3 Outperforming Consumer Stocks to Buy
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In a previous article I discussed three consumer stocks that have become attractive buys after recent correction It is also interesting to look at consumer stocks that are seeing solid upward momentum. The following are three consumer stocks that have significantly outperformed the markets in last one month and still provide good buying opportunity. Against the S&P 500’s 2% decline, these stocks have gained anywhere between 5% to 10%.
Ingredion’s share price has gained 27% since June. Still, the company is trading at a forward PE of just 10.82x. I believe the stock is a good long term buy given the company’s organic growth strategies. The American market will be a key top line driver for the company. The corn sweetener utilization rates, which were a major growth driver in 3Q 2012, with volume up 4.2% quarter over quarter, will continue its upward movement.
Ingredion will further benefit from favorable product mix opportunities, mainly in North America as the food and beverage manufacturers utilize more specialties and modified starches in the development of new value-added products. Sales for North America are expected to increase 970 million, growing at a rate of 10%. In addition to top line growth, I anticipate a strong North American pricing strategy generating higher margins in 2013. The outlook for South American region also looks positive, with upcoming international events like the 2014 World Cup and the 2016 Olympics. Tourism and overall economic activity will further boost sales from this market.
Ingredion Group's acquisition of National Starch has been a game changer for the company in its emerging market expansion strategy. National Starch paved the path for Ingredion towards stronger demands in the emerging market of Asia/Pacific (especially Thailand and Korea). Thailand has strong demand for its tapioca products, and the company is all set to monetize this opportunity. National Starch companies recently adopted the Ingredion brand name in EMEA, as part of its unified global business brand strategy.
Focusing on manufacturing capability and profit improvement, Ingredion is bringing its third plant in Pakistan in 2013. Seeing company’s focus to increase geographic reach, hunt for small acquisition opportunities available in new markets, and new investments in specialty starch in Europe, I anticipate this company has many monetization opportunities down the road. I would recommend it as a buy.
Lear 3Q 2012 profits jumped by ~21% year over year, driven primarily by global automotive production outside Europe, as well as operational efficiency. The top line growth was supported by electrical segment out performance by 14% year over year, $120 million in new business, and ~$47 million of favorable platform performance from existing business.
The seating segment reported a lower margin of 6.1% due to the slowdown in Europe’s no-growth market, and I think the company will maintain the same level of margin in 4Q 2012. However, due to backlog launching in 3Q 2012 for Electrical segment, the company reported higher margins of 7.5%. Given the fact that the backlog is higher for the company in 4Q 2012 compared to 3Q 2012, I anticipate this sequential growth in sales for EPMS segment to continue in upcoming quarters too. Also, this above-average growth prospect for the firm is driven by increased connectivity and electrification of its vehicles, which I feel is going to remain for the time to come.
Lear Corp's recent acquisition of Guilford is already paying off. Guilford's $400 million in sales, as well as its manufacturing capacity and technical expertise in the seating business, will further drive financial benefit to Lear.
On the other side, Lear is expected to use $67 million of free cash flow for its ongoing share buyback program. Considering a strong upcoming 4Q 2012, I anticipate FCF of ~$280 million for 2012. Also, ruling out the possibilities of a major M&A ,I think it will fund its cash for niche growth opportunities. I see this investor-friendly stock with its growth trends intact as an impressive opportunity, and recommend a buy.
Coca-Cola Hellenic rose 14%, reaching to $23.41 after it announced its headquarters shifting from Athens to Switzerland. The Switzerland transfer will benefit the firm by helping it maintain a position in Europe, which gives it access to a wide and deep investor pool for operations support and future growth. This move will also supplement the company with a liquid stock market, as well as a more stable economic and political environment.
Hellenic saw softer 2Q 2012 volume growth in its established (mainly Italy, Ireland, and Switzerland) as well as emerging markets. The only respite available was from emerging markets. However, I expect this scenario to change in FY 2013 & 2014, with GDP growth in European markets. Also, company’s continuous focus on Packaging, Pricing, and Channel development will definitely reap rewards in the future. This company is one of those companies that develops the value chain before volume expectation in these volatile macroeconomic scenarios, and this makes me more optimistic. Seeing a company’s deeper retailer penetration and “coke power,” I think this stock will see a good upside in the long term.
Also, a cost saving program has been pushed to target margin improvement in FY 2012 & 2013. It is expected to save ~€70M from 2013 onwards, with projects like production footprint consolidation in Bulgaria and implementation of a Shared Service structure. Considering various positives like input cost decline, a European market recovery, and a stronger Euro, I recommend this stock to be a buy.
ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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.