An Under-the-Radar Stock With An Impressive Winning Streak

Some of the best long-term investments are in companies that dominate a niche market.

As an example, I recently highlighted the strong appeal of auto parts supplier Dorman Products (Nasdaq: DORM).  Investors should consider Ball Corp (NYSE: BLL) as another market niche dominator. The company makes metal packaging products, has a similarly profitable past, and an equally bright future.

#-ad_banner-#You probably use Ball Corp’s products every day. It makes metal cans and containers for companies like Anheuser-Busch (NYSE: BUD), PepsiCo Inc. (NYSE: PEP), The Coca-Cola Company (NYSE: KO), and Unilever Plc (NYSE: UL).

The operational dynamics at work in Ball’s industry are quite appealing. Metal cans and bottles for the food, beverage and personal care industries represent huge markets, for which there are few good substitutes. Despite the huge market, the risk of technological disruption is low, and Ball’s products require minimal new investment in product improvements. After all, does a can of cola look any different today than it did a decade or two ago?

Furthermore, Ball has already reached the size and scale that would make it difficult for new companies to enter the market. In the company’s 2014 10-K filing, Ball noted that only “Five companies manufacture substantially all of the metal beverage containers in the U.S. and Canada.”  

And few competitors in an industry typically lead to high levels of profitability. Over the past 10 years, it has delivered returns on equity above 20%. The company also creates substantial free cash flow every year and is able to return most of that cash to shareholders.

Ball pays a small dividend, but its preferred method for paying its owners is in the form of stock buybacks. While some companies barely buy back enough stock to cover the dilution from executive bonuses, Ball’s buybacks have been extraordinarily effective. Over the past 10 years, the company has reduced its share count by 34.8%.


Ball has established itself as one of the dominant players in the industry, but the metal packaging industry is expected to plateau in the Americas, creating growth challenges. In response, the company has been active on the mergers and acquisitions front. In February, Ball announced a deal to buy U.K. based Rexam PLC (OTC: REXMY) for $8.4 billion, in a deal that is expected to close in early 2016. Rexam is one of the largest European metal packaging companies and would instantly give Ball a much bigger presence in Europe.

Ball’s stock jumped the day the deal was announced, but as news filtered out that European and American regulators were examining the deal in the context of anti-competitive concerns, the stock price has drifted lower, offering investors an attractive entry point.

Ball Corp’s business model isn’t sexy, yet shares have risen an impressive 14% annually since 1984, trouncing the long term average of the S&P 500. It’s the dominant player in a recession-proof industry that provides essential products that people use every day. Ball’s management has a proven knack for producing robust free cash flow, and this company looks poised to deliver high returns to shareholders for years to come.

Risks to Consider: If regulators struck down the merger between Ball and Rexam, the stock price could see short-term weakness. Ball, as a global company, is exposed to fluctuating currencies and has been hurt by the strong dollar. The dollar’s strength is expected to knock around fifty cents a share off of Ball’s 2015 earnings.

Action To Take: This company is a cash machine with a management team that’s serious about paying its shareholders. The stock trades for around 18 times free cash flow, which is a fair price for a wonderful company.

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