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All Contents © 2019The Kiplinger Washington Editors
By Vince Martin
| August 22, 2017
It takes a lot for a company to last more than a hundred years. Great products or services. Strong management. And a business model that can manage through difficult events, like war or a depression.
There’s a reason why “blue chip” companies tend to be older companies. They’ve stood the test of time and proven their ability to manage any environment. And that makes many of those century-old (or older!) companies good choices for long-term investors.
There’s one catch, though. Sometimes, older companies lose their way. They can struggle in times of technological change. Bureaucracy creates a stagnant culture. Changing a large, old company often is likened to turning around a battleship — it’s slow and difficult. Many century-old stocks don’t have the same luster they once did, because they’ve fallen behind — or fallen off.
As such, here’s a list of 10 century-old stocks — and our judgment on whether they’re long-term blue-chip holdings or companies that are falling behind the times.
Prices and data are from the original InvestorPlace story published on August 21, 2017. Click on ticker-symbol links in each slide for current prices and more.
Dennis van Zuilenkorn Via Flickr
International Business Machines Corp. (IBM) in some ways was the earliest tech stock. From its formation in 1911 as the Computing-Tabulating-Recording Company, IBM has been at the forefront of technology. In the early 1900s, it was punched card equipment and coffee grinders. Today, it’s supercomputers, servers and software.
But the problem for IBM is that it increasingly seems like the company simply isn’t cutting-edge anymore. The Watson supercomputer has garnered headlines in beating Jeopardy! winners. But the segment it leads, Cognitive Solutions, grew revenue less than 2% last year. IBM as a whole has seen sales decline every year since 2011, and earnings of late have followed the same trend.
As a result, IBM stock has declined sharply. At $140, it trades ~35% below all-time highs reached in early 2013. And it should get worse before it gets better. IBM still hasn’t shown any traction in its turnaround. Competitors still seem to be winning. And IBM still seems to be flailing. The once-great company isn’t finished by any means, but IBM doesn’t appear to be the innovator it once was.
Rosana Prada Via Flickr
111-year-old Kellogg Company (K) is a classic example of the challenges — and possibilities — of an older business. The company’s core cereal business has been challenged by changing consumer tastes and health concerns. While Frosted Flakes and Fruit Loops were a staple of children’s diets, sugar- and gluten-conscious parents are looking elsewhere. The company’s “U.S. Morning Foods” business has seen sales decline in each of the last four years.
But Kellogg has responded. The U.S. Snacks segment — which includes Keebler cookies, and Cheez-It and Town House crackers — actually is now the largest segment by revenue, though the cereal business remains more profitable. Other efforts — including the manufacturing of cookies for the Girl Scouts — further diversify the business.
While growth is tough, Kellogg has rolled out its Project K, a huge cost-cutting effort aimed to create savings, some of which will be reinvested in marketing and customer acquisition. Adjusted EPS has risen 9% in the first half as a result. And yet at 16.5x 2018 analyst EPS estimates, and with a 3.1% dividend yield, K stock looks priced for little growth.
Kellogg may not be a consumer food “blue chip” anymore, given the long-term pressure on the cereal business, but investors looking for a safe dividend play could do worse than K stock.
Mike Mozart via Flickr
Sears Holdings Corp. (SHLD), then known as Sears, Roebuck & Co., was the dominant company of the early 1900s — think the Amazon.com, Inc. (AMZN) of its time. Its mail-order catalog quite literally revolutionized American commerce.
A century later, the catalog is gone (it was discontinued in 1993) and Sears looks like a pale imitation of its former self. A massive debt load and collapsing sales — Sears hasn’t posted positive same-store sales since the year 2000 — have made the merger of Sears and Kmart a failure. SHLD stock has lost over 90% of its value from 2007 highs.
I’m skeptical it will get much better. What bull case is left for SHLD stock is based on its real estate. But the value of retail real estate is plummeting, which looks like one more nail in Sears Holdings’ coffin. For many younger customers, Sears and Kmart are brands that seem almost ancient. It may only be a generation at most before those brands are simply gone.
Shubert Ciencia Via Flickr
Over the past few years, Hanesbrands Inc. (HBI) has experienced seemingly all the phases of life as an older company. Earlier this decade, Hanesbrands basically was left for dead. Its stock traded for barely $5 as recently as the end of 2011. Its brands seemed tired and dated. New entrants into the underwear space offering new products were taking market share and pressuring earnings.
Hanesbrands managed to turn itself around, through both organic efforts and acquisitions. HBI stock soared from $5 to nearly $35 in about three and a half years, capped off by an addition to the S&P 500 index. Since then, however, old concerns have resurfaced. Domestic sales declined in 2016, and organic sales growth was negative in the first half of 2017. Driven by weaker performance, HBI fell about 40% between mid-2015 and early 2017.
But HBI stock, anyway, has rebounded, gaining 24% off a multiyear low from earlier this year. Guidance suggests EPS growth this year, and a 12x forward multiple and a 2.6% dividend yield both make HBI stock look cheap. There are concerns here, notably potential pricing pressure from customers Wal-Mart Stores Inc. (WMT) and Target Corporation (TGT). But over the past few years, Hanesbrands at the least has shown that an old dog can learn some new tricks.
