We recently published a list of 12 Best FMCG Stocks to Buy According to Billionaires. In this article, we are going to take a look at where Colgate-Palmolive Company (NYSE:CL) stands against other best FMCG stocks to buy according to billionaires.
Historically, the consumer-packaged-goods (CPG) industry outperformed most of the other industries, mainly due to the high growth and consistent margins, says McKinsey. However, since 2012, numerous factors, such as inflation, market saturation, significant competition, fluctuating consumer tastes and behaviors, along with a fragmented consumer base resulted in growth challenges. Given increased interest rates and elevated industry multiples over the previous few years, there has been lesser deal activity, says the firm. Furthermore, a range of leading CPG companies continue to take a more measured approach, emphasizing midsize deals and aiming to achieve cost and growth synergies.
What Lies Ahead?
The broader downward trend of rates, along with strong, cash-rich balance sheets (and increased capability to take more affordable debt) of CPG companies can result in higher deal activity over the near future for the sector, says McKinsey. The firm expects a mix of 3 types of transactions, i.e., signature, sector-shaping deals, sizable horizontal deals allowing for greater subcategory consolidation, and targeted spin-offs of brands and business units possessing limited synergies or growth enablers with their current owner.
While the consumer sector remains broad, much of the analysis was focused on the F&B sector. McKinsey anticipates to see increased activity throughout CPG sectors, mainly in the personal care and beauty sectors. However, it also expects that the F&B sector might continue to capture a significant share of deals.
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Different Levers for Growth
Deloitte believes that, in 2025, the consumer products companies are likely to address the product portfolio and mix in a bid to entice the consumer and invest across the broad set of demand-generation capabilities. Furthermore, the businesses are projected to develop transformative efficiency so that savings can be produced, which can help finance such investments. Deloitte points out that increasing the unit volume sold remains an important lever that can support in driving profitable growth. Notably, some consumer products companies, mainly the profitable growers, remain focused on innovation to re-engage consumers. Deloitte also highlighted that high-performing companies seem to be adopting a clear-eyed view of their portfolios, and they continue to divest and acquire as needed.
Our Methodology
To list the 12 Best FMCG Stocks to Buy According to Billionaires, we used a screener and Insider Monkey’s exclusive database of billionaire stock holdings to shortlist the companies catering to the broader FMCG space. For the stocks with the same number of billionaire holdings, we have used the number of hedge fund investors as a secondary metric to rank the stocks, as of Q4 2024. We also mentioned the hedge fund sentiments around each stock, as of Q4 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
An array of toothpaste, toothbrushes, and mouthwashes on a bright background, highlighting the company’s oral care products.
Colgate-Palmolive Company (NYSE:CL)
Number of Billionaire Investors: 13
Number of Hedge Fund Holders: 62
Colgate-Palmolive Company (NYSE:CL) is engaged in manufacturing and selling consumer products. TD Cowen analyst Robert Moskow maintained the bullish stance on the company’s stock, providing a “Buy” rating. The analyst’s rating is backed by factors demonstrating its potential despite recent challenges. As per the analyst, Colgate-Palmolive Company (NYSE:CL)’s healthy market share gains reinforced the confidence in business momentum. Despite North American organic sales declining marginally, the favourable outlook on volume trends as well as potential improvements in liquid hand soap, toothpaste, and dish soap offer optimism, says Moskow.
Colgate-Palmolive Company (NYSE:CL)’s broad portfolio of well-established brands continues to command strong consumer loyalty, offering a robust foundation for growth. The company’s investment in brand equity and marketing supported it in maintaining its position as a trusted name when it comes to household and personal care products. An emphasis on innovation enables Colgate-Palmolive Company (NYSE:CL) to remain ahead of market trends and cater to evolving consumer needs.
Also, it has agreed to acquire Care TopCo Pty Ltd, owner of the Prime100 pet food brand. The acquisition gives the company’s Hill’s Pet Nutrition division an entry into the fast-growing fresh pet food category. Diamond Hill Capital, an investment management company, released its Q4 2024 investor letter. Here is what the fund said:
“As valuations have continued rising and the economic cycle has gotten relatively long in the tooth, we’ve thought carefully about where and how we are exposed to more cyclical stocks. As such, we initiated just two new positions in Q4: Colgate-Palmolive Company (NYSE:CL) and the aforementioned lululemon.
Colgate-Palmolive is a high-quality business with leading positions in oral care, home products and pet nutrition. Historically, the company has allocated capital well, and it produces significant free cash flows. Shares were pressured in Q4 primarily, we believe, in sympathy with near-term macroeconomic concerns rather than any fundamental issues at the business. We consequently capitalized on the underperformance and compelling valuation to start a position.”
Overall, CL ranks 7th on our list of best FMCG stocks to buy according to billionaires. While we acknowledge the potential of CL as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than CL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.