Editors' pick: Originally published May 25.
What are the best consumer goods stocks to invest in right now? RBC Capital Markets, a division of the Royal Bank of Canada, has six for consideration within its household, personal care, beverages and tobacco coverage.
The six stocks among RBC Capital's Focus List are included in one (or more) of three "investable buckets."
Companies in the "monetizing change" bucket have had significant stock moves both this year and over the past few years. The analysts see "further upside given many of the initiatives these companies have put in place have yet to be fully monetized," the report said.
RBC Capital Markets has listed Monster Beverage (MNST - Get Report) (a new addition to the Focus List), Newell Brands (NWL - Get Report) , Constellation Brands (STZ - Get Report) and Estee Lauder (EL - Get Report) in this bucket.
The "special situations" bucket identifies the potential for further M&A in the industry in the back half of 2016. RBC Capital Markets lists Newell Brands and Edgewell Personal Care (EPC - Get Report) on this list, with Edgewell as a potential takeout candidate over the next 12 months. "We believe EPC, particularly its wet shave business, is a scarce asset with a long list of potential strategic buyers," the report said.
The third investable bucket is "visible delivery." Energizer (ENR - Get Report) is listed in this bucket. "Nearly a year after Energizer's July 1 split from Edgewell Personal Care, we believe there is a higher level of EPS visibility given: 1) tangible evidence that pricing in the battery category is improving, 2) mounting investor confidence in ENR management and 3) our expectation for more cost cutting initiatives," the report said.
Here's a closer look at each of the stocks on RBC Capital Markets' Focus List for household, personal care, beverages and tobacco stocks.
RBC Capital Markets notes the energy drink company's pace of international expansion, innovation in the U.S. and domestic momentum as key topics for investors.
"On the back of its relationship with Coca-Cola (KO - Get Report) , we believe Monster has a significant opportunity to close the gap with Red Bull International over the next 5-7 years," the report said. "More specifically on share gains, we point out that Red Bull is 3.5x larger than Monster on average in Monster's existing countries and that closing this share gap with Red Bull by 50% could contribute 10 pp to Monster's annual international growth. We do not believe KO will buy the majority of MNST in the medium term."
RBC Capital Markets notes the wine and beer beverages company's beer volume growth, M&A opportunities and improving wine fundamentals as key topics for investors.
"In a growth constrained environment, we believe STZ offers investors a very unique asset with both top line growth and significant margin expansion," the report said. "We believe top-line will continue to be driven by 8% volume growth in the core beer business enhanced by the recent acquisition of Ballast Point. Improving price/mix in wine could provide additional upside to our estimate. On margins, we continue to believe wine margins will move higher as STZ improves its mix (to higher-end wines) and beer margins are poised to improve from the low 30's to the upper 30's in a few years."
RBC Capital Markets notes the Rubbermaid products maker's integration with Jarden, portfolio-pruning and execution of growth game plan as key topics for investors.
"Following the announced combination with Jarden, we rate NWL shares Top Pick. We believe the company can execute $550 million in deal-related cost synergies in three years (versus guidance of $500 million in four years) and ultimately see the company realizing at least $700 million in total cost synergies," the report said. "We also see further upside from revenue and tax synergies not modeled. We are encouraged by Newell's recent appointment of Ralph Nicoletti as CFO. Looking out over 3-5 years, we see upside to $100/share."
RBC Capital Markets notes the personal care product manufacturer's potential for a takeout, wet shave competition/category growth and cost savings opportunities as key topics for investors.
"We rate EPC shares Outperform mainly on the prospects of a take out," the report said. "We believe a larger, multinational suitor could use its scale and distribution network to significantly expand Schick/Wilkinson-Sword's presence globally (similar to how Unilever (UL expanded TRESemme after acquiring Alberto-Culver)."
RBC Capital Markets notes the skin care and makeup company's same-store sales improvement, "share trends" of Estee Lauder and Clinique, cost of growth and opportunities in travel retail and China are key topics for investors.
"In spite of increasing macro headwinds, Estee Lauder has delivered superior top line growth relative to the rest of our coverage," the report said. "We continue to believe that EL can sustain a 6% top-line CAGR over the next 10 years and push its EBIT margins up into the low 20's."
RBC Capital Markets notes the battery pricing environment, changes in store shelf space and further cost cutting as key topics for investors of the battery manufacturer.
"Our thesis is simple: management has guided to low-single digit EBITDA growth, though we believe the company could generate mid-single-digit long-run EBITDA growth behind improved pricing and cost savings," the report said. "We also see the company continuing to pursue M&A (such as HandStands announced this week) and return cash to shareholders via repurchases and a stepped up payout ratio."