NEW YORK ( TheStreet) -- You need a translator -- or a soothsayer -- to read the economic tea leaves these days. Signs pointing to a slow economic recovery one day are offset by those pointing to growing spending power in the U.S. On the whole, though, analysts say there is reason for optimism for many consumer goods stocks.
On Wednesday, for instance, the U.S. Commerce Department reported that sales of newly-built homes spiked by 17.5% in December to a seasonally adjusted annual rate of 329,000. This easily beat the rate of 300,000 that economists, on average, were expecting. The most recent new home sales figure was a nice improvement from 5.5% growth to 290,000 units in November. Meanwhile, even as companies continue to lay off workers amid mixed earnings reports, hiring news continues to heat up. Case in point: Google's ( GOOG) plan to hire more than 6,000 workers worldwide. "The structure of the market remains bullish and offensive in nature at the start of 2011," analysts at XTF Research write in a report. "The market is starting off the new year with the wind at its back, especially when viewed from the long-term standpoint." In light of all this, ere, we've presented six toy, food and consumer stocks that are highly rated by BMO as consumer spending power appears to heat up in 2011 ...
Archer Daniels Midland ( ADM) was recently upgraded to outperform from market perform by BMO analyst Kenneth Zaslow.
"In our view, ADM's fiscal second quarter 2011 reported EPS likely will be the inflection point for ADM's quarterly EPS over the next 12 to 18 months," he said in a client note. Zaslow said Archer Daniels Midland's improving fundamentals, "superior" business model and significant stock underperformance makes now an good time to jump into the stock. He believes that the company should benefit from factors such as continued strength in U.S. exports, especially of corn and wheat; higher vegetable oil values, driven by global biodiesel policies; strong by-product prices; and a rebound in ethanol margins. The analyst increased his price target of Archer Daniels Midland to $38. The stock is currently trading at about $33.43.
Church & Dwight's ( CHD) outperform rating by BMO's Connie Maneaty is in part maintained amid the very public debut of the Trojan condom unit's latest technologies at the Consumer Electronics Show in Las Vegas.
Featured among the products was the Trojan Vibrating Twister for $59.99, the third in a series of vibrators that was introduced last September, and Church & Dwight's most expensive product, Maneaty said in a note to investors. The company also showcased its Trojan Vibrating Pulse personal massager, Fire & Ice Condoms and the new Trojan BareSkin -- the thinnest condom in Trojan's history -- at the show, Maneaty noted. The impact of all this? "Positive," Maneaty told clients. "As we've noted in the past, each $30 million in new sales accelerates CHD's growth by 1%. Stay tuned." Maneaty has a $75 price target on Church & Dwight stock. Shares are currently trading at about $69.82.
Energizer ( ENR) receives an outperform rating from Maneaty. Recently the BMO analyst discovered that an error in a formula had caused her to underestimate potential earnings for the company.
"We are correcting a formula error related to the impact of lower trade promotion on sales, profits, and EPS -- where we thought the benefit would be about $0.15, we now think it is about $0.28," she wrote in an equity research update. Maneaty has raised her fiscal year 2011 estimate for Energizer by 4 cents to $6.08. Maneaty maintained that 25% or $340 million to $350 million of Energizer's U.S. alkaline battery sales will stand to benefit, as so-called "bonus" batteries are removed from its packaging. The analyst added that if the size of the battery pack moves to 20 batteries from 24, the price increase would be 20%. If the battery pack moves to 16 from 20, the price increase would be 25%. The analyst's price target for Energizer is $87. Shares are currently trading at about $73.81.
Sanderson Farms ( SAFM) has an outperform rating according to Zaslow, as the company reported fiscal fourth-quarter 2010 earnings per share of $2.08, which beat his estimate.
In a note, Zaslow said the results reflected lower feed costs and interest expense. Still, Zaslow is expecting negative margins for Sanderson farms in the next one to two quarters -- but with the belief that the company's operating margins will rebound in the second half of fiscal year 2011, reflecting factors such as tight protein supplies, higher chicken demand and a potential reduction in production. "In our view, SAFM already incorporates near-term margin pressure, but does not reflect its underlying earnings power," the analyst wrote in an equity research report. The analyst has a target price of $55 for Sanderson Farms. Shares of the company are trading at about $40.81.
Zaslow, who rates Kraft Foods ( KFT) as outperform, said the company's third quarter 2010 earnings per share of 47 cents "largely achieved" his call for 48 cents a share and the consensus call for 46 cents a share.
The results reflected lower corporate expenses and a tax rate that greatly compensated for an operating profit that came in a tad lower, Zaslow explained in an equity research report. "We consider Kraft a compelling turnaround story," he said. His belief in this turnaround story is based on factors such as Kraft's "proactive" response to higher commodity prices -- in contrast to past behavior -- and the company's ability to show that it can successfully incorporate recently-acquired British confectioner Cadbury, enhance its European margins and reinvest in marketing and product innovation. Zaslow adds that the end of Starbucks ( SBUX)and Kraft's distribution agreement would have a less than 2-cents-a-share impact on the latter. The analyst has a $33 price target on Kraft. The stock currently trades at about $31.58.
Although Mattel's ( MAT) third-quarter earnings and revenue missed the Wall Street consensus expectation, BMO analyst Gerrick Johnson keeps his outperform rating on the stock.
"MAT shares trade at 11x our 2011 EPS estimate of $2, which is at the low end of its historical range and at a discount to the company's competitors," he explained in an investor note. On Jan. 24, the analyst added, "we continue to believe Mattel has the best opportunity for satisfactory fourth-quarter results," while downgrading the toys and juvenile sector as a whole. On that day, Johnson downgraded the sector to market perform from outperform, recommending that investors take profits after a strong 2010. From now on, investors should be more discerning when selecting a stock to invest in, in this sector, he said. "What was widely seen as a very positive start to the holiday season for the group, sales appeared to fall off rather dramatically in December." Johnson thinks that the sector's first-quarter 2011 results will likely be under pressure due to excess inventory, a limit in orders and accelerating markdowns. He recently revised his price target for Mattel to $30 from $32. The stock currently trades at about $23.58.
-- Written by Andrea Tse in New York. >To contact the writer of this article, click here: Andrea Tse. >To follow the writer on Twitter, go to Andrea Tse. >To submit a news tip, send an email to: email@example.com.
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