Last week I wrote about food stocks and offered a list of the
companies I like (see
'Pass the Ketchup!': Why Food Stocks Should Not
The thesis on food stocks is simple: Aggregate demand never
diminishes. This doesn't mean there's no risk in food and beverage
companies. There's plenty. Remember, highflier
Green Mountain Coffee Roasters
) is trading at about half of its August 2011 peak. But companies
with proven management teams, strong balance sheets, and a large
portfolio of products can enjoy twin growth drivers: grabbing share
from their less nimble brethren
capitalizing on growing organic demand.
Still, I understand, picking individual stocks can be unnerving for
some. My solution:
PowerShares Dynamic Food & Beverage ETF
(NYSEARCA:PBJ), which has been on a tear over the past three years
returning on average 16.18% versus the
Spider S&P 500 ETF
(NYSEARCA:SPY) whose average total return was a respectable, but
nonetheless much lower total return of 12.54% (to March 30). Over
the past 12 months, PBJ has delivered a spectacular 20.42% versus
SPY's 10.5%, or about half of the total return of PBJ.
As an ETF, PBJ delivers the standard benefits: diversification and
low costs (though with an expense ratio of 0.63% PBJ is more
expensive than many other
; by comparison, the expense ratio of SPY is 0.09%).
I would posit that PBJ may offer an extra layer of protection
against downside risk versus individual equities. That is, while
individual stocks contain portfolios of products -
), for instance has 67
with possibly hundreds of individual products - PBJ increases this
by an order of magnitude, by combining the product portfolios of
some of the largest brand curators in the world. Below the top
holdings of PBJ:
After a run like this, is PBJ too frothy to get in? I would say no.
Reasons: First, Warren Buffett's acquisition of
) announcement on February 14 of this year has lifted the P/E
ratios of almost all food and food-related companies. Once Mr.
Buffett put his money where his mouth is by paying a premium for
HNZ, investors bid up the shares of other food companies. For
instance on February 13, 2013,
) had a P/E ratio of about 14.7x, while today it's just over 17x.
Similarly, Hershey had a multiple of about 22.3x while today it's
approximately 24.5x. In both cases, the "Buffett Premium" (as I
like to call it) is about two points. As these multiples are
applied to the earnings stream, I think it will continue to reward
investors, who like Buffett, also put their money where their
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