Growth That’s Real, Not Cosmetic

01/27/2009 11:04 am EST

Focus: STOCKS

Jack Adamo

Editor, Jack Adamo's Insiders Plus

Jack Adamo, editor of Jack Adamo’s Insiders Plus, says one consumer products giant should fare well in the treacherous economy.

Although I’m very leery of the market right now, I will continue our policy of not guessing bottoms. We’ll stick to gradual buying when prices are attractive. That way we can average up or down and get a cost basis that should deliver good returns over time.

Avon Products (NYSE: AVP) got whacked when fellow paint sellers Estee Lauder and Elizabeth Arden guided earnings lower, and analysts lowered earnings expectations for Avon to about $1.90 for 2009.

They’re probably still too optimistic, but I’m buying the stock anyway. We owned Avon for almost three years and sold it for $43.47 last September for a 69% profit.

Avon’s chief executive officer Andrea Jung, is doing a great job, as I said she would the day we first bought the stock. She met with a lot of skepticism, and frankly I think it was mostly because she’s a woman. So be it: Those with a biased view lost out on the big gains we made. Just as she handled the restructuring well, I think Jung will do well with the current macroeconomic problems.

Profits are being hit right now by the weak economy and strong dollar, which makes products more expensive overseas and causes sales to translate to fewer dollars when repatriated.

Both factors shall pass. The dollar will slide against other currencies once the flight to “safety” recedes. As I said a few weeks ago, grabbing onto the greenback for safety is like a drowning man grabbing a bowling ball. Give it a few quarters; the dollar will sink again.

Avon has always been known as a good value proposition. The company did a good job of upgrading its product line during the high times of the last few years, and it is just as adroitly refocusing on value in this tough environment. It has also traditionally gained a lot of new salespeople during recessions. It will take some months to get them up and running, but once they are, they’ll contribute to revenue.

Avon has quietly been one of the best growth companies in the world for decades. It’s available now for about 11x earnings. All the elements are still in place, with plenty of future growth on tap in China, India, and South America. This is a good entry point for the stock.

Buy Avon Products up to $24. We will add to it should the stock weaken further. The shares are yielding 4.1% at its current price of [around] $20.

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