In this article, I will be discussing three consumer companies on which I am bullish on and recommend investors to buy for 2014. The three companies are Mondelez International (MDLZ), Phillip Morris (PM) and GNC Holdings (GNC). All three companies have dominant market positions in their respective sub-sectors. Also, the companies have significant international market exposures, which remain their key earnings growth drivers. Moreover, analysts have projected robust future growth rates for the companies.
MDLZ is among the largest food companies of the world. It generates approximately 75% of its total revenue from the fast growing snacks category. In recent quarters, the company has failed to meet its growth projections; however, I believe the company is well positioned to deliver a healthy financial performance in 2014. MDLZ generates approximately 40% of its total sales from fast growing emerging markets, which remain its key earnings growth driver. Consistent with the attractive growth opportunities available in emerging markets, MDLZ has been increasing its investment to grab the said opportunities. Also, as MDLZ has lower margins in comparison to its competitors, it has been targeting to lower its cost structure and expand margins to fuel earnings growth; it has targeted operating margin expansion of 250-300 bps by 2017.
Recently, the company was granted proceeds of $2.7 billion in a dispute, which strengthened its balance sheet and increased EPS visibility. Also, the company has been undertaking share repurchases, which will magnify its ROE and boost its future EPS; MDLZ has planned to repurchase $6 billion worth of common stocks by 2016. Due to the large emerging market exposure, the potential of margin expansion and an impressive share repurchase program, I am bullish on the stock.
PM is among the leading tobacco companies of the world. The ongoing 2H2013 has been difficult for the company as weaker-than-expected financial performance adversely affected the stock price. Also, soft volumes in key markets took a toll on the stock price. However, I believe the bad news is priced in and the stock is poised for gains in 2014. The reasons I am bullish on the stock for 2014 are that the company recently announced to ramp up its efforts towards low health risk products, lowered and provided more realistic and achievable guidance for 2014, and has large international market exposure.
Also, the company offers highly visible and growing free cash flows, as it has market power to increase revenues and is well positioned to improve its cost structure. Also, the company has an attractive long-term EPS growth target of 10%-12%. Other than robust growth potential in coming years, the stock offers a solid dividend yield of 4.4%, backed by its healthy free cash flow yield of 5.2%. Due to the above-mentioned factors, I am bullish on the stock and believe 2014 will prove to be good year for PM.
The company operates in a growing vitamin and supplement industry. I am bullish on the stock as I believe the company will benefit from the growing population and a shift in consumer preference towards a healthier lifestyle. The company has a presence in all markets around the world, which remains its revenue and earnings growth driver. The company has strong brand recognition and diversified business operations, which portend well for the company's future financial performance. Also, the company has been partnering with other retailers to reach consumers and expand sales, and making aggressive efforts to further strengthen its online presence.
Key strengths for GNC lay in developing products to meet unfulfilled consumer needs, product innovation and charging premium prices, which result in high gross margin. Moreover, GNC's new pricing program has resulted in higher traffic, which I believe will be sustained and will allow for earnings growth in the future. I believe GNC is well positioned to benefit from the fast growing industry, and its solid free cash flow yield of 5.5% adds value to for investors. Therefore, I am bullish on the stock.
I am bullish on the three above-mentioned companies, as they are well positioned to deliver solid financial performances in 2014. All three companies have large international market exposure, which remains their growth driver. Also, solid cash flows for the companies add to investor confidence. Moreover, analysts have estimated robust next five-year growth rates for the companies, as shown below in the table.
Next Five Year Growth Est.