Chris Nielsen via Flickr
Everything about The Coca-Cola Co. (KO) is iconic. It’s likely the world’s most famous brand. Its reach is unparalleled among consumer products companies — or any companies. It is one of the great American companies of all time.
And yet I do not like KO stock at all. Coca-Cola is a wonderful company. But it’s also a company that sells flavored, sugary water. And like Kellogg, consumer tastes are changing.
Unlike Kellogg, however, KO stock trades at a premium multiple. In fact, backing out cash, KO stock is valued roughly similar to Facebook Inc (FB) based on next year’s estimated earnings, and backing out the latter company’s net cash. While Facebook may not be 131 years old (or close), its profits are growing rapidly. Coke’s are not — in fact, they have declined.
Coca-Cola does perhaps have some options to move away from its namesake brand. It still owns a large stake in Monster Beverage Corporation (MNST). But the business itself is stagnant, and KO stock has badly underperformed rival PepsiCo, Inc. (PEP) of late.
Coca-Cola is a wonderful brand. But at this point, I’m not sure The Coca-Cola Company is a wonderful company — and I’m sure KO is not a wonderful stock.
BFI Business Furniture Inc. via Flickr
Steelcase Inc. (SCS) is another company dealing with changing markets. The company and rival Herman Miller, Inc. (MLHR) are among the nation’s premier office furniture manufacturers.
But that business is changing. “Open office” concepts and more shared work areas are limiting sales of cubicles and other high-margin products. Smaller firms in the space are having more success, buoyed by the ability to reach customers without expensive “feet on the street” efforts.
And Steelcase still seems a bit slow in adapting to the new realities. SCS stock isn’t far from hitting a four-year low. U.S. sales are weak, and execution in Europe has been poor.
There is turnaround potential here for a company that has turned around before. Current Ford Motor Company (F) CEO Jim Hackett made his name turning Steelcase around in the 1990s. At this point, Steelcase desperately needs a similar change.
Courtesy VF Corp.
VF Corp. (VFC) has come a long way since 1899. That year, the company was founded as the Reading Glove and Mitten Manufacturing Company. It then transitioned into lingerie before buying Lee jeans toward the middle of the century. VF would add Wrangler jeans in the 1970s before an acquisition spree this century. Kipling, Nautica, North Face, Eastpak, Timberland and many more brands all joined the VF stable.
VF stood pat for six years before announcing a deal just last week to buy the maker of Dickies workwear. At the same time, VF announced a target of 2021 EPS above $5 per share. Should growth accelerate – the company expects 2017 EPS around $3 — VFC stock should have nice upside. A high-teens multiple suggests 15% return a year from VFC, including its 2.7% dividend yield.
The diversified portfolio here keeps VFC from being exposed to any one fashion trend, and Lee and Wrangler remain iconic American brands. VFC was more attractive earlier this year near $50. But even at $63 it looks like a good buy.
Mike Mozart via Flickr (Modified)
Procter & Gamble Co. (PG) is the oldest company on this list, having been founded in Cincinnati in 1837. And, at least according to activist Nelson Peltz, it acts the oldest as well.
Peltz has undertaken the largest proxy fight ever, seeking a seat on the P&G board. Peltz has criticized P&G as “insular,” slow and bureaucratic. And in P&G’s numbers, there’s reasons to think that’s the case. Organic revenue growth has basically stalled out, and so has earnings growth despite billions of dollars in cost cuts. Formerly generous dividend increases have softened to modest bumps.
PG stock actually hasn’t performed that badly — it’s just off an all-time high — but the appreciation in the stock is coming mostly from multiple expansion, not earnings growth. That can’t last forever, and Peltz no doubt knows it. P&G needs a change, whether the activist campaign succeeds or not.
Exxon Mobil Corporation (XOM) was founded in 1870 as Standard Oil, a company that led to the dynastic wealth accumulated by the Rockefeller family. But XOM stock hasn’t created nearly as much wealth of late. The stock actually is down over the past five and 10 years, and currently trades at an 18-month low.
In Exxon Mobil’s case, the problem isn’t its age, or even necessarily its bureaucracy. The problem, obviously, is low oil prices. And even though Exxon Mobil’s downstream operations hedge those low oil prices, they make it difficult for Exxon Mobil to grow profits in better times.
The result has been a stock stuck in a rut — and one trading below 2007 levels. Many oil stocks have done much worse, of course, which perhaps shows the wisdom Exxon Mobil has accumulated over its 147 years. But it’s still hard to see what exactly will get XOM stock going at this point.
Clorox Co. (CLX) has an interesting bull case at the moment. Clorox’s valuation isn’t necessarily cheap, with the stock trading at 24.5x the midpoint of FY18 EPS guidance.
But unlike PG and Colgate-Palmolive Company (CL), Clorox actually is growing. Revenue increased 4% last year, with EPS jumping more than 8%. By the standards of consumer products, that’s torrid growth. And it might make CLX a takeover target for P&G, Colgate or Unilever Plc (UL).
Even on its own, CLX has some appeal. Clorox’s brand has rebounded, as concerns about the chemical nature of bleach have been offset by a renewed recognition of its efficacy. Other products like all-natural Burt’s Bees are showing growth.
There are risks here, with private-label penetration and grocery store competition both potential sources of margin compression. But Clorox, 104 years after its founding, still looks like it has got some growth left.
This article is from Vince Martin of InvestorPlace. As of this writing, he held none of the stocks mentioned.
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