Mead Johnson Nutrition CO (MJN), Abbott Laboratories (ABT): How to Play Emerging Market Growth Safely

Usually such upside would require an investor to bear abnormal risk during market corrections. I don’t believe this is true for Mead Johnson Nutrition CO (NYSE:MJN). The company’s U.S. market share is similar to that of Similac at close to 40%, and they are the clear market leader in their key emerging markets–namely China and Mexico. Competitively, they are at the head of the pack and have garnered significant brand awareness.

Still, there are risks that potential investors should consider. For one, the company is a pure-play infant formula manufacturer. Should negative health effects become associated with the company’s products, there would be a significant, permanent loss of capital to shareholders. Even rumors can cause shares to plunge, if only temporarily, as was the case in late 2011 when the stock plunged 10% on rumors of Enfamil being linked to an infant’s death.

Offsetting these risks is the fact that Mead Johnson Nutrition CO (NYSE:MJN) is creating value on a daily basis. They finished 2012 with returns on invested capital north of 40%. Not only that, but operating cash flow has expanded 20% in just three years. The stock is not cheap, with a P/E ratio of 24 times and free cash flow yield of 4%. This would qualify them as a Buffett stock–a great company trading at a fair price.

Bottom line

Mead Johnson Nutrition CO (NYSE:MJN) is a great investment for those that want emerging market growth without all the corresponding risk. The company is being run efficiently and will likely put in steadily growing sales, profits, and cash flow for at least the next decade. Value will accrue to patient investors and the 1.8% dividend growing at double-digits is icing on the cake.

The article How to Play Emerging Market Growth Safely originally appeared on Fool.com.

Justin Carley has no position in any stocks mentioned. The Motley Fool owns shares of Philip Morris International. 

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