Road Trip — Part Five

Road Trip—Part Five

It’s Still a Goldilocks Market

A Bubble in Burgers?

Profiting from the Trend toward Healthier Food

Welcome to the fifth and final chapter of my travelog on my recent 17-day 4,218-mile road trip to and through the American midwest and back.

Today, I wrap up the series with 10 notable things encountered on the trip that were unexpected—presented in the order they were encountered.

1. Ice at Niagara Falls

Big, car-sized chunks of ice remained at the base of the falls in early May, sheltered from the sun and generally kept cool by the continuous chilly spray from the falls.

2. Wind Turbines in Ontario (and Iowa)

We saw hundreds of them, mile after mile after mile, spinning silently as they drew energy from the wind and sent it to power collection stations somewhere over the horizon.

3. CHEESE in Wisconsin

More specifically, the big yellow CHEESE signs on barns (sometimes accompanied by MEAT signs) that beckon the cheese-starved traveler.

4. Hennepin in Minneapolis

I was familiar with the exploits of Father Louis Hennepin, the Catholic priest and missionary who was responsible for telling Europeans about Niagara Falls because of the beautiful label on one of my favorite beers, a farmhouse saison by Brewery Ommegang.

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But I didn’t know that in 1680 Hennepin had been captured by the Sioux and taken to present-day Minneapolis, where he was the first white man to view Saint Anthony Falls (the only waterfall of its height on the Mississippi River).

Eventually allowed to leave, Hennepin returned to France and lived to the ripe age of 79. What a guy.

5. “Do You Own Your Own Home?”

This phrase is the shibboleth (a peculiarity of pronunciation, behavior, mode of dress, etc., that distinguishes a particular class or set of persons) that serves in Minnesota to distinguish natives—or, even better, those from the original Scandinavian countries—from the rest. In Boston, the shibboleth is “Park the car in Harvard yard.”

6. Mayflies and Surly Cynic Ale

I’d never seen mayflies before, and never enjoyed a Surly Cynic Ale, but both were part of a lovely Saturday fish taco lunch at The Landing Patio Bar and Grill in Clear Lake, Iowa, where for a brief time I indulged in the fantasy that life could revolve around nothing more than boats, beer and fishing.

7. Quapaw, Oklahoma

The enormous man-made mountains we saw in the distance in Quapaw, Oklahoma, were obviously tailings from some mining operation, and my first guess was that they were from the 3M Ceradyne plant we passed. I learned later that Ceradyne Boron Products is the leading global commercial processor of enriched boron and is the largest boron isotope enrichment facility in the world.

According to the Ceradyne website, “The 10Boron isotope is a strong neutron absorber and is used for both nuclear waste containment and nuclear power plant neutron radiation control. The 11Boron isotope is used as an additive to semiconductor grade silicon as a “doping” agent and in other semiconductor processes where ultra high purity boron (UHP) is required.”

But 3M and Ceradyne are not to blame for those mountains, which date back as far as the 1870s, when the Bureau of Indian Affairs sold land belonging to the Quapaw tribe to mining companies, who proceeded to extract lead and zinc from the land, leaving those mountains of tailings (called “chat” locally). Today they’re estimated to hold 75 million tons of waste, contaminated with heavy metals—mainly lead, zinc and cadmium.

Mining persisted in Quapaw until 1970, but most of the companies involved are long gone. In 1979, acid drainage from the flooded mines began leaking out into Tar Creek, eventually killing all the fish. In 1983, the EPA listed the 40-square-mile site on its National Priorities List, making it one of the first Superfund Sites, and later named it one of the most toxic areas in the U.S. In 2013, the Quapaw Tribe became the first tribe in the country to manage a portion of a Superfund Site cleanup, and they were so successful that this year the EPA awarded the tribe a contract to clean up a third portion of the site, a 20-acre section.

8. Elk in the Ozarks

Driving through the Ozarks, I was surprised to a sign warning of elk. We’d seen plenty of dead deer on the roadside (pretty much the whole trip) but the idea of elk in Arkansas was new to me.

Turns out elk were abundant in Arkansas (and many other states) until the 1840s, but as white men moved west, they disappeared—along with buffalo, black bears, prairie chickens and ruffed grouse.

In 1933, the U.S. Forest Service brought some Rocky Mountain elk to Arkansas, and the herd increased to almost 200 elk by the 1950s before disappearing.

Then in 1981, the Arkansas Game and Fish Commission entered into an agreement with the state of Colorado to trade elk for Arkansas largemouth bass, and over the next two decades, the Arkansas herd grew to almost 500. An elk hunting season was initiated in 1998, and today, the elk are a major attraction for tourists. We didn’t see any.

9. High Water in Little Rock

This is what the west bank of the Arkansas River looked like on May 12, the day we visited the Clinton Presidential Library.

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The river crested at 20 feet that day. Official flood level is 23 feet. My feet stayed dry.

10. Bass Pro Shop in Memphis

Not long ago, the iconic glass-covered Pyramid in Memphis, opened in 1991, was used for basketball games, boxing matches and rock concerts. But financially, the city-owned venue always struggled.

Now, its sole tenant is the biggest-ever Bass Pro Shop, which opened on April 29 and has a 55-year lease. This is not just the largest hunting and fishing store in the world; it also includes a 100-room hotel, restaurant, archery range, shooting range, laser arcade, bowling alley, saltwater aquarium and the tallest freestanding elevator in America which takes visitors to the “Sky High Catfish Cabin,” a restaurant, bar, and aquarium at the top of the building. We visited, were both awed and amused, and didn’t buy a thing.

And that completes my road trip posts, save for these suggestions to you about your own future travels.

