As the first half of 2019 comes to a close, investors are cautiously looking ahead to the remainder of the year as trade negotiations between the U.S. and China continue to be a concern.
Despite the uncertainty, value opportunities may be found among companies that outperformed the Standard & Poor’s 500 Index over the past six months. As of June 28, the GuruFocus All-in-One Screener found several stocks that have a market cap over $5 billion and had a higher return relative to the index for the period. It also looked for stocks trading below Peter Lynch value.
In addition, the screener found value opportunities among companies in the consumer defensive industry. Stocks in this space are typically good investments because the products these companies produce are always in demand, regardless of the state of the economy. According to the GuruFocus Industry Overview page, the consumer defensive industry is composed of the following sectors:
Based on these criteria, consumer defensive stocks that outperformed the S&P 500 over the last six months are PepsiCo Inc. PEP and Tyson Foods Inc. TSN. The index has posted a return of roughly 17% for the year so far.
PepsiCo
With a gain of 19% year to date, PepsiCo has a $184.61 billion market cap; its shares were trading around $131.50 on Friday morning with a price-earnings ratio of 14.86, a price-book ratio of 13.10 and a price-sales ratio of 2.88.
The Peter Lynch chart shows the stock is trading near its fair value.
The New York-based company, which manufactures popular soft drinks like Pepsi and Mountain Dew as well as snacks like Doritos, Lays Potato Chips and Rold Gold pretzels, has a GuruFocus financial strength rating of 6 out of 10. In addition to adequate interest coverage, PepsiCo is supported by a robust Altman Z-Score of 4.24, which suggests it is in good fiscal standing.
PepsiCo’s profitability and growth scored a 7 out of 10 rating as a result of strong margins and returns that outperform more than half of competitors, consistent earnings and revenue growth and a moderate Piotroski F-Score of 6, which indicates operations are stable. The company has a business predictability rank of two out of five stars. According to GuruFocus, companies with this rank typically see their stocks gain an average of 6% per annum over a 10-year period.
Of the gurus invested in PepsiCo, Pioneer Investments (Trades, Portfolio) has the largest stake with 0.63% of outstanding shares. Other top guru shareholders include Yacktman Asset Management (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Hotchkis & Wiley, Diamond Hill Capital (Trades, Portfolio), David Carlson (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio) and Charles Brandes (Trades, Portfolio).
Tyson Foods
Having climbed 49% year to date, Tyson Foods has a market cap of $29.06 billion; its shares were trading around $79.79 on Friday morning with a price-earnings ratio of 14.20, a price-book ratio of 2.17 and a price-sales ratio of 0.72.
According to the Peter Lynch chart, the stock is undervalued.
Headquartered in Springdale, Arkansas, the company, which produces beef, chicken and pork products, has a GuruFocus financial strength rating of 6 out of 10. Although Tyson has issued roughly $4.7 billion in new long-term debt over the last three years, it is at a manageable level due to sufficient interest coverage. The Altman Z-Score of 3.11 indicates it is in good fiscal health.
Tyson’s profitability and growth scored a 7 out of 10 rating, driven by operating margin expansion, strong returns that outperform industry peers, consistent earnings and revenue growth and a moderate Piotroski F-Score of 5. The company has a three-star business predictability rank. GuruFocus says companies with this rank typically see their stocks gain an average of 8.2% per year.
With 1.2% of outstanding shares, the T Rowe Price Equity Income Fund is Tyson’s largest guru shareholder. Cohen, Richard Snow (Trades, Portfolio), Pioneer, PRIMECAP Management (Trades, Portfolio), Tom Gayner (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio), Simons’ firm, Bernard Horn (Trades, Portfolio) and several other gurus also have positions in the stock.
Disclosure: No positions.
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