Friday, May 26, 2017

Is Sugar A Bad Investment? - Part Two

Earlier this week I pondered if Sugar Is A Bad Investment? I highlighted portfolio member Hershey's(HSY) along with fellow snack, and confectioners. It was noteworthy to see the overall out-performance of the group compared to the S&P 500 over 5 years.

Today we are going to take a quick look at what's most likely the sugar industries dreaded 800 pound gorilla. Beverage Manufacturers. They have been under increased public scrutiny due to  high sugar content drinks that offer no additional nutritional value.  There also seems to be a larger incorrect belief by the public that sugary drinks are more harmful than sugary snacks.

At the forefront is Coca-Cola(KO) which is famously held by Warren Buffet's Berkshire Hathaway(BRK.A).  Coca-Cola is arguably America's most recognized brand, and a titan in it's hometown Atlanta, Georgia where it sponsors many civic events, charities, and public projects.

The other two major players comprising the big three are Dr. Pepper Snapple Group(DPS), and PepsiCo(PEP) which happens to be the only company of the three that is not purely a beverage business as it owns multiple food brands. In direct contrast to the snack food companies, there is a large spread for their overall performance the last 5 years. I was actually quite shocked to see Dr. Pepper Snapple Group holding the lead by such a large amount with a 163% gain. PepsiCo had inline performance with the other snack makers. Then rounding out the bottom is the woeful performance of Coca-Cola at 40.05%.  Still to see 2/3 companies outperforming the S&P 500(not including dividends) shows that the sugar business is still a good moneymaker for investors.

This should serve as a good lesson to novice investors out there. Just because there's a lot of negativity around an industry that does not mean you should ignore the numbers.  It takes more than negative public perception to bring investment returns down, and being biased in your decision making can put you at a disadvantage. 

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