Food Purveyors Recommended, But in Smaller Servings by Malcolm Berko on Creators.com

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Food Purveyors Recommended, But in Smaller Servings

Dear Mr. Berko: I'm looking at 400 shares of Unilever and 1,000 shares of Sara Lee and would like to put $10,000 in each issue for a two- to three-year hold. Please tell me what you think of each of these companies. I know you haven't liked Sara Lee since 1998 and I wonder if your opinion has changed. — H.T., Ft. Walton Beach, Fla.

Dear H.T.: Most folks don't know that in the past year Unilever (UL-$24) sold nearly $60 billion worth of Hellman's Mayonnaise, Lipton, Slim-Fast, Knorr, Pond's, Lifebuoy, Dove, Lux, Vaseline, Wishbone plus several hundred other nutritional, home care, personal care and health, hygiene and beauty products in more than 100 countries. Revenues in 2009 will be weakened by meek global demand and are expected to fall to $57.5 billion from 2008's $59.8 billion. Earnings have been truncated as shoppers traded down from UL's top lines to less expensive products. So, 2009 earnings might come in at $1.90 a share vs. last year's $2.54.

I like UL and wish I could give you a hearty recommendation, but the shares have been treading water for the past decade, even though UL continues to have the highest net profit margins (10.3 percent) in the industry. Not even Kellogg, Heinz, Sara Lee, ConAgra, General Mills and Kraft can hold a candle to UL's margins. Meanwhile, UL's $1.16 dividend yields a meaty 5.1 percent and none of the above food giants can match that.

While I can't give you a hearty approval, I can give you a modest "buy" recommendation because new CEO Paul P. Polman strongly believes he can gain market share in major categories with much stronger brand development. In fact, Polman believes that new growth can be achieved without affecting UL's fantastic net profit margins. He insists that new cost controls and new efficiencies coupled with new product development and new brand support will begin to produce new annual earnings advances of 13 percent to 17 percent in the next three to five years.

Considering the nice dividend, I'm willing to give him a chance. But scale back your intended purchase from 400 shares to 200.

Sara Lee Corp. (SLE-$9.04) is Jimmy Dean Sausage, Hillshire Farms, Ball Park Franks and dozens of other popular brands. This stock has been rolling downhill since 1998. Revenues have crashed, earnings have crashed, dividends have crashed and the stock has contributed to portfolio failure for more than 10 years. The reason is simple. It is called Brenda C. Barnes, who is SLE's CEO. This chick should be running a homeless shelter not a multi-billion dollar, branded consumer products business.

Barnes has a nasty habit of making big promises and then making excuses for failing to deliver. This has strained SLE's credibility with Wall Street. Brenda has a lot of weak people working with her on the executive floor and she doesn't have the guts or smarts to kick them into shape or kick them out. And Brenda "ain't" no asset to SLE either — proof of the pudding is the company's record of revenues and earnings. Unfortunately for shareholders, SLE's daft board of directors, each of whom should be made to wear a dunce cap, doesn't have a clue about what is going on. But they do get enormous perks and bucks for going to meetings. Barnes must have some revealing photos of her board members because I can't think of a single reason why she still has her job.

I think SLE has a bountiful basket of swell products, though I can't give you a hearty approval. But I can give you a modest "buy" recommendation because the 42-cent dividend yields 4.8 percent, the stock trades just above its all-time low of $8, revenues, earnings and the dividend are expected to improve in 2010, and I think the stock could trade possibly in the $10 to $12 range in early 2010. But be cautious and reduce your purchase to 500 shares from 1,000.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@comcast.net. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.