Below are the valuation targets for Sysco Corp. (SYY) over the next 10 years. Continue reading
- Japan
- Market Indicator
- Price Momentum Indicators
- Richard Russell
- Silver
- Speed Resistance Lines
- U.S. Dividend Watch List
Category Archives: Sysco
Q&A: Sysco Corp.
Reader MC asks: “Curious to know your recent thoughts regarding SYY and the significant gains made in the stock since your March, 2015 purchase. Time to consider selling the principal portion again?”
Our Response:
On March 25, 2015, we bought Sysco Corp (SYY). The premise behind the purchase was outlined in our March 13, 2013 posting titled “Warren Buffett Leverages Up on Inflation Hedge”. In that 2013 posting we said the following:
“We cannot emphasis enough the fact that there are vastly superior alternatives to gold and gold stocks if you want to beat inflation. Additionally, investment in companies like Heinz will be richly rewarded even as the period of inflation comes to an end. This will not be the case for gold and gold stocks, as found out by gold permabulls in the period from 1980 to 1999. This explains why Warren Buffett would be involve in the Heinz transaction, it is the appropriate alternative to buying gold or gold stocks if runaway inflation is expected down the road.”
Our take is that the secular trend in interest rates is up. However, one challenge is the outsized gains that have been achieved with our purchase of Sysco Corp. To put the change in perspective, the chart below represents the increase in Sysco Corp. (blue) compared to the S&P 500 (red) and Nasdaq 100 (orange) indexes.
The gain of +45% in Sysco Corp. has outpaced the gains of the conservative S&P 500 at +7.37% and the far more volatile Nasdaq 100 at +10.80%.
Has the Dow Jones-UBS Commodity Index Reached the Low?
We’ve noticed an interesting pattern which may suggest that the Dow Jones-UBS Commodity Index is nearing the low. In the chart below, we show (at the red circles) the exact same percentage difference between the long-term technical support (red line) and the 2002 and 2013 low. That percentage difference, approximately 7% in both cases, is all that stands between the two low points and the support level. Our primary question is, will the most recent low sustain a double bottom as was the case in the 2001-2002 period?
Already we have indicated the extreme downside target for the commodity index at 79.32, based on the work of Edson Gould’s Speed Resistance Lines. However, if we are in a commodity bull market, as we’ve made reference to in our January 1, 2009 article titled (found here), then there is a good chance that a bounce at the long-term technical support line would mark the end of the cyclical bear move in commodities.
Comments Off on Has the Dow Jones-UBS Commodity Index Reached the Low?
Posted in Dow Jones-UBS, ExxonMobil, gold, gold bugs, Sysco, SYY, XOM
Sysco (SYY) Earnings Report Breakdown
We'd like to share a reader's response to our most recent watch list on May 7, 2011. The reader commented / asked:
"I like SYY for their divi growth long term, but...any worry at all about the long summer and rising gas prices affecting the cost of running their trucking network? More $ to move their product and less $ for consumers to spend on eating out."
Our response:
"All those are great concerns but I think the important question is whether they are priced in or not. My parents run several restaurants and going through SYY is a must. Raising price is always harder in the short-term. But longer term, they should (will) be able to raise price. The article on restaurants lift prices is a first sign that they are passing this on to consumers. This should allow SYY to up their price. Restaurants or any producers rarely lower price after they raise it. But the cost (raw materials) do fluctuate. Our family restaurants raised price in early 2008 when oil hit $100 but we never lower them despite correction in the commodities market. Our margin expanded, profit rose, and cash built. It's hard to predict where SYY is at this moment but we believe that you are not paying up at this level, especially when its dividend yield is higher than historical average."
We actually didn't consider that Sysco (SYY) would be reporting their earnings today! However, that didn't matter much because they beat earnings estimates ($0.44 vs $0.41) which sent the stock up 10% today. Investors should ponder how is it possible that a food stock can move up 10% despite rising raw material costs? Although it doesn't seem to make sense, let us try to explain the why or how this could occur.
Consensus Swings Wildly
Sysco (SYY) appeared in the top 5 of our watch list back in February 11, 2011. At the time, many doubts and fears circled the stock. The table below, from CNBC, shows that there were only two recommendations to buy versus six hold recommendations. This implies that with shares at the 52-wk low the risks may have been priced in.
It Seems Like Basic Economics
In the basic economics of supply and demand (the answer to almost all econ questions), we learned about price elasticity. Many textbooks on the subject use food as an example of price elasticity which often states that food prices are inelastic in the short-term but over the long-run, they almost always correct. This is the case with Sysco (SYY). As I said in the above, "Raising price is always harder in the short-term. But longer term, they should (will) be able to raise price[s]."
To echo that thought, here's a quote from Barron's article "Though steep food-price inflation is an ongoing concern, Sysco management has effectively offset higher costs with higher prices, a process that will become easier as the restaurants that are its customers begin to raise prices themselves." Stock prices reflect the short-term but if you can stick it out (this is where dividends are critical for long-term investors) for the long-term, you'll be rewarded for your patience.
Key Takeaway
We spoke about Sysco several times in our watch list summary like in December 2008 and February 2011. Whenever the stock appeared on our list, it represented a great starting point for research. The New Low team often ignores (at our own peril) what analysts' say because more often than not we find that their outlook has been priced in. Analysts fear that the company would have trouble not being able to pass price increases on obviously didn't look too hard for answer. Once a company raise prices, they never lower them. But typically the raw costs often fall. This spread goes directly to the bottom line of producers. We've seen this happen to Heinz (HNZ), Tootsie Roll (TR), and most recently, Conagra (CAG).
Simply looking back at history may have proven useful. Sysco was founded in 1969 right before the height of inflation in the 1970s. They made it out alive then and our guess is that they will probably make it out again.