As stocks plunge into bear-market territory, some will turn into attractive bargains.
Two that may fit that bill are consumer-products titan Colgate-Palmolive CL and PepsiCo, Susan Dziubinski, director of Morningstar.com, wrote in a commentary.
“We’re looking at the stocks of two companies that own some popular and recognizable brands that we think investors should have on their watchlists in June,” she said.
“These stocks may be about fairly valued today, but they’re worth keeping an eye on, because if volatility persists, these stocks may dip into buying range this month.”
Analyst Lash's Take on Colgate-Palmolive...
Morningstar analyst Erin Lash assigns a wide moat to Colgate-Palmolive. She puts fair value for the stock at $75, compared to a recent quote of $74.54
Colgate’s wide moat “reflects its solid brand, intangible assets as well as its cost edge,” Lash wrote in a commentary.
Colgate's focus on the oral-care category, characterized by a higher degree of customer loyalty, has given the New York company more impact than it has had in other areas of the household and personal-care space, Lash said.
“It has helped the firm build a durable advantage around the Colgate brand. As evidence, the firm maintains nearly a 40% worldwide market share in toothpaste, greater than 2.5 times its next-largest competitor.”
Lash is pleased with Colgate’s recent performance. “While headwinds abound stemming from rampant cost inflation and a strangled global supply chain, we think Colgate-Palmolive is navigating the uncertain landscape quite astutely,” she said.
“Under the leadership of CEO Noel Wallace, the firm's strategic focus has centered on elevating research, development, and marketing spending … and responding to evolving consumer preferences more expeditiously.”
The spending is going to Colgate’s “core mix, adjacent categories, and throughout the digital realm,” Lash said. And the company is “bringing products to market in just six to 12 months in some cases, down from 18 to 36 months historically.”
...and on PepsiCo
Lash gives the Purchase, N.Y., company a wide moat, too. She puts fair value at $164, compared to a recent quote of $157.
“While PepsiCo is still a beverage behemoth, its business now extends beyond this industry, with Frito-Lay and Quaker products accounting for over half of sales and over 65% of profits,” Lash wrote in a commentary.
“A diversified portfolio across snacks and beverages is the source of many of the company’s competitive advantages.”
Further, “though management missteps have stymied performance in the past, the confluence of better execution and benefits inherent to its integrated business model has allowed Pepsi to reaccelerate profitable growth, and we see plenty of room to run,” Lash said.
“After years of sluggish sales growth and underinvestment, Pepsi has committed to reinvigorating its top line.”
In that vein, “it has made significant investments in manufacturing capacity (for example, production lines to meet demand for reformulated packaging), system capacity (route optimization and sales technology), and productivity (harmonization and automation),” Lash said.
