Celebrating 25 Straight Record Years
A Defensive Gem for a Tough Market
By Louis Navellier
Editor, Blue Chip Growth Letter
November 30, 2001
One of the stocks that I've been recommending to my subscribers is Sysco (NYSE: SYY) of Houston, Texas. Not to be confused with Cisco, the router company, Sysco is the nation's leading distributor of food products to the food industry. Although you may not be familiar with the company, you use Sysco's products all the time. The company has over 370,000 customers, and it serves everyone from restaurants and hotels to hospitals and schools. What I like about Sysco is that it's a solid defensive stock that will do well in all seasons, particularly whenever the economy hits a rough patch (after all, people have to eat).
Few people think about the products Sysco makes, but the next time you're in a restaurant, you're probably going to use a napkin, fork or straw manufactured by Sysco. The company has a 12% share of a $190 billion market. Recently, Sysco has been employing an aggressive effort to ramp up sales for next year. Late last year, Sysco bought a Canadian food distributor, and earlier this year it bought two specialty meat suppliers.
Another strategy the company is using is that of "foldouts." Using foldouts, Sysco builds a new facility on the fringes of an existing one, then it seeds the new facility with workers from the older one. This gives the new facility two important advantages—experienced workers and an existing customer base.
In its 31 years as a public company, Sysco has had nine stock splits and posted 33 dividend increases. Profits for last year were $600 million (the other Cisco lost $1 billion). That marked Sysco's 25th consecutive year of uninterrupted sales and earnings increases. I like to think of Sysco as the "Cal Ripken of Wall Street."
Since the stock market has tended to shy away from "Old Economy" stocks like Sysco in recent years, I think the stock is very underpriced. Apparently the company agrees with me. Sysco has been aggressively buying back its own shares. I like when companies do this. It shows that management not only believes their own stock is a good bargain, but they're willing to stake their own money on themselves. Since 1996, Sysco has repurchased over 58 million shares of its own stock.
Sysco seems to be on track to continue its impressive earnings streak. For the first quarter of its fiscal year, Sysco earned 24 cents a share, which was in line with Wall Street estimates. Some analysts dismissed these results because they were "only" 14% higher than last year. I get annoyed when I see this kind of shortsighted analysis. The reason is that you have to consider the kind of economy we're in. Earnings for the overall market were down over 20% for the second quarter in a row. I'll take positive 14% over negative 20% anytime. I don't care what paradigm we're in!
On top of that, you have to keep in mind that Sysco's earnings one year ago were very strong, up 34%. It's pretty amazing to think that the company could top that performance by another 14%. I'm afraid that too many of these analysts don't know what the real business world is like.
Of all the stocks I currently recommend, Sysco has one of the most stable stock prices. This is a particular benefit for conservative-minded investors who hate seeing their stocks "jitterbug" all day long.
I think Sysco can easily earn $1.00 a share this year and perhaps $1.14 next year. Consider that historically, the company has traded with a price/earnings ratio as high as 41. I think it's entirely possible we can be sitting on very nice gains within a few months. Sysco is the type of stock that's appropriate for all investors.
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