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Bruce Vanderveen
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The Federal Reserve has pegged interest rates to all time lows. This leaves income investors in a quandary. Bruce looks at the best income, growth, natural resource, and technology equities while taking a contrarian approach. ETFs can often be used to manage risk for investors who wish to take a... More
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  • Can Coca-Cola Come Off Its Sugar High?

    As one of the bluest of blue-chips, The Coca-Cola Company (NYSE:KO) is beloved by many investors - including the legendary Warren Buffett. The company's iconic, namesake brand is known, perhaps better than any other, throughout the world.

    But things have not gone well for Coca-cola lately. Soft drink sales are in decline and now, to make matters worse, sugary drinks are increasingly suspect in sharply rising global rates of obesity and diabetes.

    To be sure, Coca-cola is not the only company accused of selling unhealthy food and drink. Kraft Foods Group, Inc. (NASDAQ:KRFT), Pepsico, Inc. (NYSE:PEP), General Mills, Inc. (NYSE:GIS), McDonald's Corp. (NYSE:MCD) and others have all come under fire in recent years.

    I will profile Coca-cola here, not to pick on them, but because of its instant brand recognition and sheer size make the company a proxy for all sweet soft drink manufacturers. Pepsico, Inc., Dr Pepper Snapple Group, Inc. (NYSE:DPS), and others are also in the soft drink business and the gist of this article applies to varying degrees to them also. And, keep in mind, soft drink companies simply sell (helped by good advertising of course) what consumers wish to buy.

    Obesity and Diabetes Are Now Global Epidemics

    Diabetes is a terrible disease. It attacks the whole body and can lead to heart disease, cancer, stroke, kidney failure, foot amputations, blindness, and more. The cause? The increasingly common type II variety - 95% of all cases - appears to be the result of excess amounts of sugar in the diet. The disease has spread along with its handmaiden obesity like a cancer across the U.S. in recent years. Increasingly it is affecting children.

    At one time diabetes was relatively rare - but no longer. The American Diabetes Association says 8.3% of Americans now have the disease and an additional 25% are prediabetic - meaning they run a good chance of developing a full-blown case. What's worse, once you have it you cannot be cured. It can only - hopefully - be controlled.

    Internationally, it's mostly bad news. Diabetes has a strong genetic component and ethnic groups such as American Indians, Hispanics, Asians, and Pacific islanders seem especially susceptible. Mexican Americans are almost twice as likely as Caucasians to be diagnosed with diabetes.

    Do Coca-cola's Offerings Contribute To Obesity And Diabetes?

    Many studies, such as this one from the Harvard School of Public Health, claim sugary drinks do indeed contribute to obesity and diabetes. Coca-cola's sweet soft drinks are loaded with sugar (mostly the controversialmanufactured sweetener HFCS as it is cheaper than natural cane or beet sugar).

    A 12 ounce can of coke has about 10 teaspoons of sugar in it and many folks drink a lot more than 12 ounces of soda. 7-11's 32 oz Big Gulp contains over 21 teaspoons of sugar. There are a profusion of even bigger sizes available.

    Classic coca-cola is the number one selling soft drink in the world so you can be sure a lot of Coca-cola's beverages go into those herculean sized containers.

    With all this sugar going into the body the pancreas insulin-producing cells can be overwhelmed and the stage is set for obesity and possibly diabetes.

    No Refuge in Diet Drinks

    After Coca-cola classic, Diet Coke is the second best selling soft drink in the U.S. And, since diet drinks do not contain sugar (most are sweetened with the artificial sweetener aspartame), one might expect diet drinks to be the quick and easy switch for health conscious consumers.

    Unfortunately - though Coca-cola claims otherwise - many scientific studies such as this recent one from Purdue University show artificial sweeteners to also be deleterious to health. A simple Google search on the subject turns up dozens, if not hundreds, of links on the ill effects of artificial sweeteners.

    So there you have it. The two best selling soft drinks, Coca-cola classic and Diet Coke, when consumed in excess, may make you fat and sick. How does the company respond?

    Coca-cola's Response

    Coca-cola is well aware of the controversy, of course. The company seems to be responding in three ways: First, they downplay the issue, second they promote sugar-free beverages, and third, they are looking at alternative sweeteners such as stevia.

    The company minimizes (but doesn't deny) the danger sugary drinks may pose. In a recent press release Coca-cola pledged to offer low or no calories beverages in every market, make calorie counts more visible, support physical activity programs, and to not advertise to children under 12.

    Not surprisingly, Coca-cola claims aspartame is safe (the company has the support of the FDA with that assessment). However, the FDA's position on aspartame is irrelevant if consumers become fearful of the artificial sweetener. And, with Diet Coke sales down, consumers may be starting to do just that. Coca-cola executives are beginning to admitthings are not going well with aspartame.

