Forget about the 2008/2009 financial crash, the terrorist attacks of September 2011 in the US, or the famous dotcom bubble at the turn of the millennium. The selling fever that’s gripped traders and investors since the coronavirus spread makes those other market falls pale into insignificance.
The brief rally across share bourses this morning didn’t take long to fizzle out either. The FTSE 100 fell to fresh multi-year lows earlier in Tuesday business and is still down by triple digits. Even those companies whose profit outlooks remain robust are being panic sold. This provides plenty of dip-buying opportunities for long-term investors.
Defensive darling
Premier Foods (LSE: PFD) is one share that merits serious attention today, in my opinion. It’s long traded on a forward earnings multiple inside the bargain-basement terrain of 10 times and below. However, the washout of recent weeks now means the food producer trades at almost next to nothing.
A 46% share price drop over the past month means Premier Foods now carries price-to-earnings (P/E) ratios of 2.3 times and 2.1 times for the fiscal years to March 2020 and 2021 respectively.
I find the scale of Premier Foods’s descent hard to fathom. With the world grinding to a standstill, it’s obvious why some stock sectors, from airlines and leisure operators to retailers and sports gambling providers (to name just a handful) are taking a hit. But food is one of those commodities we simply can’t do without. This is why this small-cap’s in a better position to weather the storm that most others.
A glorious foodie
Britons are self-isolating in greater and greater numbers. Restaurants are empty and people are choosing to cook at home instead. And so demand for some of Premier Foods’ products like Bisto gravy, Homepride cooking sauces, Saxa salt and McDougalls flour would have received a boost over recent weeks.
A Kantar Worldpanel report on recent treat and snack sales in China also makes encouraging reading for Premier Foods. The study says that “limits on outdoor entertainment and social interaction” in China “[has] generated new occasions for in-home indulgence and consumption.”
Expect demand for these products to have leapt in other major territories like the UK too. Such goods are ones that Kantar rightfully says provide “a crucial role in energy balance and emotional health.”
So how does this affect Premier Foods? I’ll tell you. Through its titanic Lyons, Cadbury and Mr Kipling brands, it manufactures some of the country’s most beloved cakes, tarts and other sweets. Sales under the latter umbrella in particular jumped 10% in the three months to December, illustrating just how popular this particular brand is.
City analysts expect Premier Foods to report a 6% annual earnings increase for the upcoming fiscal year. And I don’t expect broker forecasts to be hacked down irrespective of the coronavirus outbreak.
I believe recent share price weakness makes it a brilliant bargain for value investors to buy today.