The old story goes that once a there was a European village that was overrun by its mortal enemy.  The enemy left without investigating one small area where all the blind people lived.  Upon learning that their village was now gone, the remaining people found out that there had been a single survivor of the attack.  He had lost one eye, and his vision was poor.  Nonetheless, he was voted the new leader of the village.  From this story comes the famous line,  "In the land of the blind, the near-sighted one-eyed man is king."  In other words, how good something looks has a lot to do with what it's being compared to.

That's about the only explanation for recent interest in Kraft (chart here), Procter & Gamble (chart here) and Kellogg's (chart here).  About the only thing that makes these companies appear attractive is their equity values haven't been hammered like some other companies.  But are these companies upon which we can expect growing revenues and profits that will generate more dividends for investors, more demand for suppliers and higher pay and more jobs for employees? 

Investors have not shed these companies as fast as some others because the view has been that demand for their products is more recession-resistant.  But one thing these companies have in common is limited growth.  Kraft was recently placed on the Dow Jones Industrial average to replace AIG.  Until recently, Kraft was a division of Altria (the old Phillip Morris cigarette company).  As Kraft "repositioned" for spinning out it sold most of its growth businesses, including Altoids.  The company refocused on its old-line businesses, like Velveeta, Oscar Meyer bologna, Ritz crackers and Kraft macaroni and cheese - none any kind of high-growth business and each with ample competition from other branded and store-branded products.  Leadership planned to increase earnings by cutting costs in these old businesses.  Now we hear profits are up!  But that's because Kraft sold its Post cereal business, gathering another one-time asset sale gain.  And the company keeps cutting heads (read article here).  The company isn't bringing out new products, or developing new businesses.  If the stock market wasn't crashing, who would care about Kraft's asset sales and headcount reductions as it tries to find profits without anything new.

P&G's profit is up 9%, but the company admitted sales growth will fall below forecast (read article here).  Profits are up mostly because commodity prices have fallen.  Its competition from store-brands is hurting sales, as competitive private label sales are up 8.4% this year.  Kellogg's got on the Phoenix track with plenty of White Space under previous CEO Guitierez, but the current CEO has done nothing to maintain Disruptions and White Space.  Sales are up 9%, but that's primarily due to raising prices driven by higher commodity costs.  Frozen meal sales seem to benefit from people eating at home more – not any new products (read article here).  That's not a long-term trend.

Are these companies poised for high growth?  Well, do you see the companies doing extensive scenario planning to identify new business opportunities?  Are they talking about fringe competitors that they are worried about, and need to address with new products??  Do you see them Disrupting their Lock-ins to historical products and markets?  Attacking old sacred cows?  Is there any discussion of White Space where they can develop new Success Formulas with more growth and higher rates of return?  Or are these recent earnings announcements mostly discussions of how well they are trying to Defend & Extend the old Success Formulas in turbulent markets?

Before the bottom fell out of the stock market investors focused on growth opportunities.  Now, with fear involved, they are looking for companies that appear less risky.  If you want less risk, go buy bonds!  Preferably government bonds!  There is no such thing as a low-risk company.  Doing more of the same, but at lower cost or charging higher prices, inevitably leads to competitive problems.  There are no "defensive" companies because all companies are vulnerable to new competitors with new solutions that better meet customer needs.  Those who like these consumer goods companies today are too narrow in their focus.  They are ignoring other investment opportunities in companies outside the USA, or in other types of assets like bonds, tangible items like art, or commodities like gold.  As U.S. equities have seen problems, short-term these consumer goods companies have had less equity problems.  But that does not make them good investments.  For high rates of return companies must be developing new Success Formulas that deal with current Challenges and allow for higher future rates of return. 

You're not likely to come out a winner if you vote the one-eyed, short-sighted person (or company) king.  Better to find another village.