Great Things Come in Small Packages
By Steve Singiser
My April Newsletter article closed with the following thought: “If Peter Lynch drinks coffee, he probably owns shares of their stock. Who is Peter Lynch and why should we care if he is invested in Starbucks? Some of you may know the answer. For those who don’t know, I will answer the question in our July Newsletter.”
Peter Lynch, a renowned mutual fund manager of yore, embraced an investment philosophy centered on buying shares of companies he knew and understood personally. Like Peter, we may buy their products or use their services. In theory, if our favorable opinions are shared by others, the company will be successful, and the price of their stock will go up. It makes sense, and Peter Lynch’s fund was one of the best-performing funds at that time. It was called the Magellan Fund. You may remember it. It still exists, but under different management.
As a successful mutual fund manager, Mr. Lynch would purchase high quality growth stocks such as Eastman Kodak, Xerox, IBM, Singer, Polaroid, or General Electric. But these are the growth stocks of another era.
Now, I want you to look around your house for products you like, purchase, and use, particularly in your bathroom, laundry, or kitchen. In your bathroom you may find Colgate toothpaste or Johnson & Johnson Band-aids; in your laundry you possibly use Procter & Gamble’s Tide or Clorox bleach; perhaps, in your kitchen refrigerator you have stocked up on Coke or Pepsi products, or have that little orange box of Arm & Hammer baking soda by Church & Dwight. Maybe there is even a pound of Starbucks Coffee.
These are all great consumer products made by companies that have been profitable for a very long time. They may still be considered for your portfolio. I almost forgot. Somewhere in your house, maybe a home office, you have a computer made by Apple or another manufacturer that you use to communicate with friends on Facebook, shop at Amazon, or look for answers on Google. Present day technology stocks fit nicely in a Peter Lynch portfolio.
But you don’t have to look any further than your kitchen to find the products of a unique company that has grown successfully for a very, very long time. I cannot think of another company that better defines the concept of ‘sustainability’, currently a favored term for analyzing attractive investments. Many of its products have been commercially valued and marketed for thousands of years. The company itself was founded in 1889. If you like to cook, you have more than a passing familiarity with their products packaged in small bottles and metal boxes labelled in red, with a distinctive ‘Mc’. McCormick & Co. is, of course, the company’s name. Spices and seasonings are the company’s game.
McCormick Facts
The above chart, published by Securities Research Company, shows the past 35 years of McCormick’s performance as an investment. Besides plotting the stock’s historic price gains, the growth of earnings is shown in green and growth of annual dividends in red. It is very impressive.
The company was founded in 1889 by Willoughby M. McCormick with three young employees. It operated out of a cellar and sold fruit syrups, root beer, and flavoring extracts door-to-door. Over the past 130 years the company’s internal growth has been augmented by numerous acquisitions: French’s and Lawry’s are two familiar brands. Currently, they employ 12,000 employees, and sell their products worldwide in 150 countries. In 1921 McCormick built a landmark headquarters in Baltimore, MD, and in 1941 they trademarked the very familiar “Mc” corporate symbol. The Company’s stock was added to the S&P 500 index in 2003.
Total returns to shareholders have been 14% or more for the past 1, 5, 10, and 20-year periods. Dividends have increased every year for the past 33 years, and a dividend has been paid for 93 consecutive years. During the most recent 25-year period, both earnings and dividends have consistently grown at about 9% annually.
This year, McCormick was ranked 22nd in the ‘2019 Barron’s 100 Most Sustainable Companies’ list drawn from a field of the 1000 largest publicly owned stocks. The rankings were based on an analysis of performance in the areas of shareholders, employees, customers, planet, and community. McCormick is a great company on many levels.
Spice Facts
It cannot be overstated the role spices played in opening trading routes – on land and by sea, from ancient times through the middle ages – facilitating commercial trading of many products between the Far East and Europe before there were other means of transportation. Spices were the catalyst, even though the network of trading routes is commonly referred to as The Silk Road. Caravans, Marco Polo, camels, bandits and general mayhem were all part of centuries of spice trading stories that have been overly romanticized by our imaginations.
Vanilla extract, taken from an actual vanilla bean, is considered superior to artificial vanilla flavorings and it costs nearly twice as much. It grows on a vine in a limited number of tropical regions. The species is Vanilla planifolia. It is actually an orchid. No other orchid species produces the same wonderful flavor and aroma. It is my favorite.
Cumin seeds were thought to enhance fidelity and were sometimes an ingredient in aphrodisiac potions. Young women used cumin as an ingredient when baking bread for their sweethearts to ensure their return.
Saffron is probably the most expensive of all spices or seasonings by weight and is sold to consumers in small quantities. An ounce of saffron might retail for close to $300. It grows best in what is called a Persian climate. It takes over 4000 saffron flowers to produce an ounce of the final spice. Use it sparingly. In ancient times it was used as a perfume, a dye, and for medicinal purposes. Because of its high price, it is sometimes called ‘red gold’, yet is not nearly as expensive as real gold selling at about $1,340 an ounce.
Where I live, large quantities of what we call ‘liquid gold’ is produced. When bought by the quart, it sells for only $0.60 an ounce. It is, of course, Vermont Maple Syrup. In recipes, on pancakes or waffles, however, “It is worth its weight in gold.” Bon Appétit!