This "Invisible" Stock to Buy Could Hand You a Quick 73% Gain

When it comes to value investing, the best stocks to buy are often the "invisible" companies you've never heard of.

stock to buyThese stocks fly under the market's radar, giving you an opportunity to buy them at a substantial discount.

Today we've got one of those invisible stocks - one that by one metric is trading at just 58% of its fair value.

That assessment is borne out by our Money Morning Stock VQScore™ system, which just upgraded this stock to its top score.

Some of this company's products are literally invisible - namely, the flavors and scents in our food, beverages, perfumes, and personal care products, among other items.

Its other products are highly visible: the coloring in some of those same items, plus cosmetics, ink, pharmaceuticals, and industrial products.

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That might not sound exciting, but it's a high-margin business with lots of diversification. So this company doesn't depend on just a few large contracts that could dry up and jeopardize the bottom line.

And because it's been in business for well over a hundred years, its expertise has become highly valuable. That's especially true today, as more and more corporations respond to customer demands for natural ingredients in their products.

It's hard to imagine doing without this firm, even if we don't think about it as much as all the name-brand companies on the market.

But it's a good thing people don't think much about this company.

That's a big part of why it's such a great stock to buy right now.

This Company Creates the First Impressions That "Make or Break" Consumer Goods

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Sensient Technologies Corp. (NYSE: SXT) got its start in 1882 as Meadow Springs Distillery, producing whiskey and gin. It managed to survive Prohibition by selling yeast products, and eventually it developed into a global market leader in coloring, flavors, and fragrances.

Today it sells products in over 150 countries, generating revenue of more than $1.5 billion annually.

It's obvious why flavoring is important in food and beverages. But don't make the mistake of discounting the importance of coloring and fragrances in all sorts of consumer products.

Whether we're aware of it or not, the look and smell of a product give us our first impression of it and are key components in whether we decide to buy it or not.

So Sensient's products across the board are absolutely essential to producers of consumer products vying for our attention - and dollars.

With such a large and diverse client base - and so many years in business - Sensient has needed to be extremely versatile in responding to different trends. That's why it has been able to lead the way as the public demands products with only natural ingredients, or non-GMO food products, or no animal products.

In fact, Sensient's natural ingredients segment now accounts for 29% of its sales, more than any other single segment.

This gets more complicated than you might think: Every ingredient in a product, at any stage of production, influences its color, flavor, and fragrance. So the folks at Sensient consult with their clients about every aspect of what they're doing in order to end up with the desired result - all while staying true to consumers' values.

A 2016 survey by Nielsen revealed that 68% of consumers are willing to pay more for food products that don't have undesirable ingredients. So as corporations increasingly cater to their customers' preferences, Sensient is going to be plenty busy helping them produce successful products with a more thoughtful list of ingredients.

So we know we've got a solid company that's been around for ages and continues to operate at a high level.

But just as important for us is how badly the market has misjudged the value of this stock...

Now Is the Time to Buy SXT

Sensient is now about 20% below its 52-week high, thanks in part to market volatility since early October.

But the company keeps quietly delivering the goods. Revenue growth was temporarily impacted as Sensient restructured its U.S. supply chain over the last few years. But earnings per share has risen every year since 2010. And according to FactSet, that trend is expected to continue through at least 2021.

There's good reason to believe that Sensient will live up to those expectations too: It has met or beaten consensus estimates in 19 straight quarters.

SXT's also raised its dividend in the most recent quarter by 9%, bringing the yield to 2.35%.

Apparently the board realizes how undervalued the stock is. Because in addition to dividends, the company has returned cash to its shareholders via stock buybacks totaling $451 million over the last four years.

And while this low-profile stock doesn't get a lot of coverage from Wall Street, the three analysts tracked by FactSet who have rated SXT all consider it a "Buy" or "Overweight."

On top of that, Sensient's price/earnings-to-growth ratio for the last 12 months comes in at a 42% discount to its fair value.

That means if you grab SXT at its current price, you could be looking at a 73% gain when the market figures out the value it's left on the table.

Even if you don't always notice Sentient's products, you'll definitely appreciate that kind of performance in your portfolio.

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About the Author

Stephen Mack has been writing about economics and finance since 2011. He contributed material for the best-selling books Aftershock and The Aftershock Investor. He lives in Baltimore, Maryland.

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