The food group's always fascinated me. That's because it's got almost no growth but it's always been loved. Sure, there are periods where the love is tested, namely by dramatic accelerations in the economy, but ever since the Great Recession and the lack of clear-cut snap-back, the love affair's been torrid, and today it has reached fever pitch.
The immediate catalyst is talk of a big bid for Hershey (HSY) from Mondelez (MDLZ). Hershey is run by a trust that can veto anything, so this one's going to take a consensus. But this is a bid built of necessity. You see here's what happens with these stocks: Unless they buy other companies and rationalize them by firing lots of people and running the product through an already established distribution system, it's mighty hard to grow. The supermarket aisles are pretty much set. There's share to take from others via innovation and heavy advertising. You can spend your way into better supermarket real estate.
Still, though, there aren't going to be two more aisles for Mondelez's Oreos and Chips Ahoy. You aren't going to get another candy aisle to fit in 20 yards of assorted Cadbury candies.
So Mondelez has to grow by acquisition, which has been the way of this group for time immemorial: witness Kraft Heinz (KHC), or General Mills (GIS), which bought Quaker Oats, and PepsiCo (PEP) with Frito Lay. You don't do a deal, you are stagnant.
So, of course, Mondelez wants Hershey because if it accelerates growth then Mondelez's stock goes up, too, as is the case even on today's scuttlebutt.
As I said last night, the group had already been in the process of being re-rated because of General Mills' robust quarter, when that venerable company announced some real growth in its core business -- cereal. How did the growth come about? Simple: General Mills is becoming more natural and organic. Removing the artificial coloring of some of the cereal results in a dramatic increase in sales, just as you would expect given the consciousness of this new generation to natural and organic and the repulsion to all things chemical and inorganic.
It's the same reason why my charitable trust, which you can follow at Action Alerts PLUS, has maintained a big position in WhiteWave (WWAV), the natural and organic maker of plant-based drinks. Sure, I might not have discovered the company if I didn't co-own an inn in Summit, N.J., and kept running out of almond and soy milk when serving breakfast to a younger-oriented group that skewed foreign. The fact is that's a double-digit grower in a group that's so challenged for growth that you can never rule out a takeover. (Kraft Heinz, PepsiCo and WhiteWave are part of TheStreet's Action Alerts PLUS portfolio.)
The same thing goes for Kellogg (K), another stock that's flying both off the re-rating and the rumor mongering. In order to keep even a semblance of growth, Kraft-Heinz must do a deal. Kellogg works. It's a fact of life, companies with no growth either invent it or buy it, and when it comes to food there is no real mother of invention.
I have said takeovers will be the backbone of the second half because of the lack of growth. Consider today a gun jump, and a good one for the bulls at that.