Survivalism

Investors Head for Bunkers, Driving Up 'Shelter Shares'

August 28, 2010

Wall Street Journal - It is the ultimate bunker portfolio.

Amid the market tumult, a handful of stocks have seen their share prices ratchet up to record highs in recent weeks. And many of them are connected by a curious, if disconcerting, thread: Between them, they provide an investor with essentials for any respectable fallout shelter—makers of bottled water, canned goods, dehydrated broth, gas masks and auxiliary generators.

A portfolio of the 18 companies that reached their peaks in the past month would be up about 24% this year, compared with the broader market's 4.5% decline, a sign some investors may be taking the prospects of financial Armageddon more seriously than one might think.

Hormel Foods Inc., the 120-year-old producer of that dugout staple, Spam, is up 12% this year, and hit an all-time high of $43.95 in recent weeks. The company's stable of long-life provisions, from instant packets of dehydrated broth to wrapped sausages, are critical for weathering even the most prolonged storm.

Bottled-drink maker Dr Pepper Snapple Group Inc., whose brands include DejaBlue purified drinking water, has soared 32% this year. The company also makes Schweppes ginger ale, great for any gnawing queasiness.

Also in the bunker club, Cummins Inc. The maker of a wide range of auxiliary power generators in addition to truck engines is up 66% this year. Shares of the Columbus, Ind., manufacturer hit a record $81.83 last Wednesday.

Hard hats and gas masks? Airgas Inc. makes both. Shares of the Radnor, Pa.-based company, which spiked in February after a hostile bid from rival Air Products & Chemicals Inc., has since added to those gains, hitting its best-ever close, at $66.72, on Friday.

"If it's the end of the world, what do you buy? Canned foods, guns and the generators," said Keith Springer, president of Capital Financial Advisory Services. "There are a huge number of people who feel this is the end of the world."

Robert Shiller, Professor of Economics at Yale University, sits down with Simon Constable to discuss the sharp falloff in home sales, the likelihood of a double-dip recession and what the Federal Reserve should do to stimulate the U.S. economy.

Of course, stocks trading at such lofty heights high aren't necessarily a tantalizing buy. But the bunker portfolio, while vastly oversimplified, does reflect investors' preference for companies with products that are relatively immune to economic swings, and whose conservative strategies are suited to these uncertain times.

"This is a very unusual economic cycle we're going through—we haven't been through anything like it in any of our lifetimes, and we don't know how it's going to play out," says Dorsey Farr, partner at Atlanta-based investment advisory French Wolf & Farr. "We don't see where this economy is going, and some of the potential outcomes are frightening."

Many of the star performers are steady dividend stocks: At least half of the companies on the list have increased their dividends this year, including Cummins, Dr Pepper Snapple and Airgas.

Hormel notched up its 44th consecutive year of dividend increases and raised its earnings guidance three times this year, as growing sales of its packaged foods allow the Austin, Minn., company to "grow despite economic turmoil."

Ventas Inc., a health-care real-estate investment trust, touts itself as all a conservative investor could ask for: "reliable and growing cash flows," "strong liquidity and limited debt," "a safe cash dividend with a long history of dividend growth," all in a defensive business that hits the sweet spot at the intersection of health care and senior housing. Ventas is up 16% this year and hit its record high of $52.41 earlier this month.

J.M. Smucker Co., the maker of jams, jellies and peanut butter, hit an all-time peak of $63.68 in late July after posting its ninth consecutive quarter of better-than expected earnings amid a boom in eat-at-home families.

"Consumers are relying more on basic pantry items including coffee, peanut butter and jelly and home-baked items and our brands play a lead role in all of those categories," the Orrville, Ohio, company said.

Ball Corp., a maker of metal cans and packaging, hit its high earlier this month after notching record second-quarter earnings. The Broomfield, Colo.-based company, which is up 9% this year, recently increased its plans for stock buybacks.

Baby-food maker Mead Johnson Nutrition Co.—an essential part of any family-friendly bunker portfolio—is up 20% this year and hit its high of $54.55 in late July.

Big Macs aren't on offer to anyone holed up underground, but McDonald's Corp. finished regular trading Friday at a record $73.99, thanks to its big presence in faster-growing countries outside the U.S. and, no doubt, man's basic need for burgers during any economic cycle.