3 Consumer Stocks To Buy For 2015

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Includes: GIS, GMCR, KHC, MCD, PG
by: Equity Watch

Summary

The companies have been making correct efforts to strengthen product portfolios.

They are expected to enjoy healthy growths in coming years.

The companies offer safe dividend yields that are backed by free cash flows.

I will discuss three consumer stocks that I believe are all set to deliver strong financial performances in 2015. The stocks are Kraft Foods (KRFT), General Mills (NYSE:GIS) and Procter & Gamble (NYSE:PG). The aforementioned companies hold dominant market positions in their respective sub-sectors and are expected to improve their financial performances in 2015, which will positively affect their stock prices. KRFT and GIS are making aggressive efforts to improve their product portfolios to keep up with changing consumer demands, which will positively affect their top-line growth. Whereas PG is working to optimize its product portfolio by selling non-core and weak performing brands. Also, all three companies offer robust growth for future years, along with safe and attractive dividend yields, which make these stocks good investment options for dividend-seeking investors. Also, GIS and PG offer potential price appreciations of approximately 11% and 16%, respectively, based on my target prices for the stocks.

All Set for 2015
KRFT's performance in recent quarters was adversely affected by tough competition in the industry, the weak consumer spending environment, and changing consumer demands. However, the company has correctly taken aggressive measures to improve its performance. The company has been focusing on product innovation to keep up with changing consumer demands and preferences. The company is on track to launching several new products in 2015, which will support its top-line growth and market share in coming quarters. Also, KRFT has recently signed an agreement with Keurig Green (NASDAQ:GMCR) to manufacture and distribute its coffee brands like Yuban and Maxwell House; the distribution has already started in 4Q'14. Also, KRFT has partnered with McDonald's (NYSE:MCD) to support the rollout of McCafe bagged coffee. These efforts will fuel KRFT's top-line growth in 2015. Along with the efforts to improve sales growth, KRFT is working to improve its operational efficiencies and expand margins. The company's bottom-line growth will benefit from the increasingly favorable commodity cost environment and cost cuts. The company is targeting to attain productivity savings of approximately 5% by 2016. Consistent with the aggressive efforts to grow its top and bottom-line numbers, analysts are anticipating a healthy next five-year growth rate of 7.8%. Also, the stock offers a healthy dividend yield of 3.7%, which is backed by its free cash flow yield of 5.5%. The following chart shows the company's net sales growth for 2012 and 2013, and estimated sales growth for 2014 and 2015.

Source: Company Reports and Equity Watch Estimates

Another company that has been working aggressively to strengthen its product portfolio through product innovation is GIS. The company has been making efforts to introduce a number of new products to keep up with changing consumer breakfast habits. GIS has introduced several new products in the last two quarters, and is expected to launch approximately 50 new products in the first half of 2015. The new product launches will strengthen GIS' product portfolio and will fuel its top-line growth in 2015. Also, GIS has been working on productivity improvement and is expected to save approximately $400 million in FY'15 under its Holistic Margin Management (HMM) program. Also, the efforts to improve its cost structure will result in cost savings of $270 million and $350 million in FY'16 and FY'17, respectively. Analysts are anticipating a healthy next five-year growth rate of 7.1% for GIS. The stock also offers a dividend yield of 3.2%, which is covered by its free cash flow yield of 5%. Moreover, the stock offers potential price appreciation of 11%, based on my price target of $60/share. The following graph shows the net sales growth for the last three fiscal years, and the expected net sales growth for FY'15 and FY'16.

Source: Company Reports and Equity Watch Estimates

In contrast to KRFT and GIS, PG has been working to optimize its product portfolio by selling non-core and weak brands. I believe this effort makes sense, as it will allow PG to focus on profitable and strong brands. PG plans to sell 90-100 non-core brands, and will focus on only 70-80 strong and core brands. The brands that PG is planning to retain contribute approximately 95% towards its total profits. In the near future, the company could possibly opt to sell its hair care unit for approximately $7 billion. I believe that in the future, the company can use the sales proceeds from the sale of non-core brands to reinvest in its core brands, and direct sale proceeds to accelerate share repurchases and increase dividends. The company currently offers a safe dividend yield of 2.9%, which is backed by its free cash flow yield of 4%. Also, analysts are anticipating a robust next five-year growth rate of 7.9% for PG. Also, the stock offers potential price appreciation of 16%, based on my price target of $106. The following graph shows the quarterly organic sales growth for PG for the past and coming quarters of FY'15, based on my estimates.

Source: Company Reports and Equity Watch Estimates

Conclusion
The three aforementioned consumer companies are set to deliver healthy performances in 2015. The companies have been making correct efforts to strengthen their product portfolios, which will fuel their future growths. They are expected to enjoy healthy growths in coming years. Along with healthy growth prospects, the three companies offer safe dividend yields, which are backed by free cash flows. Separately, GIS and PG offer potential price appreciations of 11% and 16%, respectively, based on my price targets. The following table shows the dividend yields and next five-year growth rates for KRFT, GIS and PG.

 

KRFT

GIS

PG

Dividend Yield

3.7%

3.2%

2.9%

Next 5 Year Growth Rate

7.8%

7.1%

7.9%

Source: Yahoo Finance and Nasdaq.com

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.