3 Mega Cap 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.
With earning’s season over and election uncertainty gone, it's now the time to analyze how well the companies are prepared for the upcoming year. Below I analyze three consumer mega cap companies which appear appealing with their potential growth plans set ahead. I expect these stocks to outperform going into the next year.
Procter & Gamble (NYSE: PG)
Despite lower 1Q13 earnings, P&G is still above its peers when compared in terms of forward P/E and dividend yield. Its performance against its rivals and forward looking business growth plans make it an impressive buy opportunity.
P&G’s future business plans are leaned towards expansion in emerging markets to cash in on the growing middle class in these countries. India, which is a key growth market for P&G, is expanding at an organic growth rate of 25% Y/Y (21% Y/Y in Q4FY12). P&G has already launched Oral B toothpaste in EM (Venezuela, Greece, Portugal and Israel) with an additional 20 new product categories planned for India. Adding on to new product launches is Olay (Fresh Effects) and an affordable offering with two new extensions of Pantene scheduled for an early 2013 launch under its second largest division by sales Beauty line.
P&G has a strong balance sheet and free cash flow of $2.77 billion up 28% Y/Y in 1Q13. With this FCF it is planning to payout dividends of $6 billion and lined up ahead is a share repurchase program of $4 billion. For the buybacks it has already purchased $2.6 billion in the 1Q13 with the remaining $1.4 billion to utilize for FY2Q-FY4Q.
Further on, a potential stake of $2 billion worth by William Ackman of Pershing Square Capital could help drive upside in the company's stock price.
The Coca-Cola Company (NYSE: KO)
Coca Cola's 3Q12 revenue was not in line with the analysts’ expectations, but I can still see it as a long term buy opportunity given its strong business plans to compete in a tough economic environment.
Coca-Cola is planning to enter into new markets with an aim to capture their impoverished rich resources. It is looking forward to acquire 50% in Aujan Industries which is one of the largest companies in the Middle East and approaching Myanmar, which is finalizing its foreign investment law to attract foreign investment.
Tapping the Indian festive season with aims to increase its market share, which is currently at No. 4, Coca-Cola is launching a media campaign. The ad tag line 'saath khao, khushiyan badhao' or 'eat together and multiply your joys' convey the message to connect during meals.
Coke should see some growth with its innovative offerings. The touch screen Freestyle fountain machine which gives more than a hundred customizable drink options will give Coke an edge in the food service market as it becomes more popular. Also, its Work It Out Calculator, which aims to give a correct balance of energy, should help.
Looking at the China region, it faced a volume decline in 3Q12 from +7% in Q2’12 to 2% in 2012 as compared to (+11% in Q3’11). To regain the market, the company has introduced a 300 ml package which has generated over 0.5 billion in incremental transactions this year to date.
Considering Coca Cola’s different business models aimed for specific regions, I believe that it has enough plans to ramp up its growth. And with a forward P/E of 19.53x as compared to Industry’s 21.95x I give the stock buy rating.
Wal-Mart Stores (NYSE: WMT)
Wal-Mart stock has gained ~26% in the last one year. Though being the largest retailer and outperforming all its peers (Costco, Target, Kroger), it is still finding ways to expand its market share and introduce new offerings. Below I am giving a brief outlook of its future plans which makes it a prime stock.
Market expansion – Wal-Mart has laid out plans to invest $2 billion in pricing by 2014 and $6 billion by 2017. Given it’s ~ $7 billion of eCommerce business today which is expected to reach ~$9 billion+ by next year, it is venturing in mCommerce to increase its reach and availability with 4000 sales points. As Wal-Mart perceives China and Brazil its key markets being the largest in terms of ecommerce, it is focusing on improving assortment and gaining merchandising expertise. Integrating a multi-channel approach with EDLP will serve as a growth driver and also an increment to ROI. Additionally ecommerce plans includes investment in Yihaodian (growing Chinese ecommerce sites in China) for 51% stake. Proven to its eCommerce effort is a newly-launched Polaris search engine which has improved conversion rates online by +10 to 15%.
Media Campaign – Wal-Mart is set to benefit this Holiday season with is media campaign and deep buys in toys. Its Ad Match campaign has already driven +100 bps in same store sales (SSS) with improvement in the 31 markets. In order to achieve the #1 share of voice this Holiday season it is investing heavily in all media resources such as TV (up +35% YOY), and radio (up +50% YOY), additional with print circulars, toy catalogues, and entertaining guides. With a purpose to gain early market share it has made deep buys in "Toyland," electronics and hot gifts 30 days earlier.
Wal-Mart has plans for a dividend payout of $5 billion and buyback of $7.5 billion for 2012 which will continue to 2013 with $6 billion in dividend and $9 billion in buyback. Adding to it, I give the stock buy rating with a forward P/E of 13.50x which is much less than the Industry’s 24x.
ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend The Coca-Cola Company and The Procter & Gamble Company. 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.