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Make Food Stocks a Portfolio Staple
10/09/2012 2:00 am EST
There are few things more essential than food and drink, so in tough times, keep it simple and buy what everyone needs, says Jon Markman.
My guest today is Jon Markman, and we're talking specifically about food stocks today and what opportunities he sees there. So John, food stocks. Why food stocks, and where are the opportunities?
Well, food is forever. People don't need to have a smartphone. They don't need to buy a house. They don't need to buy energy, particularly if they don't want to. But they all need to eat.
In an economy like the one we're in right now, which is very slow growth, and there's a lot of uncertainty about where the growth is coming from-particularly as Europe slows down and then China slows down-the one thing we can be certain about is that people are going to continue to buy their Oreos, their Chips Ahoys, a Coca-Cola, their Pepsis, etc...and particularly chocolate. If times are stressful, they need the lift from all the secret ingredients in chocolate.
So I have been recommending a lot of food stocks, both the ones that are domestically oriented in the United States, and then the ones that sell overseas, particularly in emerging markets. As people move up from an subsistence agriculture and they start having a little bit more money, because they've moved into the city and they're working for a factory or whatever, the first thing that they do is start eating more protein and more snack food. So that's a tremendous upside opportunity in those two areas overseas.
Alright, so what do you like in terms of stocks?
Yeah, I mean, you need to have your chocolate. I don't eat chocolate myself. I'm allergic, but I've been looking around.
Chocolate is an addictive substance in a certain respect, and Hershey is famous for its milk chocolate. It's a special process by which they make their chocolate, and Americans prefer that method of making chocolate to the European method.
So Hershey is primarily a domestic company, but it has spread its taste and flavor around the world, and it has a lot of upside. It has very little overseas sales at present.
Alright, and you mentioned international is an opportunity for growth. Are you looking at food stocks that have big international potential right now?
Yeah. I think that probably the best food stock right now in that space is Diageo (DEO). It's the maker of branded spirits: Smirnoff, Johnnie Walker, Baileys, things like that. High-end but relatively low cost. Spirits are a big seller overseas, particularly amongst emerging markets with people moving up from their local corn or rice liquors.
Alright, when you talk about food stocks, there's something we have to have of course. An Apple. We don't have to have our iPads or our Macbooks or anything like that yet.
Those are the kinds of stocks to get all of the attention in the media, just because probably they're sexy and food stocks aren't sexy. But how do you go about screening for food stocks to really find out what's not being covered but should be?
Yeah. Again, I like branded products that have good marketing programs and that have increasing sales over the past three, five, and ten years.
If you want to go a little bit more farther overseas, there's a company I like a lot in Argentina and Brazil called Agrocentro (AGRO). It's a big farming conglomerate based in Argentina with, as I say, it has lots of farms, etc., in Brazil and Columbia and Chile as well.
As the United States recently has been in a drought condition, corn has shot to the moon. People who want to buy relatively low-cost corn, particularly in China, need to move overseas or to other countries that are not in drought conditions, and one of the top areas that they go to is Brazil and Argentina.
AGRO is probably the leading food conglomerate in that area. George Soros just recently bought a lot of that stock on a low, and I think he's really onto something.