What’s the Safest Long-Term Investment Theme When it Comes to Stocks?

I suppose I should define “safest” before giving my opinion.  If we define safety as our confidence that the industry, business model or product will withstand the test of time, I believe the safest long-term investment theme is food.  Think about it for a minute.  Everyone eats food.  Not everyone buys a smartphone, an electric car, fancy yoga pants, or drinks an expensive latte.  That doesn’t mean that these aren’t great themes to invest in today, but I can’t say with as much confidence that people will still be buying these products for the next 100 years as I can that they’ll still be eating food.  I would even say that the right company with the right business model in the food/agricultural industry is as close to an annuity as you can come with a stock.  And obviously other basic human needs, like healthcare, are right up there as “safe” themes too.

With that said, I added stock in Mead Johnson Nutrition Company (MJN) to portfolios earlier today.  After announcing that sales/profits will be lower than expected for this quarter and this fiscal year, the stock opened this morning down around 4.5% from yesterday’s closing price.  My guess is weakness in China but we’ll find out during their earnings call next week.  This type of weakness tends to be the best times to buy companies like this though, as I believe Mead Johnson is the type of stock you can add to your portfolio today and forget about for the next 20 years.  Here’s the company overview from their form 10-K:

Mead Johnson Nutrition Company (Mead Johnson) is a global pediatric nutrition company. The Company manufactures, distributes and sells infant formulas, children’s nutrition and other nutritional products. Its product portfolio includes routine and specialty infant formulas, children’s milks and milk modifiers, dietary supplements for pregnant and breastfeeding mothers, pediatric vitamins, and products for pediatric metabolic disorders. The Company operates through three segments: Asia, Latin America and North America/Europe. The Company’s Enfa family of brands, including Enfamil infant formula, is a brand franchise in pediatric nutrition. Its product portfolio addresses a range of nutritional needs for infants, children and expectant and nursing mothers. The Company markets its portfolio of more than 70 products to mothers, healthcare professionals and retailers in more than 50 countries in Asia, North America, Latin America and Europe.

Most projections have the global population rising from approximately 7.2 billion people today to around 9.6 billion people by 2050, with the vast majority of growth occurring in emerging markets.  Not to be smart but the world’s population can’t rise without babies being born.  Over 75% of Mead Johnson’s sales occur outside the US (just over half in Asia) and roughly 60% of sales are from infant formula.  They also just opened a new plant in Singapore to support expansion in Asia.

Mead Johnson is a company I’ve had my eye on for a while.  It’s an absolutely fantastic company in a great long-term position.  The issue for me has always been the valuation.  Companies that provide consistency and long-term sustainability typically trade at a premium to businesses with more volatile earnings streams.  But with the stock down about 20% from its high earlier this year, the valuation has come down to a level I’m comfortable with and so I couldn’t pass the opportunity to buy some.  I would classify MJN as a hybrid company between Growth and Income – a conservative growth company with a 2% dividend yield.  Regardless, it’s a company that I have a high amount of conviction will deliver a nice total return over the next 10+ years.

Thanks for following!

-Nick

Mead Johnson Nutrition (MJN) – 3 years (weekly chart)