Your next stock pick could be sitting in your pantry

Stock picking can be a challenge for many investors. But here's one that won't require a lot of effort.

In fact, you need only look in your pantry or spice rack. Most likely you'll find that you already have some McCormick products - spices, herbs, blends or a sauce bottle sitting in there.

In recent times the strong sales of spices, seasonings, gravies, extracts and food flavourings around the world delivered mouth-watering results for McCormick & Company (NYSE: MKC) in the last reporting season in September.

McCormick & Company is a Fortune 1000 company. It manufactures, markets and distributes spices, seasoning mixes, condiments and other flavourful products to the food industry, including retail outlets, food manufacturers, food service operators and restaurants.

Strong financial results

Let's have a look at some numbers based on the company's most recent financial results:

• Sales were up 14% in the third quarter from a year ago, buoyed by strong results in both the consumer and flavour solutions segments.
• Operating income was $US233 million ($324 million) in the third quarter compared with $US169 million a year earlier.
• Earnings per share were $US1.30 in the third quarter compared with just US85 cents a year ago.

The company has also declared a quarterly dividend of US52c per share on its common stock. McCormick's current annualised dividend rate of $US2.08 per share represents an increase of 11% over the annual dividend of $US1.88 paid in fiscal year 2017.

Based on these numbers, this global spice and flavour company is clearly in a sweet spot in the consumer non-cyclicals (non-discretionary) sector.

One sector that held its ground

An old and well-worn investment adage advises that you should seek to buy the strongest stocks in the strongest sectors.

If we look at the recent market falls, the S&P500 sector that held its ground better than others was the consumer non-cyclicals.

This shouldn't be terribly surprising as this is traditionally a defensive sector. Although it did have a bit of a wobble earlier in the year, it held up relatively well in October while other sectors suffered significant corrections.

Other top performers in this sector include:

• Lamb Weston - North America's premier potato company.
• Hormel Foods - a Fortune 500 food producer.
• J&J Snack Foods - maker and distributor of snack foods and frozen beverages.

As the name suggests, goods and services in this sector are things that people need to keep buying. They won't stop just because there is a downturn in the market.

In the case of McCormick, increasing demand from both consumers and wholesale customers was the biggest factor behind the positive numbers.

Global demand for spices and flavours

During the last reporting season, Lawrence Kurzius, chairman, president and CEO at McCormick, said: "Both our consumer and flavour solutions segments contributed to our constant currency sales growth of 14%. Consumer segment sales growth was also driven by both America's and Asia/Pacific's base business and new products, with particular strength in the US and China."

Investors and analysts take notice

Given the company's encouraging results and upbeat projections for next year, it is not surprising that industry analysts following this company are also bullish.

Based on recent analyst reports, along with strong and persistent upward price momentum, investors have taken note of the stock too.

The recent push above $US148 represents a gain of more than 45% since the start of 2018. The majority of these gains have been achieved since the release of the solid second-quarter results at the end of June.

In recent months there has also been an increase in trading volumes, further reflecting the fact that positive analyst reports have attracted more investors and traders to the stock.

An increase in trading volume for a stock usually means more investors are becoming aware of the company and its share price movement. From a technical analysis perspective, expanding volume during an upward trend is a sign of market bullishness.

McCormick, with its wide range of spices, condiments, flavourings and sauces, is proving to be one of the strongest performers in the consumer non-cyclical sector.

So if you want to take advantage of its ongoing popularity, not only among the foodies but among regular consumers and a growing consumer base in China, it may be time to stock up on this company.

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