Europe is in a recession as governments cutting expenditure and tight credit conditions have caused a decline in aggregate demand. The European Central Bank is projecting the resumption of economic growth in the second half of this year. Two companies poised to benefit from an economic rebound in Europe are Kellogg (K) and Kraft (KFT).
Kellogg - Buy
- The consumer product and packed goods industry is fragmented with weak pricing power.
- The industry is mature with little or no growth, high barriers to entry and industry consolidation.
- Market share is stable as the correlation with economic growth is low.
- Brand familiarity and loyalty are intangible assets for investors.
- Interest rates and credit availability have a limited impact on sales, although, the firm has a high, but safe debt-equity ratio.
- While the firm has weak pricing power raising price increases revenue.
- The price-earnings ratio is 14.91 and price-sales is 1.37.
- Operating margin is 14.97 and profit margin is 9.29.
- Operating in Europe and the slump has hurt sales in the region.
Kraft - Buy
- The consumer goods industry is fragmented with weak pricing power.
- The industry is mature with little or no growth, high barriers to entry and industry consolidation.
- Market share is stable as the correlation with economic growth is low.
- Brand familiarity and loyalty are intangible assets for investors.
- Interest rates and credit availability have a limited impact on sales.
- While the firm has weak pricing power raising price increases revenue.
- The price-earnings ratio is 19.72 and price-sales is 1.28.
- Operating margin is 12.3 and profit margin is 6.5.
- Operating in Europe, the slump hasn't hurt sales in the region and is poised to benefit from a rebound in economic growth.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
