Why the share price of Amcor Limited (ASX:AMC) is shooting higher today when the market is crumbling

This is a sight you don’t see every day! The share price of embattled Amcor Limited (ASX: AMC) is outperforming the market amid the brutal sell-off.

The stock jumped 1.5% to $13.32 in after lunch trade when the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index has crashed by 2.4%.

But it’s still a long way to the top for the packaging company as its share price is down 14% over the past year when the ASX 200 benchmark is up by more than 2%.

Stocks that have been lagging well behind the pack are holding up better than the rest of the market today and Amcor is one of the worse performing large-cap industrial stocks with significant exposure to the US market.

Companies that generate a material amount of sales in US dollars have typically found favour with investors due to the bright outlook for the currency. Examples include building materials supplier James Hardie Industries plc (ASX: JHX), logistics group Brambles Limited (ASX: BXB) and glove maker Ansell Limited (ASX: ANN).

These stocks have outperformed Amcor by at least 16% over the last 12 months and bargain hunters have gotten excited by an update from management at the company’s annual general meeting.

Amcor said that things are looking up for FY19 after the stock got sold off on the back of rising costs and weakness in its rigid plastics business (e.g. soft drink bottles).

Management is making good progress in cutting costs and lifting prices to protect margins, while its rigids division is expected to deliver “solid” profit growth this financial year compared to FY18.

Its flexibles business (e.g. soft packing for snacks) is also on track to deliver good growth over FY18 and management is forecasting free cash flow of between US$200 million and US$300 million this year.

The market may not have been taken with the news that Amcor is acquiring US peer Bemis that was announced before its August profit results, but the irony is that the 8% drop in Amcor’s share price since has made the acquisition that much more attractive.

The all-stock acquisition is set at a fixed exchange ratio of 5.1 shares for one Bemis share and the deal has the backing of Bemis’ board.

If Amcor can convince investors that it has turned a corner, the stock will re-rate as Amcor is the type of stock that is suited for the current economic environment.

Not only is it leveraged to the higher greenback and booming US economy, its industry is also relatively stable.

Management’s aim is to generate total returns of between 10% to 15% a year with low share price volatility.

Given the rising global uncertainties and increasing levels of investor anxiety, that sounds like a pretty attractive goal to me.

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Motley Fool contributor Brendon Lau owns shares of Brambles Limited. The Motley Fool Australia has recommended Ansell Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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