This is a unique situation in our mid-year update, as this stock did not appear in our Top Picks 2019 report in January. Hilary Kramer, editor of GameChangers, chose Ultimate Software which was acquired in May for a 35% gain. As such, we asked Hilary for a new Top Pick for the second half of 2019.
Ingredion (INGR) formerly known as Corn Products, produces starches and sugars used in food, beverage, brewing and animal nutrition products.
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In an effort to modernize its product portfolio, Ingredion has made acquisitions in recent years that are in line with growing consumer preference of clean and healthy eating. These specialty products, as the company calls them, makes up approximately 30% of sales.
After trading as high as $146 in January of last year, the company’s stock has entered into a prolonged slide, as earnings have been pressured by currency factors, with sales outside the US making up 40% of the company’s total, as well as higher raw material costs.
These factors caused EPS to decline from $7.70 a share in 2017 to $6.92 in 2018. These factors have persisted this year, and were aggravated by wet Midwestern weather, which has delayed the planting of corn. While reporting first quarter results in May, the company slightly lowered EPS for guidance for the year to $6.80 to $7.20 a share.
Given the continued pressure on corn prices since the earnings report, I believe the lower end of this EPS guidance is more realistic. However, the shares are now just trading at 12X the lower end of the range, compared to a PE of 19 just 18 months ago.
The stock currently offers an attractive 3.1% dividend yield, and possesses the balance sheet strength and cash flow generation to increase share buybacks at these depressed levels.
By December, 2019 will be in the rear view mirror, and investors will be hopeful that a better corn crop in 2020 will lead to lower raw material costs and improved earnings. A more accommodative Fed could also relieve currency pressures.
Combine these internal factors with a macro backdrop that remains uncertain and could favor less cyclical companies, Ingredion is a top choice for the second half of 2019.
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