Since that time, I think the rest of the food group has gotten even more desperate to become MORE natural and organic and it would make a ton of sense for Nestle, General Mills (GIS) or Kellogg's (K), all of which are challenged for growth, to snap up Hain for $120 a share, 50% above where it is now but a bargain for them because it would immediately raise their price-to-earnings multiples given the growth acceleration Hain would present all of them once the deal closes.
The Cost-Conscious Consumer
We've got a consumer who -- rich or poor -- no longer feels wealthy and that's a consumer worth investing in. There are two plays on this theme that make the most sense to invest in: Costco (COST) and TJX (TJX). Costco has prided itself on offering the lowest price for merchandise because it makes its profit on the Costco cards so many of us proudly carry.
I recently pulled up with Craig Jellinek, Costco's chief executive officer, and I am convinced that he is following perfectly in the tradition of retired CEO Jim Sinegal in offering the treasure-hunt experience that is fabulous for customers, but a nightmare for suppliers because Costco rotates through new product constantly and then pulls it just when it feels that the goods have gotten too commonplace. It's the secret -- besides those incredibly good samples and the ultra-low prices -- to the chain's strength.
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TJX is a marvel to behold. It's the company that comes with cash to the strapped retailer, the J.C. Penneys (JCP) of the world, and says we will take your excess inventory for dimes on the dollar and then TJX marks it up to quarters on the dollar in a way that the public can't resist.
It truly is the only discounter that has thrived during this period, which has seen Target (TGT), Wal-Mart, Penney and even Ross Stores (ROST) stumble. I love to shop at the TJ's right across the street from here, buying the same goods that I have seen marked up gigantically at those supposedly discounted retailers.
If you want stability and a slower growth play on the concept, consider Tanger Factory Outlet (SKT), a real estate investment trust that's capitalizing on the inability of major stores to maintain full price. This is the one real estate investment trust I follow that has held up in the face of higher interest rates. I think it will continue to do so.
Weak Antitrust Department
What's the fourth theme? The bounty that comes from a very weak Antitrust Department that seems to bless deals that would be vetoed out of hand by any Republican administration. The biggest beneficiary? The airlines.
The combinations that have been allowed in the airline industry have, for the first time, let these companies earn their cost of capital and THEN SOME. It is the single best time ever to be in the airline business because of a dramatic decline in competition and I can't emphasize enough that you need to invest in this area that I have formerly found to be totally uninvestable.
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I had favored Delta (DAL), which I think can easily advance some 50% from these levels if oil stays tame, although its ownership of a refinery allows for a very favorable cost advantage. But the ridiculously anti-competitive merger that was the US Airways-American Airlines deal, I think could lead to a double in the next 18 months for the combined company, which will trade as AAL. History has shown that when airlines are allowed to merge, the synergies are awesome and the possibilities for fare increases remarkable and seemingly endless.
Previously, when we have had these combinations, they ultimately ended badly for shareholders because discounters came in to compete and ruin the margins. But this time there are many things working against the potential discount entries. First, they need new planes and the lines for planes from Boeing (BA) and Airbus are ridiculously long. You can't get a Dreamliner until 2020 and the queue for the 777 is already beyond the reach of a startup.
Normally, startups would simply purchase old planes and get things up and running instantly. But the old planes now use too much fuel and fuel can equal 50% of the costs of operating the airline, which is just too prohibitive to compete with the majors, which are outfitted with the latest and least-jet-fuel-consuming aircraft.