For emerging market investors, Avon stock (
AVP
,
quote
) offers an opportunity to capitalize on two of the most important
financial forces reshaping the globe: the
expanding consumer class
and the
rising economic power of women
.
[caption id="attachment_61648" align="alignright" width="300"
caption="Avon's "Anew""]
[/caption]
Avon stock can currently be bought at a huge discount to the
value set by Warren Buffett, legendary investor and head of
Berkshire Hathaway (
BRK-A
,
quote
).
Avon sells personal care and consumer goods, chiefly for women,
on a door-to-door direct marketing model utilizing independent
representatives.
Due to a currently outmoded approach, poor results and executive
changes, Avon has been downgraded twice in May, once by UBS and the
other by Caris & Company.
As a result the Avon stock price, around $16.70, is very close
to its 52-week low. The price-to-sales ratio is now under 1, making
it appealing to value investors. Always a strong income stock, Avon
now offers a 5.55% yield. The payout ratio is over 100%, so a
reduction in the dividend could be coming, particularly with new
management.
For value investors, Avon's worth was made clear by the recent
$10.7 billion bid from Coty
, the world's largest fragrance company
.
With the
blessing of Warren Buffett,
Coty raised its bid by 6.5% to a peak offer of $24.75 a
share. After resistance from Avon, it withdrew the bid on May
15.
Investors should look at the current share price level
juxtaposed with the bid from Coty and the 'blessing' of Warren
Buffett, and what others deem appropriate for Avon. Said Michael
Biffer, founder of Biffer Capital: "I don't think they will (take
up the offer of $24.75). They know that the current bid is too
cheap. Cosmetics is a great business. It deserves a premium. If I
were them, I would ask for $28 or more."
It would appear as if the market is overreacting, and over the
long term Avon stock will surely rise again. As another legendary
investor - George Soros, once observed, in the short term,
financial markets are "chaotic". The chart below shows the
opportunity for emerging market investors once market efficiency
makes its presence felt in Avon's share price.
