Heightened Uncertainty Gives Long-Term Investors Consumer Stocks to Feast On
Election results haven’t changed the cash flow prospects of our favorite names.
Despite the potential for near-term stock market volatility resulting from Donald Trump’s unexpected presidential victory, the longer-term impact is far from clear at this point. Overall, we think heightened uncertainty could create attractive buying opportunities for long-term investors interested in building a position in competitively advantaged global consumer names. Specifically, we believe the election results have not changed the longer-term cash flow profiles of narrow-moat Hanesbrands (HBI), wide-moat Procter & Gamble (PG), or wide-moat Starbucks (SBUX), all of which are trading at attractive discounts to our fair value estimates.
That being said, investors must be aware of short- and potentially longer-term changes across the broader consumer sector. First, while unlikely to be sustained, erratic changes in foreign currency rates are likely to have a near-term impact, particularly for firms with exposure to Mexico (with the peso trading at all-time lows against the U.S. dollar). This list includes Coca-Cola Femsa (KOF), with a 55% value share in soft drinks in Mexico, and Anheuser-Busch InBev (BUD), for which Mexico represents 7% of the business (including the recently acquired SABMiller assets). Additionally, we believe there could be several players in Mexico and Latin America more broadly that rely on heavy exports to the United States that could be negatively affected by new administration policies, including heavily amended or outright repeals of current trade agreements or changes in immigration policies, though the full impact is unlikely to be known for some time. Our initial take is that we don't expect policy changes to have a material impact on brand intangible assets for the players heavily exposed to Mexico, with cost structure changes minimized by the global footprint for most players operating in the region. As such, there could be several interesting names to keep on the radar screen.
R.J. Hottovy does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.