Why does Kraft want to own Cadbury? They want to own them to benefit from the rise of the middle class. I know what you're thinking...that's crazy; and how are the two connected? Chocolate is the secret. If you read James Altutcher's book, The Forever Portfolio, he talks about the rising middle class in India, China, Brazil, and elsewhere. Guess what people with money do that people without it don't do? They eat, and they eat well...certainly better than rice and potatoes. People that struggle with money often have to skimp on eating better. So, a rising middle class means that people will eat chocolate; and to make chocolate you need sugar.
Now that we've taken you through the thesis, we're not going to recommend you pick up Kraft...we don't even know if their bid for Cadbury will be successful. But we will recommend Imperial Sugar Company (IPSU). They had an explosion at a their plant in Port Wentworth, Georgia that took nearly half their capacity offline in February of 2008. With this company about to ramp up production, we think this is a good way to play both the rising cost of sugar and the rise of the middle class. We think that the recent rise in sugar prices is a function of a rising middle class that is eating more sugary foods because they can now afford them and we want to profit from it. We also like DBA, the Powershares Agricultural Soft Goods ETF as a way to play rising commodity costs over the next decade or so. Imperial even has a dividend. It's not much, but getting paid something is better than getting paid nothing.
Let us know what you think of this idea and others by leaving a comment on the blog!
Very interesting angle. You may be on to something with the "sweet tooth" play. I definitely agree with you on the DBA ETF. I own some and think it will do well even if the market takes a downturn. People will always have to eat. DBA covers the basics.
ReplyDeleteWe would have loved to put this post up months ago when we read the book as James Altucher recommended buying Cadbury (CBY); which is obviously a fantastic recomendation in retrospect. We'd have to do see how the deal plays out with Kraft to see if it becomes the place to be if they get Cadbury. Nestle looks like it doesn't trade on the US exchanges. Other than Imperial Sugar, playing this thesis will take much more thought. A search of companies with "sugar" in the title reveals that most companies in this category trade on foreign exchanges or on pink sheets. We really like IPSU, the dividend is small; but, having that plant come back online should be big for them!
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