These Spicy Stocks Won't Cause Heartburn

11/23/2010 1:00 pm EST


Richard Young

Editor, Young's Intelligence Report

Richard C. Young, editor of Intelligence Report, likes Heinz and McCormick, but wonders who will swallow all that government debt.  

Are you aware of the foreclosure crisis now beginning to unfold in front of our faces? What I am hearing is an overhang of potential foreclosures in the neighborhood of $130 billion to $150 billion. And compounding the potential misery ahead is that over just the next three years $5.2 trillion of US debt comes due and must be rolled over. Who are the takers here and at how high an interest rate? Has an ugly look, doesn't it?

But wait, the stock market is rising, so how bad can it be? What we're looking at is a misleading stinker being fueled by momentum players, automated computer trading, and just plain fools. Look, corporations are reporting record cyclical peak earnings fueled largely by soon-to-evaporate historically low interest rates and massive layoffs. The real estate collapse, along with the stock market bust, hit the majority of Americans with a one-two punch from which they will not recover anytime soon. The yield on stocks is historically low, and the average price/earnings ratios that prevail today are a temporary illusion created by peak cyclical earnings. The Fed, in full-scale panic mode, is once again blowing up its balance sheet and running the printing presses around the clock.

Gold (a fiat currency alternative) continues in a relentless uptrend. The markets know the inflationary course that the Fed is on. It is not just the stock market and gold that are responding to asset inflation. Take a look at corn and copper prices. We're talking big-time inflation here. Forget the consumer price index as an inflation measure. The consumer has had his equity wiped out and is unemployed and broke. Look instead at the dollar and commodity prices, and the picture is pretty ugly. But some stocks still look good.

The Ketchup Boom 

Corporate growth strategies tend to be a lot of vague gibberish. Heinz (NYSE: HNZ) is an exception. The company shrewdly focuses on the growth of its core product portfolio. The top 15 brands at Heinz generate 70% of sales. Its ketchup is now the number-one brand in seven of the world's top-10 ketchup markets. The focus on core brands has delivered 21 consecutive quarters of organic sales growth at Heinz. My price chart for Heinz shows it breaking out above recent resistance near $47.50. [Shares closed at $48.67 Monday—Editor.] The next stop could be its previous peak near $52.50. Don't let inertia stop you from buying today.

McCormick’s Trade Route

Another recent winner is McCormick (NYSE: MKC). India is the world's largest consumer, producer, and exporter of spices. In India, spices are so important that the Ministry of Commerce has its own Spice Board. For nine years in a row the Spice Board of India has designated Eastern Condiments Private Limited (Eastern) as the nation's largest exporter of spice powders in consumer packs. On November 3, McCormick purchased a 26% stake in Eastern. An increased presence in India will help McCormick expand into other emerging markets. Eastern is already a leading exporter to the Middle East, which has some of the highest population-growth rates in the world. My price chart shows a massive breakout in the price of McCormick shares above their pre-recession highs.

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