As a recipe for success in a slowly growing economy, a consortium including Berkshire Hathaway has decided that investing in ketchup is the way to go. An investment group that includes Berkshire Hathaway is putting up $28 Billion for a buyout offer for H. J. Heinz Company, the venerable maker of ketchup. As the offer stands Heinz shareholders will get $72.50 a share for a stock that was selling for $60 a share last week. Heinz has been around for over a century and makes Smart Ones frozen foods, Ore-Ida potatoes, and Classico spaghetti sauces in addition to Heinz ketchup. The company is headquartered in Pittsburgh, Pennsylvania. It has manufacturing operations on six continents and produces thousands of different food products. According Heinz, over 150 of its brands rank first or second in their class across the globe. The company sells over half of the ketchup consumed in the USA and over half of the frozen potatoes. The company is a cash cow and has been expanding into overseas markets which now make up nearly a quarter of sales. Fundamental analysis of Heinz tells us that the company delivers a greater than 40% return on equity.
Investing in Consumer Stocks and Cash Cows
It is highly unlikely that half of the American public will suddenly decide to buy different ketchup or frozen potatoes. Thus Heinz seems assured to continue its domination of these food sectors. This is a company that sells things the people will continue to buy during bad as well as good times. It routinely delivers a profit and, yawn, a dividend. Consumer stocks, dividend stocks, stocks that essentially own their market are great long term investments. Investing in ketchup, so to speak, is sound investing. Berkshire Hathaway and their partners in the buyout of Heinz seem to think so too.
What Else Do People Like?
Some time back we wrote about investing in beer. As we said then,
Whether you drink beer or not, investing in beer can be quite profitable. In looking at the different types of stock that do well during recessions and profit during recoveries large brewers typically are on the list. Whether your beer of choice is made by Anheuser-Busch or Inbev, Molson Coors or Carlsberg these companies have the capacity to make money year in and year out. There also have been a series of mergers and acquisitions in the brewing business over the years making for some interesting investments. Picking new winners with new comers to the business as well as each reshuffling of the international brewing business can be profitable when investing in beer.
Investing in Ketchup
The investing issues for consumer products companies that routinely return a profit are twofold. First of all these are stocks with a high margin of safety and continual money makers. Second, the prices of these stocks are commonly reflective of the stability of the company and the constant cash flow. As such these companies tend to sell at low PE ratios. When there is a buyout, as with Heinz, there is a nice bonus to be earned in return for giving up the stock. Investing ketchup, beer, and other stable businesses is typically for the long run.