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Investing.com -- The Food and Home & Personal Care (HPC) sector has experienced a recent de-rating, transforming it into what UBS analysts describe as a "show me" sector. Investors are now seeking tangible reassurance in the second half of the year before restoring the sector’s traditional premium to the broader market.
According to UBS, the most promising stocks in this sector are those prioritizing reinvestments, benefiting from strong and sustainable growth engines, facing relatively low expectations for the next 18 months, and offering compelling valuations.
Here are the top Food/HPC stocks that UBS believes are well-positioned for the second half of the year:
1. Danone: The company has demonstrated its commitment to growth by increasing reinvestments by 90-130 basis points in the first half of the year. Danone benefits from its strong and sustainable growth engine in China and North America (CNAO).
UBS analysts note that Danone faces relatively low expectations for the next 18 months, which could provide upside potential if the company delivers solid results. The current valuation is considered compelling, making it an attractive option for investors looking for opportunities in the Food/HPC sector.
In a recent development, Danone U.S. announced a $65 million investment to expand its Jacksonville, Florida, production facility to support its coffee and creamer portfolio. The company is also investing in a new regional distribution center to enhance its supply chain efficiency in the Southeastern U.S.
2. Reckitt Benckiser: Like Danone, Reckitt has prioritized reinvestments, increasing them by 90-130 basis points in the first half of the year. The company’s strong position in emerging markets (EM) serves as a sustainable growth engine.
UBS highlights that Reckitt also faces relatively low expectations over the next 18 months, potentially setting the stage for positive surprises. The current valuation is viewed as attractive, making it the second most appealing stock in the sector according to UBS analysis.
Reckitt is reportedly contemplating new strategies for the sale of its Essential Home business after initial bids did not meet expectations. Separately, Berenberg lowered its price target on the company while maintaining a Hold rating.
As the Food/HPC sector works to regain investor confidence and restore its market premium, these companies stand out for their strategic investments in growth, strong market positions in key segments, and attractive valuations relative to their potential.
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