Global Hope Beyond the Cliff in Mondelez

by Richard Band | December 6, 2012 2:03 pm

Global Hope Beyond the Cliff in Mondelez

Although the fiscal cliffhanger drags on, with President Obama and Congress still no closer to a bargain (grand or puny) on taxes and spending, behind the scenes, I’m picking up a few green shoots for 2013. If our leaders don’t blow it, stocks could tack on some decent gains in the New Year

Obviously, a nasty breakdown in the fiscal-cliff negotiations could scorch these hopeful signs in an instant — but I want you to be prepared in case the politicians deliver a pleasant surprise. Don’t lock yourself into a bearish mindset. Be ready to step up your buying, particularly in global companies, if the evidence calls for it.

Where Growth Is Sprouting

On the domestic front, the most encouraging news is that housing has stopped putting a drag on overall economic activity. Starts are up, sales are up and foreclosures are down[1]. In 2013, assuming mortgage rates behave themselves, housing could actually provide a modest boost to economic growth.

Overseas, too, the prevailing winds have begun to shift in a more positive direction. China’s manufacturing sector is growing again[2] for the first time in more than a year — a key indicator for global growth.

In addition, foreign stock markets have started to outperform New York. Take a peek at this chart, which plots the relative performance of the MSCI All-Countries World Index ETF (NASDAQ:ACWI[3]) versus the familiar SPDR S&P 500 ETF (NYSE:SPY[4]).

ACWI SPY 12 4 12 300x133 Global Hope Beyond the Cliff in Mondelez
Click to Enlarge
As you can see, the ACWI made a double bottom against SPY in May and July. During November, the ratio between the funds cleanly broke above its 200-day moving average.

This is the first time in two years that global stocks have demonstrated such clear-cut, sustained strength versus the S&P. If ACWI can keep gaining on the S&P in the weeks ahead, it will erase a nagging divergence that has repeatedly threatened to topple the global bull.

Nibble on This Food Stock

Meanwhile, I recommend nibbling here and there as individual stocks come down into attractive price ranges. With its hefty sales exposure to regions outside North America, Mondelez International (NASDAQ:MDLZ[5]) would stand to benefit directly from an acceleration of global growth in 2013 — and it’s trading at an attractive $25 today.

A leader in the global snacks industry, Mondelez — recently spun out of Kraft (NASDAQ:KRFT[6]) — owns such powerhouse brands[7] as Cadbury, Chips Ahoy, Oreo, Toblerone and Trident. MDLZ also maintains a smaller but still significant foothold in beverages (Gevalia, Tang) and cheese/grocery (Dairylea, Philadelphia).

What’s the growth story? MDLZ generates about 44% of its sales from emerging markets, where food consumption — and especially of snacks — is rising more rapidly than in developed markets.

Europe was a drag on Mondelez’ Q3 results, and both Brazil and Russia showed some temporary softness due to inventory and pricing issues.

That will change, though, as investors form a clearer picture of Mondelez’ long-term growth outlook. Over the next 12 months, I figure the stock could appreciate 15% to 20%, putting it at a price-earnings ratio similar to that of Nestlé (PINK:NSRGY[8]), the other premier global food franchise. In addition, MDLZ throws off a respectable 2% dividend yield, with plenty of room for increases in the years ahead.

Richard Band’s Profitable Investing[9] advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk “value” approach has won seven “Best Financial Advisory” awards from the Newsletter and Electronic Publishers Foundation.

Endnotes:
  1. Starts are up, sales are up and foreclosures are down: http://www.forbes.com/sites/trulia/2012/11/28/housing-market-recovery-accelerating-now-47-back-to-normal/
  2. China’s manufacturing sector is growing again: http://www.marketwatch.com/story/china-manufacturing-grows-but-markets-worry-2012-12-02
  3. ACWI: http://studio-5.financialcontent.com/investplace/quote?Symbol=ACWI
  4. SPY: http://studio-5.financialcontent.com/investplace/quote?Symbol=SPY
  5. MDLZ: http://studio-5.financialcontent.com/investplace/quote?Symbol=MDLZ
  6. KRFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=KRFT
  7. powerhouse brands: http://www.mondelezinternational.com/SiteCollectionDocuments/pdf/about/categoriesandglobalpowerbrands.pdf
  8. NSRGY: http://studio-5.financialcontent.com/investplace/quote?Symbol=NSRGY
  9. Profitable Investing: http://profitableinvesting.investorplace.com/

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