    Stevia is a natural, no-calorie sweetener derived from a tropical plant in the sunflower family. Stevia does not raise blood sugar and appears to be the "rising star" of natural sweeteners. Coke is introducing Stevia on its websites and through its Coca-cola Life brand which debuted inArgentina last June. Coca-cola Life is sweetened with a mixture of sugar and stevia. The jury is still out on how well Coca-cola Life will do.

    Will A Sugar-Diabetes Link Dethrone Coca-cola?

    The sugar-diabetes link is not good news for Coca-cola of course and with soft drinks at 70% of sales one might, at first glance, expect the company to be vulnerable.

    Yet, it's highly unlikely that Coca-cola will lose its "king of soft drinks" status. It's also highly unlikely the world will stop drinking soft drinks. The company has such strong brand recognition that no matter what is offered, it will sell if the word coke is in it.

    What likely will happen is Coca-cola and other soft drink manufacturers will promote "healthy" beverages such as bottled water brands (Coca-cola has Dasani and vitamin waters) while introducing beverages such as Coca-cola LIfe into their brand mix. Companies can then claim consumers have viable healthy choices and it has done its part. Margins may even be higher for the "healthy" choices.

    Strong Fundamentals

    As noted earlier, Coca-cola enjoys brand recognition throughout the world. Also, the company has shown consistent growth and profitability over the years and, though the product mix may change, sales will likely continue to be robust as consumers will always want cold, non-alcoholic drinks.

    In recent years an investment in Coca-cola has proven to be outstanding. Stock prices have doubled over the last 5 years and the company, a dividend aristocrat, has increased the dividend an average of 8.6% annually over the last 10 years.

    According to Yahoo Finance, the company has over $20 billion in cash on the books and strong free cash flow. Additionally, it boasts an unrivaled distribution network across the world and is seeing rapid sales growth inAfrica, Asia, and Eastern Europe.

    Coca-cola is currently priced at $40 a share, has a P/E of 20, and the stock is on an upswing after faltering over the summer. At 7% off it's 52 week high it is not in the bargain bin though. I feel that, despite the sugar issue, the company will continue to do well.

    Conclusion And Summary

    Will Coca-cola ever be looked on as a sin stock? Probably not, but even "sin stocks" (think tobacco, gambling, alcohol, and firearms) have never let their reputations get in the way of profitability - some say it even adds to the allure.

    People the world over will always look forward to relaxing with a refreshing cold drink and Coca-cola will be there to give it to them. Sugary drinks may or may not keep their current popularity but Coca-cola will likely be the King in beverages for a long time.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: KO
    Nov 18 9:52 AM | Link | Comment!
  • Coffee And Chocolate: Gratifying Investments?

    Aside from a few puritanical malcontents, we all love coffee and chocolate. I know many of my friends prefer coffee over just about anything. The same, pretty much might be said for chocolate. You might call them recession proof necessities

    Surprisingly, both coffee and chocolate are actually good for you (in moderation of course). They may even help you live longer.

    Coffee (Coffea arabica)

    The coffee story, shrouded in myths and legends, claims an Ethiopian sheep herder named Kaldi noticed his sheep getting hyperactive after eating some red berries. Trying some himself, he soon found himself in a frenzy. Local monks disapproved - at least until they found it kept them awake longer for prayers. Things have been astir ever since.

    Turn of the Century Nicaraguan Coffee PickersCoffee bean picking is mostly by hand and the industry provides over 20 million jobs worldwide - a real boost for local economies.

    Three Publicly Traded Coffee Companies

    Starbucks (NASDAQ:SBUX) is a $42 billion corporation. Perking along nicely, the company is near its 52 week high. Its stock, however, may now be somewhat frothy and ripe for a spill.

    Green Mountain (NASDAQ:GMCR) is a $7.2 billion roasting company which is currently under SEC investigation for accounting irregularities. It's in a brew of trouble right now. The stock is down over the last 6 months. Is it a bargain? Possibly.

    Caribou (NASDAQ:CBOU), the smallest of the three companies mentioned here - market cap $390 million - is arguably the best investment. The company has $2 cash per share, no debt, and has shown steady growth.

    Chocolate (Theobroma cacao)

    Chocolate has been synonymous with romance since the 16th century. Europeans added cane sugar and milk to the bitter, fermented beans. The result has been pure delight. Saint Valentine's Day, actually just about any day, is a splendid time for chocolate.

    Originally from tropical America, 2/3 of cacao plantations are in Africa. Ivory Coast and Ghana lead in exports.

    Two Established "Chocolate Companies"

    Hershey (NYSE:HSY) and Tootsie Roll Industries (NYSE:TR) are both well established publicly traded companies. I love Hershey's Special Dark Chocolate with Almonds - delightful. Tootsie, a conservatively run company with practically no debt, has been around since 1896. The company has been paying dividends since 1943 (current yield 1.34%) and Forbes has a recent favorable write-up on it.

