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Can ASX infant formula shares soar in 2020?

A2 Baby formula shares

The ASX infant formula companies have proven to be solid investments in the last few years.

The A2 Milk Company Ltd (ASX: A2M) share price is up 2,400% since early April 2015, in a sign of strong growth. Bellamy’s Australia Ltd was recently bought by China Mengniu Dairy Co for $13.25 per share after several years of climbing higher on the ASX.

But is this strong run set to continue in 2020? What’s the outlook like for the ASX infant formula companies as we enter a new decade?

Why ASX infant formula companies can climb higher

Success for ASX infant formula shares in the 2020s could well be defined by market penetration in Asia and India. India has a fast growing population and is quickly becoming a trade superpower in the region.

a2 Milk remains the largest player and the incumbent in the sector, in my view. The New Zealand dairy group already has strong operations in China, which is a big advantage.

We’ve also seen recent deals in Asia for Bubs Australia Ltd (ASX: BUB), which makes it one to watch in my books. The Bubs share price has more than doubled in the last 12 months alone in a good year for shareholders. An ASX infant formula group with decent financials, Bubs could be in the buy zone at its current share price of $0.98.

Turning to Wattle Health Australia Ltd (ASX: WHA), the recent news that its capital raising fell short is interesting timing. However, I don’t think that reflects investors’ demand for listed dairy companies. In my view, there are still good fundamentals driving the industry in 2020.

If you’re looking for some more conservative options, a2 Milk is hard to beat right now. a2 Milk shares are trading near the middle of their 52-week range, meaning now could be the time to buy.

Growing demand from China and India is the biggest factor that will impact these shares, in my opinion. If this demand is strong, ASX infant formula shares could be well worth watching in 2020.

Where to invest $1,000 right now

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*Returns as of February 15th 2021

Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended BUBS AUST FPO. 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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