Barclays has recently published its equity outlook for 2012. On the backdrop of continuing European bank deleveraging, stalling improvement in the US economic outlook, deteriorating global growth and election year-related pressure on investor and business confidence, Barclays has selected 6 stocks in the consumer and real estate sectors that are predicted to show enough positive signs to beat the market.
The US Consumer Industry has been dominated by an M&A trend that is 2nd to the peak levels that were attained in the mid-2000s. With a surge in activity, the macro themes driving industry M&A are growth categories and access to emerging markets, especially the BRIC countries (Brazil, Russia, India, and China). It is the excellence and distinction around capabilities rather than assets that will differentiate the winners in CPG over the next few years.
Barclays favors more defensive posturing, but maintaining cyclical exposure at the same time. With this in mind, they provide 5 top US consumer stock picks and only 1 US real estate stock pick.
Barclays top buys from the US Consumer industry include:
Las Vegas Sands Corp. (NYSE:LVS) is a global developer of integrated resorts that feature premium accommodations, world-class gaming and entertainment with a market cap of $33.66 billion. LVS current price per share is $43.23 whereas Barclay’s estimated target price per share is at $62.00, making it one of Barclay’s best growth stories in their coverage universe. Barclays expects several catalysts in 2012 including the opening of Sands Cotai Central in Macau (1Q12), improving junket relationships and new VIP rooms (beginning in phases starting 4Q11), and the opening of incremental infrastructure at Marina Bay Sands in Singapore. LVS should see above average growth in its revenues from these events. Billionaire hedge fund manager Stephen Mandel initiated a $282 million position in LVS during the third quarter.
Newell Rubbermaid Inc. (NYSE:NWL) is a provider of household consumer products and has a relatively small market cap of $4.53 billion. NWL’s current price per share is $15.19 and Barclays expects this share price to stand at $18.00. NWL has experienced a tough 2011 with share price already down 17% YTD, however 3Q11 earnings have proved to restore credibility in the company’s business. The catalyst of this target share price is the underlying top-line momentum which is expected to come in stronger than what most believe. NWL is already trading at 25% discount to the small cap peer group vs. -13% historically and Barclays believes it is undervalued.
Philip Morris International Inc. (NYSE:PM), a leading tobacco company has a market cap of $131.28 billion. PM’s current share price of $74.56 is expected to swell to a target share price of $82.00 according to Barclays. PM is expected to continue delivering top-tier profit and EPS growth among consumer staples companies. In addition, commodity cost exposure is very low for PM, and its main input, tobacco leaf, should see favorable supply/demand trends over the next few years generating positive margin trends in the future. It is interesting to see that Barclays prefers Philip Morris over domestic tobacco companies such as Altria (NYSE:MO) and Reynolds American (NYSE:RAI). PM trades at a lower PE ratio and is expected to grow faster than MO and RAI over the next five years. Billionaire Jim Simons’ Renaissance Technologies had nearly $400 million invested in PM at the end of the third quarter.
Stanley Black & Decker Inc. (NYSE:SWK) is a leading player in the construction and do-it-yourself division as well as a manufacturer of hand and power tools. SWK’s market cap is $11.16 billion. The current share price is $63.98, however with favorable growth opportunities, impressive productivity gains, powerful brands, diversified end markets, and strong cash flow generation Barclays estimates SWK’s target share price to be $91.00. At a P/E ratio of 12.2x the stock is undervalued when considering the benefit it is going to get from the projected revenue and cost synergies from the Niscayah and Black and Decker acquisitions.
Kraft Foods (KFT) is a leading player in the global snacks business with a market cap of $64.22 billion. KFT is currently priced at $36.15 per share but the Barclays projected target price is at $42.00 per share. KFT trades at 14.5x, a 7% discount to the U.S. packaged food average of 15.6x. Warren Buffett had more than $3 billion invested in the stock but he cut his stake by 10% during the third quarter.
Barclays top buys from the US Real Estate industry include:
Prologis (NYSE:PLD) is a leading owner, operator and developer of distribution and industrial facilities worldwide. PLD has a market cap of $13.21 billion. The company’s current share price is $27.94 and Barclays projected target price per share is $32.00. Barclays believes that PLD’s European portfolio earning is being diluted heavily from its deleveraging plan whereas Barclays see improving industrial fundamentals globally.
Disclosure: I am long PM.