    Pure Commodity Investments

    You can invest in the pure commodities through ETNs. Coffee is tracked with iPath's (NYSEARCA:JO) and (NYSEARCA:CAFE), chocolate with iPath's (NYSEARCA:NIB) and (NYSEARCA:CHOC). Keep in mind, however that these ETNs are thinly traded. Coffee futures are down 30% in the past year, cocoa's is down 25% (see here).

    Is Anything More Reliable Than Coffee or Chocolate?

    Are you worried about paper money becoming worthless? Here's an idea: Stock up on coffee or cacao beans. Both have been used as currencies in the past. No inflationary debasement. An added bonus: You can eat or drink them - try that with gold or silver.

    Deflation make strike. Central Bank printing presses may roar. Inflation may rage. Nations may totter. It doesn't matter: We will still be drinking coffee and indulging chocolate. Enjoy!

    Disclaimer: This article is informative only - not personalized advice. Do your own research and due diligence before investing

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Apr 01 8:20 AM | Link | Comment!
  • 3 Speculative Mississippi Lime Micro Caps To Consider

    What is the hottest oil play in North America? Steve Antry, CEO of privately held Eagle Energy says it is the Mississippian limestone of northern Oklahoma and southern Kansas. This formation is an old field - Phillips Petroleum was in the area 100 years ago. What is new is the large amounts of remaining oil now being collected thanks to horizontal drilling and hydraulic fracking.

    An American Association of Petroleum Geologists write-up claims Mississippian wells cost less than $2.5 million each but can produce hundreds of barrels of oil equivalent a day and have an estimated ultimate recovery of up to 400,000 barrels per-well .

    Everyone knew oil was there. Trouble was, in the past high water content and complex geology made finding it a hit or miss proposition. Now, with horizontal drilling and multistage fracking, dry holes are rare.

    As I noted in an earlier article, SandRidge Energy (NYSE:SD) has staked out a major position in the formation. Chesapeake Energy (NYSE:CHK), Range Resources (NYSE:RRC), and Devon Energy (NYSE:DVN) also have major holdings.

    Here, I will briefly profile 3 micro caps which have acreage in the Mississippi Lime. These companies are very speculative so do considerable due diligence before investing.

    Equal Energy (EQU)

    Equal Energy has a market capitalization near $132 million and has approximately 20,000 net acres in the Mississippi Lime. Current share price is under $4. Yahoo Finance shows revenue at $4.03/share, book value of $7.03/share, and total debt at $223 million.

    In addition to its Mississippi acreage Equal has a geographically diverse array of assets which include Canadian oil and liquids rich gas from Oklahoma's Hunton formation. These legacy assets seem to be undervalued (stock price is 55% of book value). Its not yet drilled Mississippian acreage could potentially be very profitable.

    Equal has a troubled past, a past - which may now be behind it. Seeking Alpha author and investor Nawar Alsaadi has written an article which goes further into the company's history and assets.

    Osage Exploration (OEDV.OB)

    This small, debt free company has a market capitalization of $32 million. Current share price is around $.68. Yahoo Finance shows revenue at $.06/share and a book Value of $.09/share.

    Osage is partnering in the Mississippi Lime with Slawson Exploration and U.S. Energy Development Corporation (USEDC) - both well established companies. Slawson has drilled over 3500 wells in 10 states. Osage is financing drilling by granting Slawson a 42% interest and USEDC a 30% interest. Osage retains a 25% non-working interest for a net 5,000 acres. The partners recently spudded their first two horizontal wells in the Mississippian.

    Osage is a nearly pure play (It also has interests in Columbia.) on the Mississippi Lime. The focus now, however, is on the Mississippian. Osage's stock, which sold for $.08 a year ago, has gone up nearly 10 fold.

    American Petro-Hunter (AAPH.OB)

    American Petro-Hunter has a market capitalization around $6.8 million and a share price of $.24. Yahoo Finance shows revenue of $.01/share and book value at -$.08/share. Total debt is $3.5 million.

    According to its website American Petro-hunter has nearly 6,000 acres of land holdings in the Mississippian (I could not find net holdings.) Its third well has just entered the completion phase. American Petro-hunter also has other producing fields in Oklahoma and Kansas.

    Summary

    All the above companies have high hopes for their Mississippi acreage. Equal Energy is the most diversified and established. Osage Exploration and American Petro-Hunter have pretty much staked their future to the Mississippi Lime and may thrive or falter depending on production results there.

    Is the Mississippi Lime the hottest play in the U.S? Well, that's debatable. What does seem obvious though, is how productive horizontal drilling and multistage fracking have become. Not only are shales like the Bakken being successfully fracked but now we also have older, carbonate fields such as the Mississippi Lime roaring back to life. This all bodes well for future U.S. oil production.

    Disclaimer: This article is informative only - not buy or sell advice. Do your own research and due diligence before investing.

    Disclosure: I am long EQU.

    Mar 03 8:03 AM | Link | Comment!
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