Top Consumer Goods Stocks With The Highest Upside Potential

The best performing stocks in the market are usually stocks with the highest growth rates or the highest expected growth rates. Their market prices reflect their recent strong performance and expected high growth rates. However, this does not mean that investing in today's strong growth stocks will generate high returns in the future.

In fact, value stocks on average outperformed growth stocks historically. The reason is simple. Value stocks usually have low or even negative growth expectations, which is relatively easy for them to beat. On the other hand, growth stocks are usually expected to grow at higher rates. Therefore, it is much more difficult for growth stocks to beat the challenging expectations in the long term. A good example of this is Netflix's (NFLX) more than 75% decline a few months ago. Green Mountain (GMCR) also lost more than 50% of its value in a couple of months. We think beaten-down stocks with low expected growth rates have higher upside potential than stocks that are expected to grow at sky-high rates.

Below, we ranked U.S. consumer goods companies based on their expected five-year growth rates. All companies have at least a $10 billion market cap. The data is sourced from Finviz. Contrarian investors should focus on the stocks that are at the top of the table and have low forward P/E ratios.

Ticker	Company	Forward P/E	EPS growth
CPB	Campbell Soup Co.	12.69	5.05%
IP	International Paper Co.	10.44	5.50%
RAI	Reynolds American Inc.	13.59	6.00%
KMB	Kimberly-Clark Corporation	14.03	6.28%
KO	The Coca-Cola Company	16.71	6.63%
F	Ford Motor Co.	8.06	7.10%
HNZ	H. J. Heinz Company	14.31	7.16%
CAG	ConAgra Foods, Inc.	13.78	7.28%
HSY	Hershey Co.	19.8	7.76%
MO	Altria Group Inc.	13.06	7.78%
K	Kellogg Company	14.49	7.94%
GIS	General Mills, Inc.	14.41	8.06%
ADM	Archer Daniels Midland Company	8.9	8.40%
PG	Procter & Gamble Co.	14.29	8.58%
PEP	Pepsico, Inc.	14.5	8.58%
SLE	Sara Lee Corp.	18.63	8.87%
BF.B	Brown-Forman Corporation	20.64	9.15%
CL	Colgate-Palmolive Co.	16.13	9.50%
KFT	Kraft Foods Inc.	15.27	9.56%
LO	Lorillard, Inc.	12.93	10.10%
MJN	Mead Johnson Nutrition Company	22.81	11.30%
PM	Philip Morris International, Inc.	14.45	11.41%
NKE	Nike Inc.	17.63	12.00%
VFC	V.F. Corporation	13.96	12.53%
RL	Ralph Lauren Corporation	17.89	14.11%
GM	General Motors Company	6.32	14.18%
ECL	Ecolab Inc.	20	14.37%
EL	Estee Lauder Companies Inc.	11.23	15.00%
COH	Coach, Inc.	16.1	16.13%
XRX	Xerox Corp.	7.53	16.37%
JCI	Johnson Controls Inc.	8.9	18.89%
PCAR	PACCAR Inc.	13.26	19.30%

It seems that analysts are most pessimistic about Campbell Soup among the consumer goods stocks listed above. Its EPS is expected to grow at 5.05% per year in the next five years. Campbell is a manufacturer and marketer of convenience food products. The company reported net income of $265 million for the 13 weeks ending October 31, 2011, compared with $279 million for the same period a year earlier. CPB has a market cap of $10B and a low forward P/E ratio of 12.69. There were 15 hedge funds with CPB positions at the end of September. For example, Ken Griffin's Citadel Investment Group had $16 million invested in CPB. Jim Simons' Renaissance Technologies also invested more than $10 million in CPB at the end of the third quarter.

International Paper Co. also has high upside potential. Analysts estimate its EPS to grow at 5.50% annually over the next five years. International Paper is a global paper and packaging company. For the third quarter of 2011, the company reported net income of $518 million, up from $397 million for the same quarter of 2010. International Paper is going to release its fourth quarter and full-year 2011 earnings on February 2nd. IP has a market cap of $14B and a low forward P/E ratio of 10.44. As of September 30, 2011, 27 hedge funds disclosed owning IP in their 13F portfolios. For instance, David Tepper's Appaloosa Management LP had $77 million invested in IP. Jim Simons' Renaissance Technologies also reported to own $20.5 million worth of IP shares at the end of September. Since then, IP was up 36.41% so far, versus 17.05% for SPY in the same period.

One mega-cap consumer goods stock with high upside potential is Coca-Cola Company . Its EPS is expected to grow at 6.63% per year on average over the next five years. Coca-Cola reported net income of $2.2 billion for the third quarter of 2011, up from $2.1 billion for the same period a year ago. The company is going to webcast its fourth quarter earnings conference call on February 9. KO has a market cap of $156B and a forward P/E ratio of 16.71. It is a popular stock among hedge funds. As of September 30, 2011, there are 44 hedge funds with KO positions. Warren Buffett is the most bullish hedge fund manager about KO. His Berkshire Hathaway reported to own $13.5 billion worth of KO shares at the end of the third quarter.

The financial markets have been hit by one crisis after another over the past few years. Despite the European debt crisis and expectations of another recession the economy performed better than expected. Since the end of the third quarter, the stock market was up more than 17%. The consumer goods sector had done well recently and we expect this trend to continue. Most of the consumer goods stocks on the list are currently trading at attractive multiples. We recommend investors to consider some of these names for their portfolios before it is too late.

Disclosure: I am long PM.