| Shares
of Wrigley (WWY) Look Like a Bargain |
Published: July 18, 2006
Given the turbulent state of
the markets, we have advocated defensive, blue-chip stocks numerous
times over the past several months. One in particular that has caught
our eye recently is Wrigley (WWY, $43.57) -- a proven leader that
hasn't missed an annual dividend payment in nearly a century.
On the strength of well-known
brands like Big-Red, Extra, Juicy Fruit and Orbit, Wrigley has become
the world's leading maker of chewing gum -- with approximately $3
billion in annual gum sales. While it controls roughly two-thirds of the
domestic market, the company has been busily expanding to all corners of
the globe and it now generates 60% of its earnings in international
markets.
In fact, consumers enjoy
Wrigley's products in more than 180 different countries worldwide.
Revenues earned abroad are likely to benefit from a weak dollar, which
my staff and I feel will continue to depreciate against foreign
currencies.
Aside from seeking growth in
faster-growing markets overseas, Wrigley has taken steps to branch out
from the mature gum business by acquiring the popular Life Savers and
Altoids brands from Kraft. Given Wrigley's superior distribution
network, it should be able to squeeze more sales out of this new product
line and keep the top-line moving forward at a healthy rate.
And with juicy operating
margins near 19%, we are confident that the company will continue to
churn out strong cash flows. Given management's shareholder-friendly
policies, we expect much of the profits to be returned to investors.
Wrigley has lifted its dividend payments for 26 consecutive years, and
the company also recently announced a $500 million stock buyback program
(on the heels of $300 million worth of repurchases in 2004).
After pulling back nearly -20%
over the past year, this stable industry leader is now trading at just
24 times trailing earnings -- well below the stock's five-year average
of 30 -- and with one of its lowest Price/Cash Flow ratios in many
years.
For the reasons outlined above,
defensive-minded investors might want to take a look at shares of WWY at
today's deeply discounted levels.
Good investing!
-- Paul Tracy
Editor
StreetAuthority
Market Advisor
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Paul Tracy
founded StreetAuthority and became Chief Investment Strategist in 2001. Prior to
that he spent several years as Managing Editor at a multi-million dollar
financial publishing firm with over 150,000 subscribers. In addition to
his role as managing editor and lead financial writer, he was also
responsible for equity research and managing a team of seasoned
professional financial writers, researchers and market commentators.
Paul's previous experience
includes a position at Robert W. Baird & Co.'s full-service
brokerage operations as well as economic research work on a Money and
Banking project funded by the National Bureau of Economic Research. He
has also spent time doing outside consulting and research for the
University of Virginia, has appeared as a guest expert on several
prominent financial radio shows, and has been a featured speaker at
various investment conferences across the U.S.
Paul graduated with a B.S.
in Finance and Management from the McIntire School of Commerce at the
University of Virginia.
