Defensive stocks typically do well in more economically challenging times, and with COVID-19 convincing more people to stay at home, Gruma (OTC:GMKKY) (OTC:GPAGF) (GRUMAB.MX) has definitely benefited in terms of volume and margins. While the tailwinds that are driving higher volumes and margins today will almost certainly abate, if not reverse, in a year or two as life goes back to normal, I do believe Gruma may be picking up some long-term market share that will drive improved long-term results as well.
I liked Gruma back at the start of the year, before COVID-19 was on the radar, and the illiquid U.S. ADRs have risen about 20% since then, while the much more liquid local shares have risen a little more than 25%. I would describe the opportunity here today as okay, but not compelling – with a few quarters of EBITDA beats in hand (including two straight double-digit beats), I think the word is out about Gruma’s qualities, but the shares aren’t really expensive on a mid-single-digit long-term growth outlook.
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