Below are the valuation targets for Sysco Corp. (SYY) over the next 10 years. Continue reading
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Category Archives: SYY
YoY: Sysco Corporation
Below is a chart of Sysco Corp. (SYY) from 1974 to 2019 reflecting the year-over-year (YoY) percentage change.
Sysco Corp. 10-Year Targets
Below are the valuation targets for Sysco Corp. (SYY) for the next 10 years. Continue reading
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.
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Posted in Dow Jones-UBS, ExxonMobil, gold, gold bugs, Sysco, SYY, XOM
Warren Buffett Leverages Up on Inflation Hedge
On February 14, 2013, Berkshire Hathaway and investment firm 3G announced a deal to buy H.J. Heinz (HNZ) for $28 billion, or $72.50 per share. Naturally, Warren Buffett, not being one to get the short end of any stick, is investing only $4.4 billion in Heinz common stock and another $8 billion in preferred shares yielding approximately 9%. The rest of the purchase is being financed through investment group 3G and bank borrowing.
According to the Wall Street Journal, Warren Buffett “…has previously expressed disdain for private-equity buyouts that employed excessive leverage.” However, as the details of the acquisition have unfolded, it becomes apparent that the leveraged nature of the transaction is on par with the deals that Buffett has spoken out against. So what is the motivation of Warren Buffett to engage in such a transaction? In this case, the allure of an inflation hedge that performs much better than gold in high inflation environments and that is proven to succeed after the high inflation period ends.
In the past, we have been outspoken on the matter of investing in food processing companies instead of gold and gold stocks if you want to beat inflation. On December 17, 2008, we pushed the idea that Sysco Corporation (SYY) is an inflation hedge that will beat gold and gold stocks. Our closing remark were, “…if you're of the mind that inflation is coming down the road, with all this liquidity being injected into the economy, then SYY might be a good "long-term" hedge against inflation (found here).”
In a December 1, 2010 article we re-iterated that value of inflation protection provided by food processors by comparing ConAgra (CAG), to Newmont Mining (NEM) during the gold bull market from 1974 to 1980. This was a time when ConAgra exceeded Newmont Mining by 10 times. Again, this was within the gold bull market from 1970 to 1980 (found here).
One article published as recently as September 20, 2012 was titled “Gold Stock Investors: To Beat Inflation Look to Food Processors, Producers and Distributors (found here).” In that article, we said, “As an alternative to the ‘mines’ of precious metal stock investing, we’ve recommended investing in food processors, producers and distributors that have a history prudent of dividend increasing policies to take advantage of the expectations of high inflation down the road.”
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.
Source:
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Matt Wirz and Ryan Dezember. Berkshire Stomachs Leverage for Heinz Buy. Wall Street Journal. February, 14, 2013. http://blogs.wsj.com/deals/2013/02/14/berkshire-stomachs-leverage-for-heinz-buy.
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.
Sell Sysco (SYY) at the Market
It is now time to recommend that Sysco (SYY) be sold at the market. The stock has underperformed since the research recommendation was issued on December 17, 2008. It is highly recommended that anyone who bought the stock based on my research should re-read the posting. It is hoped that the stock was researched and purchased well below the initiation price.
SYY has formed an upside down head and shoulders pattern which could indicate that the stock is headed much higher. SYY is the ultimate hedge against inflation and it may go as high as my first target price of $27.58. In the pursuit of "seeking fair profits" the returns that this stock has provided within the last 253 days say that it is necessary to consider alternative opportunities.
SYY was recommended when it was trading at $23.60. As of August 26, 2009, SYY was quoted at $25.34. This equals a compounded return of 10.85% in a little over 8 months. Conservatively, on an annualized basis this would equal approximately 15.65% return. Selling this stock now also generates a return 2.59x greater than the amount of the dividend yield if the stock was held for a whole year.
As I have indicated in the purposes and function of this site, the goal is to:
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maximize the annual yield of each trade.
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reduce time between buying and selling of each stock.
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exceed the annual yield of government guaranteed alternatives in each trade.
Research recommendations are intended to be a starting point for investigating a quality company at a reasonable price. It is hoped that after doing the background research you can buy the stock at a lower price. Ideally the stock should be held in a tax deferred account and should not consist of less than 20% of your holdings. Personally, I prefer holding only 2-3 stocks at a time.
Sell recommendations are intended to deal with the short term reality of the market. The tracking of the Sell recommendations are the worst case scenario if you happen to have bought a stock at the time the research recommendation was made (please avoid making this mistake.) I aim for mediocrity in my returns, therefore I am happy with 9-12% annual gains. However, since codifying my approach to investing in 2005, I have had annual returns of 14% and above every year since.
It is always recommended that when selling a stock, one should not place an order after hours or when the market is closed. This leaves the seller in the position of being vulnerable to the whims of the market makers. Instead, place your sell orders only as a market order during market hours. Some would complain that a market order during market hours might leave some profits on the table. However, I would rather leave some money on the table rather than have it taken away from me by the trades that are placed by institutions and market makers. Touc.
Please revisit Dividend Inc. for editing and revisions to this post.
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Posted in Sell Recommendations, SYY
Watch List Update
This week the market took me by surprise. The Dow rose 4%. My watch list shrank from 15 companies to 11 companies. Here are the companies on my watch list as of July 24, 2009.
Dividend Achiever Watch List
Nasdaq 100 Watch List 
The companies that are within 10% of the low offer a great opportunity to do research and consider buying.
The companies that are within 10% of the low offer a great opportunity to do research and consider buying.Market Action
The biggest development was the Dow Theory confirmation of a bull market that occurred on Thursday. The Transports confirmed the Industrials with a big move (see charts below).With this action, Richard Russell recommended people to buy Goldman Sachs (GS). I would suggest you consider either the names I recommended on this blog in the watchlist above or the Dow index (DIA) or S&P 500 index (SPY).
Recent Analysis
On July 22, 2009, I wrote an article about the current market and a comparison to the 1980's. It also contained some information and important news on real estate. Also, I did a review of my investment strategy for the Dividend Achiever Carlisle (CSL) on the July 23rd. It was a great position for those who followed my advice.
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