Broker names 3 ASX consumer goods shares to buy in 2022

Here are three top picks for 2022…

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The team at Bell Potter has been busy this week looking at its top ASX share picks for 2022.

On this occasion, I'm going to look at what the broker is saying about the fast-moving consumer goods (FMCG) sector. Here are its top picks in the sector for next year:

What did the broker say?

Bell Potter's analyst, Jonathan Snape, notes that investing in the sector can be high risk and volatile.

He commented: "Investments in the Agricultural & FMCG sector should be considered high risk and come with volatility. For this reason we tend to focus on stocks where we see either: a structural uplift in ROIC through the cycle, cyclical growth stories, or counter-seasonal crop exposures."

With that in mind, here are the picks:

A2 Milk Company Ltd (ASX: A2M)

Bell Potter is sticking with this embattled infant formula company. The broker currently has a buy rating and $7.70 price target on its shares. This is due to its belief that A2 Milk's earnings can grow materially in the coming years.

It explained: "We see the scope for EPS to double by FY26e, if A2M can execute on the China offline expansion strategy, while recovering 50% of the lost sales (from FY20-21) in English label IMF. The catalyst to regaining lost English label sales is likely to be boarder reopening and the return of international students. Exiting the loss making US assets or navigating a turnaround at the MVM asset would likely accelerate this turnaround. We do not see the current share price as reflecting this potential."

Bega Cheese Ltd (ASX: BGA)

This dairy company is another consumer goods share that Bell Potter is a fan of. Particularly given its recent acquisition of the Lion Dairy & Drinks business. Bell Potter has a buy rating and $6.45 price target on its shares.

The broker commented: "The acquisition of Lion Dairy & Drinks (LDD) and targeted synergy base is expected to drive a material step change in returns for BGA over the next three years. In addition, we see BGA benefiting from recent upward moves in both commodity price drivers (SMP returns up +32% since Jun'21) and price increases on private label milk for only the second time in 20 years."

Synlait Milk Ltd (ASX: SM1)

A final consumer goods share that Bell Potter has on its list for 2022 is dairy processor Synlait Milk. It has a buy rating and $4.40 price target on the company's shares. The broker believes the company is well-placed for a recovery in earnings after a difficult period.

Bell Potter explained: "SM1's FY21 performance is reflective of a business that completed the commissioning of major capital works, while experiencing an unfavourable shift in sales mix and the added complexity of unwinding IMF inventory positions accumulated over 2H20-1H21. Looking into FY22-24e, a stabilisation in A2M demand, commencement of a material new nutritionals contract at Pokeno and execution against the consumer based strategy in liquids and cheese are expected to drive a material recovery in operating earnings and the share price."

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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