Mondelez International

01/15/2014 7:00 am EST

Focus: STOCKS

Eric Vermulm, CFA

Senior Portfolio Manager, Stack Financial Management

Among more speculative ideas, our top pick for 2014 is a consumer staples company, making and marketing some of the world's best known sweets and treats; brands such as Oreo, Cadbury, Nabisco, Milka, Tang, and Trident are all category leaders, explains Eric Vermulm of InvesTech Market Analyst.

Thanks to these, and many other products, Mondelez International (MDLZ) holds the number one global market share in biscuits (crackers and cookies), chocolate, candy, and powdered beverages, as well as the number two position in gum and coffee.

Mondelez's products are well-positioned in the snack food aisle, which is a leading growth area in the grocery store. Biscuits and snacks are seeing more rapid worldwide adoption, compared to other treat categories, such as ice cream, carbonated drinks, or baked goods.

With an estimated 40% of sales coming from emerging markets, MDLZ is benefitting from an emerging worldwide middle class with a taste for treats. Management currently expects rising demand to drive double-digit revenue growth in these markets, which should put total sales gains in the mid-single digits—near the top-end among its peers.

What truly sets MDLZ apart from other consumer staples companies is its potential to expand margins. MDLZ's operating margin of 12.2% in 2012 was well behind the 18.3% average of peers.

With management now completely focused on snack foods, after the October 2012 spin-off of Kraft Foods, efficiency initiatives and better distribution opportunities should compound single-digit revenue growth into double-digit earnings growth.

Looked at as a whole, Mondelez's world-class brands, expanding emerging market presence, and margin potential, provides a unique growth opportunity in the traditionally defensive staples sector.

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