philadelphia, and Boston were the next largest consumers of the tube steak.

The common theme among the top 10 hot dog consuming cities in the United States? They all have one or more Major League Baseball teams. Approximately 20 million hot dogs are consumed in ballparks every year, many of them of the Ball Park Franks brand owned by Tyson Foods (NYSE: TSN). Priced at 12 times forward earnings, TSN trades at a 30% discount to the S&P 500 Index while matching its dividend yield at 1.9%.

Last month, Tyson Food made headlines when it announced its initial entries into the "alternative protein" market. A plant-based version of a hot dog was not included in the starting lineup. However, the company is experimenting with a meatless sausage product. If it is successful, a vegan hot dog may soon be available to pair with that lukewarm beer.

Apple Pie

Coincidentally, last year Tyson Foods sold its Sara Lee Frozen Bakery business to a private equity company. Otherwise, it might qualify for representation in this category as well. But that honor goes to Hostess Brands (NSDQ: TWNK), maker of those ubiquitous cellophane-wrapped fruit pies that litter the counter of your local convenience store.

In addition to fruit pies, the Hostess family of snacks includes equally iconic brands such as CupCakes, Twinkies, Ding Dongs, and Ho Hos. Those silly sounding names are big business. Last year, Hostess racked up $850 million in sales that resulted in $267 million of profit.

It looks as if Wall Street is finally getting on board the Hostess train. Last month, three investment banks upgraded TWNK to a "buy" rating. That pushed its share price above $14, up more than 30% this year but only back to where it was a year ago.

So there you have it: four red-white-and-blue stocks to help ensure your financial independence. Happy Fourth!

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