3 Consumer Stocks to Buy After Recent Correction
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The S&P 500 has witnessed significant volatility over the last one month. It started October at ~1440 levels, touched 1470 then declined to ~1400 and is now back around 1430 levels. It appears that market may remain volatile in the near term due to election uncertainty. This uncertainty does provide some bargain hunting opportunities. I screened consumer stocks which have significantly underperformed the broader markets in the last one month and three stocks looks promising buys at these levels.
Monster Beverage Corp (NASDAQ: MNST)
Monster's share price has declined ~18% in the last one month on concerns around product safety. It was reported that a Maryland teenager who was suffering from a heart disease died of drinking a monster energy drink. But a newly released autopsy revealed otherwise stating that she died of cardiac arrhythmia. This was further supported by FDA which is unable to determine a causal relationship between the death and energy drink. I feel that product's safety issues will pose minimal risk to Monster’s stock in absence of FDA proof. The company has produced billions of energy drinks over the past 25 years and, its lack of association with alcohol/caffeine per oz provides further immunization.
Monster’s success with its Rehab launch and additional three new flavors gives forward momentum to its top line. Within a short span of one year Rehab is contributing ~60% growth to its domestic sales. Rehab’s position as a tea product has enabled the company to diversify its product placement outside the energy drinks arena. On the other side, Monster’s superior promotional/marketing activities focusing on the young demographic against the broader strategies of its peers are reaping benefits now.
A brief comparison of forward P/E and 2013 growth rates gives Monster an upper hand over its peers.
A strong debt free balance sheet and a free cash flow of $400 million in 2012 gives further support to its stock price.
Mead Johnson Nutrition Company (NYSE: MJN)
Mead Johnson shares are down over 12% in the last one month after it released 3Q12 earnings. The higher promotional pricing in China has resulted in a market share decline. I will not assign a lot of weight to this sharp decline considering the long term growth drivers which are still intact. Taking into account its product innovation and strong brand equity initiatives, with expected surge in Chinese middle class market we can expect market dynamics to return to normal levels very soon.
Also Mead is well placed with a large market share in emerging markets (Philippines, Vietnam, Indonesia, India and Brazil) in the infant milk formula category. Market expansion opportunities for emerging markets are evident with a rising women labor force and with the consumers shift from traditional cow’s milk. I think we can expect an upside in sales coming from these markets.
With a solid R&D pipeline, Mead is investing a portion of earnings (~$0.10 a share in 2012) for its product expansions. Other factors which make this stock a good buy are its strong hold on the LatAM market, which is likely to be a significant growth driver, and a reasonable forward P/E of 18x.
The Hain Celestial Group (NASDAQ: HAIN)
Hain Celestial’s stock is down 10% in last one month after having gained ~71% from October 11. It has emerged as a leader in highly fragmented and natural foods category in recent years with continuous innovation and a well-diversified portfolio. Its increased channel penetration and growing customer base supplements it with a strong platform to outperform its peers. The company is focusing on key accounts of national retailers (Costco, Wal-Mart, Target, etc.) which remain under penetrated in natural and organic category. Hain’s 40+brands with lower distribution level cost, further act as growth driver.
Hain’s acquisition strategy has benefitted it well in the past in increasing its market share in Canadian, European and US markets. The recent acquisitions of Premier Foods, Cully & Sully and Daniels Group will help it to expand and position it in the top 40 food and beverage suppliers in UK and Europe. Its Celestial Seasonings brand is the top selling brand in North America with operating margins higher than the overall product portfolio. I see a good buy opportunity for the stock given its increasing free cash flows of ~13% Y/Y and a forward P/E of 20.15x
ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool owns shares of Hain Celestial. Motley Fool newsletter services recommend Hain Celestial and Monster Beverage. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.