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Cheap Consumer Defensive Stocks with at Least 50% EPS Growth and Conservative Financial Structure

January 23, 2012 | About:
Value investors would be very excited to look closer to look at the cheap, performing and positive cash flow generating businesses which are in the field of consumer defensive, meaning that the industry is not moving along with the macroeconomic cycle. So even when the macro economy is not in a good condition, those businesses would still keep being prosperous. That is why in the search for investment opportunities, I would screen the best-performing stocks in the consumer defensive industry. Those businesses should employ very little leverage; the debt is at most 10% of the total capitalization. Last year, the EPS should grow at least 50%. And last but not least, it should generate positive operating cash flow and be selling at cheap valuations of P/CF lower than 5x. And here are our top four candidates starting from the highest recent EPS growth:

Constellation Brands (STZ): It has triple-digit EPS growth, leaping from $0.45 up to $2.62 per share, a jump of 482%, whereas at the same time the number of share outstanding decreased more than 15% from 221 million shares to 187 million shares. The debt to total capitalization rate stays at 48%, whereas the P/CF is only 4.35x. STZ is the wine, spirits and beer company covering several markets such as U.S., Canada and New Zealand.

Being the largest premium wine producer globally, its core business includes the well-known brand wines such as Robert Mondavi and Arbor Mist. Over the years, the company’s stock price has fluctuated up and down in the range of $10-$30 per share. Now in the market, the total company is worth $4.2 billion at the share price of $21, at the valuation of only 6.2x, 60% premium to the book value.

Man Shing Agriculture Holdings (MSAH): Its EPS in 2010 was $0.07 and it jumped 114% to $0.15 in 2011. The debt/total capitalization is around 5% only. Now it was trading at a very low P/CF, of only 1.58x. MSAH is engaged in the production and processing of fresh vegetables, including ginger, onion and garlic. It leases 5.3 million square meters of farm land for planting and growing of ginger in Shangdong Province, China. Its customers locate in countries such as Japan and the European Union. In June 2010, after acquiring Hero, its product portfolio is comprised of fresh and frozen vegetables. MSAH is an extremely penny-cap company, with only $8.64 million in market capitalization, trading at only 1.1x P/E, 30% of the book value.

Paradise Inc. (PARF): The EPS growth reached nearly 70% for the last year, from $0.79 to $1.34. Its short-term debt is only around 5% of the total assets — very conservative. And whereas the market capitalization is around $7.6 million, it already has $3 million in operating cash flow, making the P/CF stays at only 2.5. PARF got two business segments of candied fruit and molded plastics. In the first segment, the company produces candied fruit, a basic fruitcake ingredient, sold to manufacturing bakers, institutional users and retailers for use in home baking. And the molding plastics segment provides production of plastic containers for the company’s products and other molded plastics for sale to unaffiliated customers. Currently, it is trading at 9.7x P/E and 40% of its book value.

Lincoln Educational Services (LINC): The EPS growth was 53.3% for a year, when it jumped from $1.82 to $2.79. The debt/total capitalization stays at around 13%, and the P/CF is only around 2.5x. LINC is the provider of career-oriented post-secondary education. Till end of fiscal 2010, it operated 45 campuses in 17 states. It offers degree and diploma programs in 05 areas of study such as health sciences, automotive technology, skilled trades, business and information technology, and hospitality, under brand names including Lincoln Technical Institute, Lincoln College of Technology, etc. Its average enrollment was around 31,500 students.

Over the years, LINC experienced the continuous growth in its revenue, positive growing net income and operating cash flow. The current share price of $8.17 makes the whole company worth nearly $185 million, at only 5.2x P/E, 80% of the book value and only 2.5x of the operating cash flow.

Disclosure: No position

About the author:

Anh Hoang
Money manager into global equities, especially with US and Vietnam markets. CFA level 3 candidate. Lecturer for Stalla - CFA course in Vietnam

Visit Anh Hoang's Website


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