October 11, 2023

Magic Markets #146: McCormick and SA Food Stocks

22 minutes

In Episode 146, Magic Markets digs into the food producer industry. This hasn’t been a great place to put your money during this period of heightened inflation, as consumer pressures tend to flow up through the value chain.

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As usual, we lean on our research in Magic Markets Premium for the global choice in this show, with Moe covering McCormick (20% market share in the spices and seasoning market in North America). The Finance Ghost chose a selection of South African food producers to talk about, indicating the pressures in the industry.

Specifically, the hosts talked about:

The severe inflationary pressures in food (including in staples) and the impact this has on consumers.

The double top in McCormick that seems to be coming into play, with deteriorating fundamentals (specifically in margins and resultant pressure on profits) adding to the bear case.

A look at whether our original pick of PepsiCo vs. McCormick was the right call on a relative and absolute basis.

The substantial drop in sales in Asia Pacific at McCormick, a good example of how geographical diversification doesn’t always work out well.

The usefulness of blue Dorito’s as an index for all bad calorie decisions (!)

The reason why none of the South African listed food producers have “chicken” or “poultry” in their names, with a discussion on how the law of small numbers can explain significant volatility in profits and why this industry is facing such headwinds.

AVI has a great example of how a good company doesn’t always translate to an enjoyable share price performance, particularly where valuation multiples unwind.

Overall bearishness on the sector in South Africa, specifically with reference to trends in private label products at retailers and on-demand shopping.

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By The Finance Ghost and Moe-Knows

22 ratings