Visit someplace new. Learn something new. Meet someone new. Whether it’s in the U.S. or overseas, the wider your horizons, the more you will understand where we came from, where we are and where we’re going.

Speaking of where we are, here’s my two cents, at least where the markets are concerned.

It’s Still a Goldilocks Market

Economic growth rates are slow but improving, inflation is low, wage growth is low, and investor sentiment is low, all of which is bullish.

Also, interest rates remain low, as Janet Yellen once again found little reason last week to raise rates. (Note: I’ve been a consistent believer that rates will stay low, not least because of the negative yields in Europe.)

Yes, the bull market is quite mature by historical standards, and yes, it’s highly valued by some measures, but neither of those measures means the bull has to end here.

So my best guess is that the bull will keep on running, as more and more investors lose their fear of investing and are attracted to the only place in town where you can get decent investment results.

As to where we (the world as a whole and Americans in particular) are going, I’m an optimist.

Yes, every day you can read troubling news on a wide variety of topics (printing good news generally doesn’t pay), but the fact is that in the long run, the world continues to get safer, and people continue to be better-educated and better-fed than their parents and grandparents.

And speaking of feeding, a few food stocks have been on my mind recently.

A Bubble in Burgers?

The first is Shake Shack (SHAK), the New York-based fast-casual burger restaurant that’s expanding fast. The company came public in January at 21, ended its first day of trading at 46, and topped at 97 in late May. Hot stuff!

Here’s a chart.

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Analysts are expecting SHAK to grow earnings 44% this year and 23% year. That’s not bad, but I wouldn’t buy until I saw signs that the stock’s current corrective phase had run its course.

Also looking for good growth in the burger world are Red Robin Gourmet (RRGB), expected to grow earnings 20% next year, and Sonic (SONC), expected to grow earnings 30% next year.

And then there are McDonalds (MCD) and Wendy’s (WEN), aging brands that are struggling as younger people gravitate to the newer restaurants.

That’s a lot of burger restaurants—perhaps too many? And it doesn’t include the trendy private chains, like Five Guys, In-N-Out, Whataburger, Umami Burger and Iron Chef Bobby Flay’s Bobby’s Burger Palace.

Might we be in a burger bubble? It’s certainly possible, especially because I’ve seen nobody mention the possibility, with the exception of Cabot’s chief growth analyst, Mike Cintolo.

In any case, there’s little doubt that the best time to invest in burgers was 50 years ago, soon after McDonald’s came public.

Today, I’d rather get on a newer trend, one that I think has a long way to go—the trend toward eating healthier food.

This trend is not brand new, of course. Whole Foods Market (WFM) has been a great growth stock for years.

But every year the movement grows, and now, with Chipotle, Panera and other chains (even McDonalds) cutting back on unhealthy additives and vying to be viewed as “healthy,” the movement is gaining momentum.

That means there’s money to be made by owning the right stocks!

Hain Celestial Group (HAIN)

Back on April 28, I wrote the following about Hain Celestial to readers of Cabot Stock of the Month.

“Hain Celestial is best known for its teas, but tea makes up just 5% of the company’s revenue. The remainder comes from a wide variety of natural and organic foods, snacks, beverages and skin care products.

“Food and snack brands include Arrowhead Mills, Breadshop, Casbah, DeBoles, Earth’s Best, Garden of Eatin’, Greek Gods Yogurt, Health Valley, Hollywood, Imagine Foods, Linda McCartney, Little Bear, Marantha, Mountain Sun, Nile Spice, Sensible Portions, Spectrum, Sunspire, Terra Chips, Walnut Acres and Westbrae Natural.

“Beverage brands include Blueprint, Celestial Seasonings, Mountain Sun, Rice Dream, Soy Dream and West Soy. And personal care product brands include Alba Botanical, Avalon Organics, Jason, Orjene Organics, Queen Helene and Zia Natural Skincare.

“The company has grown revenues at rates ranging from 24% to 26% over the past three years, while growing earnings at rates ranging from 25% to 37%, and I expect similar growth in the years ahead, as the organic food market is growing at 14% annual rate and Hain Celestial, as the leading company in the industry, has a proven process of acquiring young brands and using its size to expand distribution rapidly.

“Plus, it’s possible that the organic food market might grow even faster, as consumers increasingly choose organic and natural food over the alternatives. Just last week, for example, Chipotle Mexican Grill announced that it had succeeded in eliminating genetically engineered ingredients from all its food offerings, while Tyson Foods today announced that it would eliminate human antibiotics from its chicken by 2017.

“Also, market opportunity in the rest of the world is still huge, as 52% of Hain’s revenues today come from the U.S., 28% come from the U.K. and 20% come from the rest of world.

“Short-term, I’m highlighting HAIN today because the stock’s recent correction, from 66 down to (below) 60, reduces short-term risk. The trigger for the selloff was a downgrade from an analyst, who opined that the stock was fully valued (which is code for “sell” in analyst-speak). But I think this 10% haircut offers a nice buying opportunity in a stock whose main trend is clearly up.”

In hindsight, that was a good call. The stock recovered slowly from that 60 level until last week, when it soared from 62 to above 67 after both Merrill Lynch and Jim Cramer highlighted the stock. Readers who bought on my April recommendation have a great profit cushion…with the prospect of much higher prices over time.

But what should you do if you don’t own it?

You could just jump in here, but a wiser choice would be to become a regular reader of Cabot Stock of the Month, so you can my regular updates on every stock in my portfolio, as well as the next new recommendation, which comes out next week!

 

Yours in pursuit of wisdom and wealth, 

 

Timothy Lutts

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