You have probably heard ad nauseam about how the low interest rates of the past nine years have caused many investments roughly classified as dividend growth stocks to become overvalued because they have served as substitute investments in place of bonds. My corollary is that the balance sheets of most large businesses are under-scrutinized right now. Cash-rich balance sheets aren’t leading to premium valuations, and excessive debt doesn’t seem to impose a penalty right now.
I had this in mind when I studied the balance sheet of Post Holdings (POST), an acquisition-hungry St. Louis company that owns some familiar brands, including: Power Bar, Shredded Wheat, Fruity Pebbles, Raisin Bran, Grape Nuts, and Honey Bunches of Oats. These brands aren’t strong enough to demonstrate industry-leading pricing power, but they are strong enough to raise prices by a bit more than inflation costs each year. If Post Holdings had a strong balance sheet and traded around 15x earnings, I’d cover it regularly on the site as a “Top 50” investment.