Guest Post: Don’t Buy Candy. Buy The Company!

Good morning!

Today we have a guest post from Chris Pascale. Chris has written in the past about his oldest daughter opening up a Roth IRA at age 15. In this post, he shares the story of his youngest daughter bought a stock at 8!

It’s never too early to introduce your kids to the stock market. Teaching them about money when they are young will influence how their financial behaviors as adults. When you see someone who is a good saver and investor, there is a strong chance that that person will tell you his or her parents instilled money wisdom all along.

Don’t Buy Candy. Buy the Company!

by Christopher Pascale

My youngest daughter loves candy. She happens to be very good with money, but candy is the thing she likes best.

One day she wanted to take $30 to the candy store and spend it all, reasoning that it’s her money, so why shouldn’t she get to buy candy with all of it? Aside from the fact that I don’t want all of that candy in my house, she might need that money, like in the times she’s bailed us out (as noted in this GrumpusMaximus article).

Rather than just say no, I said, “why buy candy when you can buy the whole store?” This piqued her interest, and led her to figure she could purchase the local Sweet Street shoppe and then get free candy every time she went in.

Obviously, some more explaining was in order, because Sweet Street isn’t for sale, and she doesn’t have enough capital if it was, nor the ability to do the work. So we looked into the stock market.

The plan was to find a company with long-term potential and dividend income.

Getting Started Is So Hard

We know great ideas are everywhere, but to pull the trigger is to climb a mental mountain. It was not until months later that we finally got her trading account set up.

My original intent was to just have all 4 of my girls use Vanguard for index funds. I got as far as printing off the forms, but we never filled them out.

Finally, this month, after another college semester where I successfully bullied more than one student into not being poor when they are old, I got on Google and searched for candy companies. Up came the following results:

  • Hershey’s (NYSE: HSY)
  • Tootsie Roll (NYSE: TR)
  • Nestle (OTCMKTS: NSRGY)
  • Mondelez (NASDAQ: MDLZ)
  • Rocky Mountain Chocolate Factory (NASDAQ: RMCF)

What Candy Co. Has the Best Stock?

Having never heard of the Rocky Mountain Chocolate Factory, the R&D division of the Pascale household needed to find out more, leading us to order the Rose Crystal Gourmet Caramel Apple.

At $23.00 after shipping, I was excited about the potential for profits. We’d have visited a store, but there are none (yet) on Long Island, so if anyone wants to franchise, see here.

I’ll dive more into this company in a bit. We need to discuss company size, breadth of products, dividend opportunities, and more.

What we don’t need to solely focus on is share price. SHARE PRICE ALONE IS NOT A REASON TO BUY SOMETHING.

Share price is why dummies (I’m one of them) will buy penny stocks, because it feels so cool to get 10,000 of something, or a million, which makes sense when thinking that it could go to $1.00.

Not helping matters any is that The Gap used to be a penny stock, but what did The Gap also have? Great leadership and growing revenues.

I say this because you might shy away from Hershey’s at $90.00, which will pay reliable dividends every quarter, but dive into SolarWindow Technologies (OTCMKTS: WNDW), which hasn’t gotten around to selling a single solar panel! That’s right. While Hershey’s is terrific with consistent sales of $7-8 Billion, SolarWindow hasn’t gotten around to selling a dollar’s worth of anything.

So, while you can buy dozens of shares of SolarWindow for every 1 share of Hershey’s, keep in mind that with one you are investing in a company that is actually doing business, and with the other, it’s a mystery how it even made it onto the Wealthy Joe Investing site.

Hershey’s (NYSE: HSY)

The history of this company is a rich one that involves building a high-tech town where workers had electricity well before many others. On top of that, delicious, affordable products were brought into the lives of so many people who could not otherwise afford what may have been a luxury.

Should my daughter buy Hershey’s stock?

Price on 5/15/2019: $127.06

Dividend: 2.27%

Market Cap: $26.53 Billion

2018 Revenues: $7.79 Billion

2018 Net Profit: $1.18 Billion

Can Hershey’s grow? I think so, because it can infiltrate other nations, as Coke has in Southeast Asia and Africa.

But it can also grow as Nestle and Mondelez have, by diversifying its product line. After all, if Hershey’s came out with a bottled water, I’d drink it, especially if coupons suddenly landed in my mailbox.

RESULT: Strong Recommendation to Buy

Tootsie Roll (NYSE: TR)

What surprised me is that Tootsie Roll has a very slim product line, explaining why it’s smaller than the other giants mentioned here, but it could also explain why they are doing very well, too. After all, focus is important in business, and while Pepsi has done well to get into a variety of extremely unhealthy options to complement their terrible beverages, Coke is no less a big player while not spreading itself so thin.

Should my daughter buy Tootsie Roll stock?

