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Buying Homemade Italian (AIPC)

 November 27, 2009 11:14 AM


U.S. consumers love spending money – or at least they used to. Saving money? Not so much. Think back to the three most recent economic growth periods: The Reagan Boom of the mid-1980s, the Clinton Boom of the mid-1990s and the last easy money, easy credit boom from 2003-2007. All three shared one thing in common: consumers spent more money than they had.

Finally, U.S. consumers may have learned their lesson in the wake of the financial meltdown of 2008. People are trying to cut spending, reduce debt and add to savings. This makes now a good time to look at stocks that benefit when consumers tighten their purse strings. We've highlighted a few of these names recently like Dollar General. Today we have one more that is just as compelling: American Italian Pasta Company (AIPC).

American Italian Pasta is the largest maker of dry pasta in the U.S. That puts the company in prime position to benefit as penny-pinching consumers eat at home more often. Yes, it's a small cap company, but small caps have historically outperformed their larger peers when the economy is emerging from a recession. Nimble small caps tend to lead top-heavy large caps during a recovery because of their efficiency.

Despite an 8% drop in sales, American Italian reported sterling fourth-quarter profits that beat analyst estimates. The company earned $15.8 million, or 73 cents a share, compared with $7.3 million, or 36 cents a share a year earlier. Analysts expected the company to earn 68 cents a share.

Kansas City-based American Italian is shifting its focus to retail sales. This is a good move given the fact that restaurants are cutting back purchases due to lower traffic. That lower traffic actually works in American Italian's favor because pasta is an ideal way for families to enjoy a good home-cooked meal at a reasonable cost.

Investors have taken note of the American Italian story. Shares are up about 120% in the past year compared to a 33% gain for the S&P 500 over the same time. However, the shares still trade at only 10 times forward earnings and just above two times book value. Americans are looking for ways to save money and that could mean AIPC shares have even more room to run to the upside. To buy into value-minded Americans eating at home more, go with AIPC.

 
 
 
Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned.
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