At midday Monday, our nation changed significantly. Clubs, pubs, casinos gyms are all closed. We have all been basically sentenced to house arrest with little to entertain ourselves except each other.
Without putting too fine a point on entertainment options, the likelihood of a baby boom in 9 months’ time has to be pretty high. Aside from the temptation to laugh at the subject, there is a proven link between fertility and high mortality incidents.
The value options
Like all other sectors, the top shelf ASX blue chip shares are still either fully valued or oversold. However, down in the mid cap and small cap regions, opportunities abound.
Companies selling either milk powder products or baby supplies are defensive shares. Most people consider them to be a staple and not a luxury item. They make money regardless of whatever else is happening in the economy.
And I very seriously think there is likely to be a surge in demand in a little over 9 months’ time.
Synlait Milk Limited (ASX: SM1) is a small cap valued at just under $1 billion. It is a supplier to A2M Milk Company Ltd (ASX: A2M) and produces milk and baby products like powdered milk products for the international market.
The Synlait share price has fallen by 44% since the start of the year. It currently trades at a price-to-earnings (P/E) multiple of 12.9. In the 3 years it has been listed, its average P/E ratio has been 18.9.
Before the share market sell off, the company had a compound annual growth rate (CAGR) of 40%. At that rate your capital will double in just under 2 years.
Synlait has a CAGR of 105% for cashflow growth and 28% for earnings per share (EPS). In February, it released a disappointing H1 earnings report. However, it has also been given the green light for an acquisition in New Zealand, which provides the company with instant scale into the everyday milk market.
The Baby Bunting Group Ltd (ASX: BBN) is another good company selling at a considerable discount, in my opinion. With a market cap of only $200 million, Baby Bunting has delivered a solid performance since listing in 2015.
The company’s share price is staging a come back today, but is still down 45% YTD. It currently sells at a P/E of 15.7. Its CAGR for sales is a healthy 10.2% over its 4-year listed history. As a collection of baby goods, the company is currently in a store roll out mode which has helped it to raise its sales, as well as achieve an earnings per share CAGR of 35.1%.
Impressively in today’s no-contact climate, the company already delivers 11% of sales via internet sales including click and collect.
Though it may sound flippant, this is no joke – I think there is a very real likelihood of an uptick in childbirths 9 months from now. These 2 baby product companies are both well managed and on sale at very reasonable prices. Both are also defensive stocks and both carry a manageable debt load.
Where to invest $1,000 right now
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.
*Returns as of June 30th
Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. 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.