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Show mm HSU ATTRACTIVE ISSUES IN MILLING AND BAKING The nation's major wheat millers, commercial bakers, and producers of baking mixes, frozen ready-to-bake dough items, and frozen heat-and-serve baked goods have been experienceing rising costs in recent months. The unrelenting long upward climb in costs of shipping, fuel, and labor has been joined by rising prices ( previously depressed) for such raw materials as sugar, wheat, and flour. This presages increased pressures on profit margins of millers and bakers, although the situation is not nearly so severe or, damaging as it was in the early-to-mid-1970's when there were such adverse influences as threatening weather, the "grain drain," and speculation in certain agricultural commodities. Still, most companies in the sector of the economy are currently well situated financially and in terms of operations to cope with the tighter squeeze on profit margins. KEY SUPPLY ASPECTS FAVORABLE Unlike the situation in the first half of the 1970's, the picture at this time on raw materials vital to millers and bakers remains favorable from the supply-demand standpoint. At certain times during the early 1970's, companies com-panies with participation in the milling and baking fields had to contend with appallingly high prices and distortions of normal supply patterns affecting some basic raw materials. When these abnormalities dissipated, there was a period in which very low prices and generous supplies were beneficial to the profits of milling and baking concerns. Right now, the still large carryover supplies of wheat and sugar are able to keep recent price advances for these items within a tolerable range. COMPANIES GENERALLY WELL SITUATED Firms with strong positions in milling and-or baking have made themselves materially more stable in recent years, although it has been a long battle to lessen their exposure to the volatility of profits stemming from the natural uncertainties related to agribusiness. To this end, they have upgraded and broadened their produc t lines in order to command better prices and thereby widen lheir-overll profit margins. So. these companies are entering what looks to be a period of narrow ing profits on a strong financial note. Furthermore, most companies have moved to diversify into other facets of food processing as well as into food services, fast food outlets, and restaurants. And. over the course of time, a number of firms have gone into nonfood segments of the vast consumer goods market, with resultant enhancement enhan-cement of sales and earnings growth beyond that offered by food related activities. Yet, diversification is a two-way-street and over the years milling and hoiking companies both privately and publicly held have been acquired by companies based in other food areas and by conglomerates. Also, some of the larger food chains have established their own baking operations. Thus, the milling and baking in-dustires in-dustires today feature a roster of companies with a mosaic of identities. For some, milling and baking constitute con-stitute only a small portion of their sources of revenues and earnings, and they are best known for their other lines. TWO ATTRACTIVE BUYS 'In recent years, stocks of the leading flour millers and commercial bakers have generated little investment interest in-terest Thus, farsighted investors may well weight the positive aspects of this segment of the stock market and, if their objectives permit. gain representation in milling and baking issues at currently attractive prices. At this time, the Research Department Depart-ment of Babson's Reports favors two such common stocks for purchase. These are rated conservative grade and are mast appropriate for portfolios geared toward capital growth. These are Campbell Soup and General Mills, both of which are currently near their lows of the past four years. |