With less than three weeks to go for 2017, it’s time to pick a new stock for InvestorPlace’s Best Stocks for 2018 contest! For next year, I’m throwing my hat behind J.M. Smucker Co (NYSE:SJM).

Consumers best know Smucker for fruit spreads, syrups and peanut butter. Wall Street, however, looks at this company as the owner of Folgers and other mass-market coffee brands.

Coffee alone contributed 28% to last quarter’s revenue, outweighing all the domestic consumer food put together.

Margins in this category consistently outpace everything else, even when raw coffee prices are soaring.

In an environment where new approaches to diet are disrupting the grocery aisle, that’s the key to the stock.

What you’re getting is a $13 billion company that trades at a significant discount to the market as a whole — barely 14.7X anticipated forward earnings, compared to 18.3X on the S&P 500 — and pays a significant 2.65% dividend.

Smucker Stock Is a Strong Value Prospect

Even if the market didn’t look a little overheated, SJM stock would still be a strong value prospect. With interest rates on the rise and tax reform likely to boost free cash flow in the New Year, that prospect gets even brighter. And in the event that the global economy slows or stalls, stocks like this one turn into go-to safe havens.

Right now, SJM’s discount is a factor of Wall Street chasing go-go growth and writing off consumer staples plays as boring. While overall Smucker’s sales hit a wall at roughly $7.8 billion a few years ago, we’re not seeing steep year-to-year or quarter-to-quarter erosion.

Smucker’s brands are already household names with a strong presence in their categories. Fear of a weakening competitive position here is more than a little overstated. Demand for what SJM makes may not be growing fast, but it’s definitely not going away in the foreseeable future.

If Folgers, for example, falters, odds are good that many of those morning brews will instead be made with Dunkin Donuts store brand, which SJM also happens to own. If tastes shift toward single-serving machines, Smucker sells Folgers and Dunkin pods.

This stability buys investors confidence and management time to keep squeezing additional profit out of what have been flat overall sales at best. Selling peanut butter and coffee online has been a huge driver of margin improvement. While that side of the business is still small, it’s enough to generate a little sizzle. Lower dollar-denominated coffee prices are also turning into a significant tailwind.

Looking Ahead to 2018 for SJM Stock

In general we could see exchange rates in 2018 play out on the side of net importers like SJM, which buy raw materials overseas but sell primarily in the U.S. market.

Overall, I’m looking for maybe 9%-10% earnings expansion over the next 12 months, which adds plenty of spice to the already-low multiple on the stock now.

Smucker is also one of the companies that lower corporate taxes will truly help. It habitually pays an effective tax rate of roughly 33.2% of its income. Reducing that liability to 20%-22% could triple effective growth if all the factors line up right.

At this price, it’s obvious must-buy math, and we haven’t even speculated about what management would do with the extra cash, which could be anything from raising the dividend to buying back shares or even indulging in a strategic acquisition.

The 2018 economic outlook favors stocks like this. Exchange rates, market sentiment and yes, even taxes are aligning to shine a bright light on a company that was very overlooked in 2017. SJM is a high-quality stock selling at bargain prices, but with clear routes to outperformance in the near future, this one will be a winner.

— Hillary Kramer

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Source: Investor Place