Out of the China Plenum comes headlines that are market
grabbing. The one that has the highest interest is their
claim they will loosen the one child policy.
What's the two brain cell trade? BUY BABY
FOOD! Meade Johnson Nutrition (
) is up big today along with other ancillary plays as they
expectation is they will be a primary beneficiary of change.
Overall, this segment is one of those great thematic emerging
markets plays. Baby food in globally, especially in developing
markets…especially in China...is more important than in USA with
food safety a fact (fear) of life.
Meade Johnson's revenues 10 years ago were 60% US. Now
USA is 25% and China is 30%, Mexico 9% and the rest of the world
fills out the rest with much of this in emerging markets.
Historically I have been a big buyer of this trend in emerging
markets. In Russia, PepsiCo bought out Wimm Bill Dann
(which traded on the NYSE until buyout) a couple years ago to get
the market leader in this segment.
Its big business and will continue to be high margin
business. For MMJN infant formula is 60% of the business
and this is suddenly getting more affordable in China.
Prices have lagged behind the growth in wages and
Meade Johnson has spent years building their brand and their
corporate relationship in China. At 25x current P/E and 23X
e'14 the stock is not cheap to its history but given the growth
trajectory and long term business focus, this is a name to follow
if not own.