Monday, January 09, 2012

Investing for Healthy Profits


I’ve got a new buy long stock pick this on Hain Celestial Group this week. They are a $1.5B organic food products company that processes and sells its products around the world. Looking at the DJIA, SP500, and Nasdaq indicies, I’m seeing more possible upside potential with the Nasdaq and some of the SP500 stocks than with the Dow Jones Industrial big caps. I think the paid to wait collect the dividend idea is already pretty much priced into the large cap dividend payer stocks, and they could be heading lower from here. I think where the positive upside action is now is with smaller growth stocks with strong balance sheets with increasing earnings like The Hain Celestial Group.

Zacks Investment Research reports that being a leader in natural food and personal care products categories with an extensive portfolio of well-known brands, The Hain Celestial Group Inc. offers investors one of the strongest growth profiles in the industry. The stock is poised to rise as the economy gradually revives and appetites for organic foods get bigger.

Having said that, Hain Celestial remains a healthy option for investors. Shares of the company have portrayed a strong upward trend over the past year, giving a return of 34% considering the last traded price of $36.35 on January 3, inching closer to its 52-week high of $38.47.

Supporting the view is the current valuation of the company. On a P/E basis, Hain Celestial’s shares trade at 21.4x, a 51% discount to the 43.9x for the industry average. On a price-to-book basis, the shares trade at 1.8x, which is again at a 45% discount to the industry average of 3.3x.

Moreover, considering the past performance of the company, Hain Celestial has consistently beaten the Zacks Consensus Estimate over the last four quarters in the range of 3.6% to 6.1%. The average remains at 5.2%. This suggests that Hain Celestial has topped the Zacks Consensus Estimate by an average of 5.2% in the trailing four quarters.

We believe that the company remains well positioned to capitalize on the growing global demand for organic products. The U.S. alone has shown an approximately 20% jump in its consumption of organic foods.

Acquisitions have been a key part of the company’s strategy to build market share. Not only have these expanded Hain Celestial’s geographic reach, these have also brought in opportunities to cross-sell its products in the U.S., Canadian, and European markets. Notably, a healthy balance sheet enables the company to target strategic acquisition opportunities.

Following its growth plan, Hain Celestial recently announced the acquisition of Daniels Group, the U.K. based marketer and manufacturer of fresh and frozen foods. The acquisition offers Hain Celestial a gateway to a sturdy food and grocery market that is swiftly gaining ground. Currently, the frozen category represents more than 50% of food sales in U.K.

Further, the company’s strategic initiatives to enhance its portfolio of global brands by acquiring Danival, the manufacturer of certified organic food products with facilities in France, and GG UniqueFiber, the manufacturer of all natural high fiber crackers in Norway, is paying off.

The company’s strong fundamentals and favorable outlook are compelling. We thus, maintain our bullish stance on the stock even in a volatile market. We currently, have a long-term Outperform rating on Hain. However, Hain Celestial, which competes with General Mills and Kraft Foods holds a Zacks #2 Rank that translates into a short-term Buy recommendation.

Buy Long Hain Celestial Group – Ticker HAIN

Buy Entry: 34.73 to 35.61

Stop-Loss: 33.71

Take Profit Areas: 38.55 to 39.59, 40.84 to 41.88, 45.48 to 46.69

Company Profile

The Hain Celestial Group, Inc., together with its subsidiaries, manufactures, markets, distributes, and sells natural and organic products in the United States and internationally. The company offers natural and organic grocery products, including non-dairy beverages and frozen desserts, infant and toddler food, flour and baking mixes, hot and cold cereals, pasta, condiments, cooking and culinary oils, granolas, granola bars, cereal bars, canned, aseptic and instant soups, yogurt, chilis, packaged grain, chocolate, nut butters, nutritional oils, juices, frozen desserts, cookies, crackers, gluten-free frozen entrees and bars, frozen pastas, and ethnic meals. It also provides snack products, such as potato and vegetable chips, organic tortilla style chips, whole grain chips, and popcorn; and specialty tea, including herbal, green, wellness, white, red, and chai teas. In addition, the company offers personal care products, including skin care, hair care, body care, oral care, deodorants, and baby care items, including acne treatment, body washes, and sunscreens. Further, it processes, markets, and distributes prepared foods, such as fresh sandwiches, appetizers, and full-plated meals for distribution to retailers, caterers, and food service providers; and develops, manufactures, markets, distributes, and sells a line of household cleaning products, including laundry detergent and fabric softener, and dish cleaners, as well as glass, bathroom, wood floor, and all purpose cleaners. The company sells its products to specialty and natural food distributors, as well as to supermarkets, natural food stores, mass-market and on-line retailers, drug store chains, food service channels, and club stores. The Hain Celestial Group, Inc. was founded in 1993 and is headquartered in Melville, New York.

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Click the Hain Celestial stock chart below for a larger view.