Power Lunch: Tom Lydon on Costco, Cigna, and Conagra

Conagra (CAG) stewards a number of higher-end food brands and missed their recent revenue targets.

“Costs are going up tremendously for them, supply chain issues, freight costs, are forcing them to raise prices, and with that, you’re seeing lower sales,” Lydon noted, explaining that with inflation hanging over everything, consumers are going to be less likely to spend on more expensive brands.

Adding to that, the stock’s price, $32.90, hasn’t gone anywhere in five years. If it hasn’t done well when the markets are doing well, Lydon thinks it will likely be challenged during the recession.

Though CIGNA (CI) was at $264 at the time of recording, down 3%, it is still up $50 from its February 3rd low. Lydon noted that the company had a big win recently in the form of a recently completed divestiture of life, accident, and supplemental benefits to Chubb for $5.4 billion. CIGNA plans to use the proceeds on stock repurchases, and this commitment to buybacks has aided in the stock’s growth.

“We’re surveying advisors all the time, and we can also tell the types of ETFs they are at. They are looking for healthcare during these time, and more money is moving to into healthcare ETFs – and also buyback ETFs,” Lydon said, pointing to the Invesco BuyBack Achievers ETF (PKW B-).

Finally, Costco (COST) is riding high after being upgraded to a ‘Buy’ by Deutsche Bank. The stock jumped 2.9% on the news.

“I don’t know if you’ve been to a Costco in a while. I was at one this weekend – it was packed,” Lydon said, noting that people buy in bulk and look for bargains during recessionary times.

He also shared the good news that the $1.50 hot dog and soda deal would stay put, no matter how bad inflation gets. Costco’s price currently sits at $508, with its new target being set at $575.

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