Why Ingredion Inc Is My Top Stock to Buy on the Dip (INGR)

We’re a few weeks into fourth-quarter earnings season, and already we’ve had a few big winners—and several high-profile upsets. A few days ago, Under Armour Inc (UAA) completely whiffed on fourth-quarter earnings.

And while Ralph Lauren Corp (RL) had a solid Q3 report, shares plunged after news broke that its CEO is leaving due to a spat with its namesake founder.

During earnings season, the stakes are higher than ever. There are plenty of opportunities to make money, but there are also plenty of risks. The trick is to know the difference between the two. Case in point is Ingredion Inc (INGR).

While INGR shares pulled back after its fourth-quarter report, there is ample evidence that this is a buying opportunity.

First, let’s review Ingredion’s billion-dollar business strategy.

Ingredion Inc. is in the business of developing ingredients and biomaterials that enhance a variety of products, including food, beverage, pharmaceuticals and even paper. Half of Ingredion’s business comes from food products companies, who are looking to improve sweetness, taste and/or texture. Ingredion also offers options for companies that are looking improve nutrition or simplify their ingredients.

The rest of Ingredion’s sales are split somewhat evenly between beverage, animal nutrition, brewing, paper and additional applications. Ingredion employs 11,000 and serves customers in over 100 countries. Based in Westchester, Illinois, Ingredion is a predominantly domestic company; 60% of its sales come from North America.

Ingredion made headlines with this morning’s fourth-quarter report. For the fourth quarter, Ingredion reported $1.41 billion in net sales, which was about flat compared to a year ago. This met analysts’ revenue expectations.

Meanwhile, adjusted earnings per share rose 17.6% to $1.67. This topped the $1.64 consensus EPS estimate by 1.8%.

As solid as these results were, INGR shares declined this morning and ended the day down over 8% at $116.50 per share. This could possibly be in response to the announcement that Jack Fortnum, Ingredion’s CFO and executive vice president, will be retiring this June after three decades with the company. In any event, I consider the dip to be an overreaction.

Given Ingredion’s strong outlook, I consider this to be a buying opportunity. Looking ahead to FY 2017, Ingredion expects between $7.40 and $7.80 earnings per share. This represents between 3.8% and 9.4% annual earnings growth. This also in line with the Street view of $7.54 EPS. Ingredion is also planning to spend between $300 and $325 million on capital expenditures.

INGR earns a solid B-rating in both Portfolio Grader and Dividend Grader. I currently recommend it in my Blue Chip Growth, Platinum Growth Club and Navellier Family Trust portfolios.

So I don’t recommend getting caught up in the selling action.

If you’re looking for a predominantly domestic company with a solid dividend and strong fundamental prospects, INGR may be to your taste.

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