The retail sector may be a bit hit and miss right now, but one product that is certainly a hit is infant formula.
So much so, there have been reports in the News Limited press that some Woolworths Group Ltd (ASX: WOW) and Coles supermarkets have had to put the product behind the counter alongside cigarettes in order to limit the number of products a single consumer can buy.
The reason for the demand is of course daigou shoppers which are buying infant formula and then selling it directly to China-based consumers at inflated prices.
Clearly this is a sign that the insatiable demand for infant formula in China is continuing to grow, putting Australian and New Zealand producers in a great position to profit.
But which infant formula shares should you buy?
A2 Milk Company Ltd (ASX: A2M)
This infant formula and dairy company would have to be my top pick in the industry. With all its licences in place, I suspect a2 Milk Company is taking advantage of the reduced competition in the market to win an even greater share. Its shares do trade at a premium, but I expect its long-term earnings growth will more than justify this.
Bellamy's Australia Ltd (ASX: BAL)
My next favourite in the industry is Bellamy's. As long as Bellamy's receives its CFDA accreditation to sell product in China in the near future, I believe a combination of growing demand and price increases will put Bellamy's in a position to deliver outsized earnings growth in FY 2019. This could make it worth picking up shares today.
Bubs Australia Ltd (ASX: BUB)
I think that this goat milk infant formula company could have a bright future if Chinese consumers take to its products. The company has signed numerous agreements which give it a far-reaching distribution network in both Australia and China. All it needs now are its accreditation and demand from consumers.
Jatenergy Ltd (ASX: JAT)
Jatenergy is an energy-cum-infant formula company that acquired part of the Golden Koala brand recently. While Golden Koala could potentially have a bright future, I'm not overly convinced that it has the brand power to compete against the bigger players in a fiercely competitive market.
Wattle Health Australia Ltd (ASX: WHA)
Like Bubs, Wattle Health has signed numerous distribution agreements in Australia and Asia which give it a foot in the door. However, sales of its infant formula products have been thoroughly underwhelming over the last 12 months. This could be a sign that the products simply aren't resonating with consumers as many had hoped.
