Jobs Data Smells Funny, but Not International Flavors & Fragrances

We are living in weird times. Daily action almost all focuses on interest rates and the Fed rather than on company-specific fundamentals. Friday's jobs report is likely to get a lot of attention following what was supposedly fantastic job creation numbers in January. Why do I say supposedly? The raw data was decidedly negative. All the reported gains came from seasonal adjustments. The numbers magically shifted from quite bad to extremely good. That news came just days before President Biden's State of the Union Address. It gave him bragging rights regarding major job creation when the SOTU was presented. Call me skeptical, but I am betting that future jobs numbers will see that old data adjusted substantially lower retroactively. In our bad news is good news world, where higher unemployment is a goal, an adjustment of that type would be widely cheered. By the time you are reading this, we might already have seen this week's new report. When a Stock Is Out of 'Flavor' International Flavors & Fragrances Inc. is a major force in food additives and custom ingredients. It used to be considered a reliable growth stock; it's financial strength is high and the stock is more stable than most. Also, earnings are quite predictable. But, they have failed to make sustainable strides since the end of 2015. Companies like these often make for fine trading vehicles if you are willing to buy cheaply, when the shares are out-of-favor, simply positioning yourself to sell when the mood brightens. Here is a look at what transpired since year-end 2015 using Value Line's projections for 2023. Except earnings per share, everything else improved noticeably. That was particularly true of the dividend rate, which climbed each year including during the Covid disruptions. As of Thursday, IFF had drifted back from an all-time peak of $157.40 and a 2022 high of $151.90, to only $87.18. That is bad news if you owned it before, but great news if you are looking to get long the stock. The past decade's average price-to-earnings for IFF ran 22.0-times, accompanied by around 2.06% in yield. Right now, IFF is offered for just 16.6-times an already conservative EPS estimate while paying shareholders 3.72% for their time. IFF's current valuation is very much in line with how it looked at the five best entry points (green-starred below) since 2013. IFF's three most obvious should have sold moments (red-starred) all occurred with the shares fetching well above normal P/Es while sporting sub-par yields. IFF offered shareholders chances to sell between $123 and $157 during every full calendar year from 2015 through 2022. There is no reason to think current holders will not get future chances to exit at similar prices in the reasonable future. IFF changed hands at high as $118.30 already in 2023. A rebound to a still below average 20 multiple could send IFF back north of $105 just on an improvement market mindset. Research house Morningstar is widely bullish on IFF. They label it as a 5-star (highest rated) buy. I'm skeptical on whether their $140 fair value will be achieved soon. Considering its trading history, though, that goal is not outrageous. Buying shares outright is the simplest way to play IFF. Any move to back around $115 or higher, where it was quite recently, would provide a solid total return on this very safe stock. Option minded traders might also wish to short some of IFF's Dec. 15, 2023 expiration date puts using $85, $90 or $95 strike prices. Actual pricing on those, with IFF at $87.44, is shown below. Worst-case, forced purchase prices dropped to between $77.50 and $82.10 per share. Margins of safety varied from 6.1% to 11.3% depending on the strike price employed. Future stock market action can never be guaranteed. That said, owning IFF at any of the if exercised prices illustrated would have been a winning position 100% of the time dating all the way back to the start of 2014. IFF's Covid-panic low weighed in at $92.10. Its momentary fall of 2022 nadir was set at $83.14. IFF spent most of the past 9-plus years hovering between $100 and $140 per share. International Flavors & Fragrances is a fine combination of good yield, higher than average safety and very respectable upside.

Jobs Data Smells Funny, but Not International Flavors & Fragrances

At the request of a subscriber, here's my take on IFF and how to play it, and on the jobs numbers that come in Friday.

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