Friday, September 14, 2007

Investing Based on Demographics - SMG & FO

The Scotts Miracle Gro Company (SMG)
“The Scotts Miracle-Gro Company is the world's leading lawn and garden company with trusted brands in every category in which we compete”

Dividend Yield: 1.14%
ROE: 13.9%
ROI: 25.89%
PE: 25X
Estimated 2007 PE: 18.47X
Estimated 2008 PE: 16.35X
S&P Rating: 3 stars, Hold, $46 target price

THESIS: The consumer lawn and garden industry is now one of the worlds leading outdoor leisure activities and is currently around a $7 billion global business. As the population ages they will be home more and presumably be spending more time and therefore money on their lawn and gardens. The only flaw that I can see with this thesis is the fact that there is a push in many of the industrialized countries to limit or ban herbicides/fertilizers and most other chemicals used to beautify lawns.

Fortune Brands (FO)
“Fortune Brands is a leading consumer brands company sharply focused on shareholder value. With our foundation of powerful and trusted consumer brands, industry-leading innovation and proven strategy for growth, we're consistently delivering strong results...for consumers and for our shareholders.”

FO has multiple growth and premium brands in 3 main categories.
1. Home and Hardware – Moen, Home Crest, Simonton
2. Spirits and Wine – Knob Creek, Jim Beam, Sausa, Clos du Bois
3. Golf – Fitleist, Pinnacle, Cobra

There were too many brands to list but for a complete list please visit the Fortune Brands website by clicking here.

Dividend Yield: 2.07%
ROE: 15.96%
ROI: 8%
PE: 16.5X
Estimated 2007 PE: 15.94X
Estimated 2008 PE: 14.63X
S&P Rating: 3 stars, hold
Argus Rating: Hold

THESIS: The thesis behind this is easy. FO basically only markets brands that appeal to the older segment of the population. To my great dispointment...as people age they tend to drink less beer and more wine and spirits, they have more time (being retired) so they golf more and generally have more disposable income to buy luxuries around the home. In my opinion this company is perfectly positioned to capitalize on the aging population and will definitively be added to my watch list.

3 comments:

Nurse B, 911 said...

Regarding SMG...

Do they have any exposure to large scale agricultural projects both domestically or internationally? With the exposure that potash products have been receiving over the past year (my MGO holding) is there any likelihood of SMG venturing into other areas or more towards the titanous exposure that a Monsanto has?

MG said...

brad,

No, none whatsoever. SMG is a consumer play only and there is no liklihood they would venture there.

By the way it is importanat to differentiate between fertilizer and pesticides when discussing regulation and use patterns.

QUALITY STOCKS UNDER 5 DOLLARS said...

Interesting stats.