Summary
Earlier this week, Megan introduced the idea of contrarian investing – buying quality stocks at value prices. This approach is a major theme in my own investing, so this week I want to take a closer look at a company that I think could be a classic contrarian pick at the moment.
After reporting record profits last year, FTSE 100 packaging group Mondi (LON:MNDI) is currently facing a cocktail of cyclical and company-specific headwinds. The shares are now trading at levels last seen in the 2020 crash – and prior to that, not since 2016.
The short-term headwinds are undeniable. But Mondi remains highly profitable and has a solid balance sheet. I think the shares look too cheap for a business of this quality and are likely to provide attractive medium-term returns from current levels.
Bull points:
Leading market share in Europe markets
Above-average profitability
Strong cash generation
Modest valuation with potential for re-rating
Bear points:
Mondi’s largest markets are fairly mature
Cyclical exposure; softening demand
Risk of further earnings downgrades
Profile
About the stock
Mondi operates in the Basic Materials sector and is part of the Containers & Packaging industry group.
The group’s shares have recently traded at 1,290p on the LSE Main Market. Mondi is a member of the FTSE 100 and has 485m shares in issue, giving a market cap of £6.2bn.
The StockRanks currently show a classic contrarian profile (high quality and value, weak momentum) for Mondi:
The company’s share price performance reflects this score. The stock has fallen by around 20% over the last year, but is now showing signs of levelling out:
About the opportunity
Mondi is classified as Contrarian stock, highlighting its high quality and value scores and low momentum ranking. The company’s balanced rating highlights its relative lack of share price volatility over the last three years.
Mondi’s profits rose to record highs last year, thanks to a combination of strong demand and price rises that outpaced inflation. However, packaging is a sector that is exposed to the economic cycle. The company has warned of softer demand…
