As a player for the famed Brooklyn Dodgers, Eddie Stanky earned his stripes as a baseball great. His manager, Leo Durocher, summed him up this way: “He can’t hit, he can’t run, he can’t field. He’s no nice guy…all the little SOB can do is win.”

Stocks can be the same way. They can be in lackluster sectors. They can have terrible headwinds. But the companies keep delivering year after year.

One of my favorite Stanky-like stocks is food giant ConAgra Foods, Inc. (NYSE:CAG). I’ve held this stock through the years in portfolios and it’s time to look at it again.

Outside of a decent run up in 2013, shares are basically flat. However, based on some of ConAgra’s average five year metrics, investors have an opportunity to buy a quality name at an extremely reasonable price.

Five Year Trend
Growth
Revenue Growth 8%
EPS (Earnings per Share) Growth 6%
Dividend Growth 6%
Source: Morningstar

Are they gargantuan, triple-digit growth? No. But considering ConAgra’s five year average net margin is less than 5%, revenue growth is a consistent 8%, plus healthy dividend increases, this stock is very attractive.

The strength ConAgra brings to the table is the power of its brand portfolio.

As one of the country’s largest food companies, ConAgra is best known for iconic products such as Orville Redenbacher Popcorn, Peter Pan Peanut Butter, Healthy Choice, Slim Jim, Chef Boyardee, Hunt’s, you name it. Open your pantry and it’s probably filled with their handiwork, no matter if you buy store brands or what’s also referred to as private labels. A private label is a product sold by a retailer but manufactured by another company.

In 2013, ConAgra completed its acquisition of Ralcorp (NYSE:RAH). Ralcorp’s core food business was manufacturing private labels. Prior to the takeover, ConAgra’s private label business represented only 7% of its annual revenue. Since purchasing Ralcorp, ConAgra became the country’s largest private label manufacturer, which now represents 24% of annual sales.

Why are private labels so important? The world’s largest seller of private label goods, Wal-Mart (NYSE:WMT), represents around 17% of ConAgra’s consolidated sales. Due to the lack of marketing and packaging needed for private label products, the company enjoys higher margins in nearly a quarter of its business. This is crucially important in a razor thin margin world.

Although ConAgra can deliver consistent growth in a crowded business and make smart acquisitions, the balance sheet is a little flabby. This is mainly due to the Ralcorp merger. The company’s percentage of long term debt to capitalization ballooned from a reasonable 38% in 2012 to over 60% currently. Management, however, is sensitive to that. Last year, the company spent $245 million repurchasing its stock. Going forward, ConAgra’s strong annual cash flow of nearly $1 billion will be used to reduce debt.

Risks to consider: My biggest concern with holding shares of ConAgra is the company’s ability to continue consistent execution in order to maintain its predictable growth rate. The acquisition of Ralcorp, which more than tripled their private label business, should help maintain that consistency. Another concern would be the effect of input cost inflation on already razor thin margins. Again, the private label business comes to the rescue with better margins than those associated with the branded goods business.

Action to take --> Currently, ConAgra shares trade near $32 with a forward PE of 14 and 3.1% dividend yield. When compared to a peer like Mondalez (NASDAQ:MDLZ), which trades with a forward PE of 21.4 and a 1.6% dividend yield, ConAgra looks attractive. Thanks to the Ralcorp acquisition, the company should be able to grow its profit margins, maintain revenue and earnings growth, and use its cash flow to pay down debt. Taking these factors into consideration, a 12-to-18 month price target of $41 is possible. Taking the dividend into consideration, the result would be a total return of over 30%.

Stocks like ConAgra would be a strong candidate for our premium newsletter, Total Yield. My colleague Nathan Slaughter uses dividend payments, debt paydown and stock buybacks to find the most profitable companies on Earth. Since 1982, these dividend payers returned an average of 15% per year. To find out which companies made the cut, click here.

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