Something Doesn’t Smell Right
3 Flavorful Stocks to Spice up Your Portfolio
Sometimes, too much of a good thing is a bad thing. Sun exposure, alcohol, television, prune juice and even exercise all come to mind. Same goes for pumpkin flavorings.
Every year it seems to get a little worse, and this year, there’s no shortage of pumpkin-flavored offerings at the grocery store. Cereal, yogurt, chips and even pasta sauce have been infused with what would seem like an odd flavoring at any other time of year. Coffee shops might be worse—it’s as if you’re un-American if you pass through Dunkin’ Donuts (DNKN) without getting somethin’ pumpkin.
There are a lot of things that are improved with a little pumpkin. Freshly baked pumpkin and apple muffins and of course, pumpkin pie, are on the top of the list. Neither stands a chance of seeing the sun rise twice in my household. But they have the real thing in them, not a synthetic chemical cocktail that’s mixed up in a test tube in a lab.
I understand that the movement is more about the nostalgia of a more rural life and a sense of the holiday period, but still. This past July, when I finally choked down the last pumpkin flavored beer that my wife bought for Thanksgiving 2014, the feeling of accomplishment and relief was more like coming home from the landfill than planting a garden.
The flavor industry is a strange beast
On the one hand, I can see how manipulating human taste buds can help steer people away from fatty, unhealthy foods and toward healthier alternatives, even if they are laced with engineered flavorings. Flavorings can also allow people to enjoy a flavor that they otherwise wouldn’t be exposed to.
On the other hand, a lot of engineered flavorings aren’t exactly good for you, and sometimes it seems like things have gone too far. I think the human body knows the difference, even if the taste buds don’t. At the end of the day, flavorful food is great. But a lot depends on how that flavor is achieved.
Sweeteners are a particularly hot topic. We all know that consuming a lot of sugar is bad, as is consuming a lot of Sweet ‘N Low and other imposters. I’ve personally found that by just cutting way down and ramping up use of what I think are healthier (and real) alternatives, like agave, honey, syrup and apple sauce, especially in mixed drinks and baked goods, my body no longer wants a lot of sugar.
I can make a mean mojito by mashing up freshly cut stevia leaves from the garden along with the mint, and using seltzer water instead of tonic (I swap the tonic back in when I’m drinking mojitos in the jungle to help ward off malaria!).
Three Flavorful Stocks to Spice up your Portfolio
Companies that make flavorings are as varied as the industry itself. Senomyx (SNMX), a small-cap company that was founded in 1998 by a pair of professors from U.C. San Diego and Stanford University, set out to clone human taste receptors to create alternatives to high fructose corn syrup. In addition to working on sweet and savory taste modifiers, it has also worked on products that reduce bitter tastes, as well as those that could work as salt alternatives. The stock has had some ups and downs, but generally speaking, it hasn’t delivered steady returns for investors. I’d steer clear.
On the other hand, the mid-cap company International Flavors & Fragrances (IFF) has a long-term chart that most investors would like mirrored by more of their own holdings. The last year has been a little touch and go, and the stock is only up around 10%, but over the past three years it’s up over 80%.
The company manufactures flavors and fragrances of all sorts, and I’m sure they wind up in a lot of products I use, but my feelings toward it are somewhat similar to those that bubble up during pumpkin season—like something’s just not quite right. Over the last 20 years, IFF (maybe it’s the ticker symbol that I don’t trust) has been named as a PRP (Potentially Responsible Party) as a generator of waste materials for alleged pollution at eight facilities. It also has encountered issues with Chinese authorities related to the emission of odors from several of its plants in China. I think that’s quite an accomplishment, though perhaps not one to be proud of.
There is one stock in the flavorings industry that I do like, and that’s McCormick (MKC). It’s another mid-cap, and it’s more about making spices and sauces then taste bud-tricking chemicals. It doesn’t have pending legal proceedings listed in its most recent 10Q. And most importantly, I always buy their spices. Their Montreal Steak Seasoning is absolutely critical when making a Spanakopita Turkey Burger (I learned that from my mother-in-law, not Rachael Ray).
I suspect that McCormick’s manufacturing plants also put off some interesting smells. But I imagine them to be more pleasing than offensive. I admit I don’t know, but I’m thinking more like the smell of roasting coffee in my home town of Waterbury, Vermont, where I grew up with Keurig Green Mountain (GMCR), than the offensive smells of chemically engineered flavorings and fragrances in IFF’s China plants. I think that McCormick is a higher quality company than many in the flavorings industry, and its track record delivering gains to investors is stellar. It’s up 250% over the last decade and 115% over the last five years. It also pays a 1.9% dividend. I also like that it just bought the parent company of Stubb’s barbeque sauces, One World Foods, in August this year to build out its sauce portfolio. Stubb’s is pretty good stuff.
Bottom line: I think it’s best to go easy on the pumpkin flavorings—the shelf life is about as long as a jack-o-lantern’s. And once the fun is done, all the leftovers are going in the landfill. It’s better for the body and soul to go with the real thing, whether you’re putting it in your body or in your portfolio.
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Chief Analyst, Cabot Small-Cap Confidential
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