Price on 5/15/2019: $38.85

Dividend: 0.93%

Market Cap: $2.4 Billion

2018 Revenues: $518.9 Million

2018 Net Profit: $56.9 Million

Can Tootsie Roll grow? Tootsie Roll can easily find its way into the same markets as Coke and Hershey’s, and can do so for so much less. The reason is because to get into some of these markets, companies have to provide infrastructure in order to have a factory. After all, what’s the point in having the ability to put your product in every store if there’s no way for tractor trailers to get from one place to another? By simply following the bigger giants, Tootsie Roll can draft off the leaders, if it so wishes.

Lastly, Tootsie Roll has an ideal product line because everything is so affordable. However, it offers the lowest dividend of the very big companies on this list, and also has the lowest profit margin for 2018.

RESULT: Recommendation Not to Buy Right Now

Nestle (OTCMKTS: NSRGY)

The Nestle product lines take their customers from cradle to grave with Gerber baby food, Pellegrino sparkling water, and so much more. For pets, they own the Purina brand. You can spend the whole day with nothing but Nestle foods and not miss out.

But should my daughter buy Nestle stock?

Price on 5/15/2019: $96.62

Dividend: 2.1%

Market Cap: $292.52 Billion

2018 Revenues: $ 91.75 Billion

2018 Net Profit: $10.14  Billion

Nestle’s growth isn’t what I’m thinking about so much as the idea that it can stick around. While Tootsie Roll is a one-trick pony that you shouldn’t be eating very often, Nestle takes one-trick ponies (maybe) and has your dog eat them every morning while you make yourself a Nespresso and your baby eats his applesauce.

For those investors who are worried about the morality of the companies they buy into, any company this size has controversy, and you can find out some of Nestle’s woes here.

RESULT: Strong Recommendation to Buy

Mondelez (NASDAQ: MDLZ)

Mondelez is a lot like Nestle. It’s a huge conglomerate, but from the United States instead of Europe. The brand family includes Hall’s (cough drops), Oreo, and Triscuit. It’s all complex carbs and rich, simple sugars. No water, wine or anything else.

Should my daughter buy Mondelez?

Price on 5/15/2019: $51.62

Dividend: 2.01%

Market Cap: $74.36 Billion

2018 Revenues: $25.94 Billion

2018 Net Profit: $3.38 Billion

Can Mondelez grow? I think so, especially with a product like Tate’s Bake Shop cookies, which has a label proclaiming to be from Southampton, NY, leading someone like me to think that I’m supporting a local-boy-done-good when the reality is that that boy did good back in 2018 when he sold his business for half a billion to Mondelez.

Like Nestle, Mondelez is not without controversy, but what I like about Mondelez, aside from it being a US company, is that it’s looking to grow, and all within its own specialty. In 2016, for example, it tried to buy Hershey’s.

What I don’t like is that the company isn’t as big as it used to be, which you can see in this revenue chart. As such, though, now could be a great time to get in. After all, sentiment is down with revenues, or at least should be, and rising sales should bolster profits for investors.

RESULT: Recommendation to Buy

Rocky Mountain Chocolate Factory (NASDAQ: RMCF)

As already mentioned, this company is a franchise operation, and at $23.00 to get a product delivered, there’s money to be made so long as people have money to spend. And this is where it gets iffy. In a bad economy, people need what Nestle sells, people can splurge on what Mondelez offers, and everyone can buy Hershey’s products. These items are for disposable income and special occasions, only. But let’s look at the numbers.

Should my daughter buy Rocky Mountain Chocolate Factory?

Price on 5/15/2019: $9.50

Dividend: 5.05%

Market Cap: $56,520,000

2018 Revenues: $7.79 Billion

2018 Net Profit: $1.18 Billion

In some ways this is the riskiest investment of the bunch, however, dividends have been paid out like clockwork since 2003, even following the dot-com crash and The Great Recession.

Also, because there are only 4 locations in New York, that means they could easily 10x in the next ten years. Lastly, in 2013, Kellogg’s released a cereal with them that has proven to be successful.

Our Final Decision

When our $23.00 apple arrived, I cut it up into 6 slices. My oldest daughter summed it up perfectly when she said, “I don’t really like apples or caramel, but this is the best thing I’ve ever tasted.”

And with our newfound, deep knowledge of the product line, my 8-year-old now owns 20 shares of the Rocky Mountain Chocolate Factory, and so do I.

Christopher Pascale is an author, accountant and adjunct professor from Long Island. He is the former CFO of Portfolios with Purpose, and is a current member of the IRS’ Office of the Chief Counsel.

My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.

Click the image of the book at left to be taken to its Amazon page. 

(Disclosure: As a participant in the Amazon Services LLC Associates Program, I earn a small commission on each sale generated through these links.)

 

 

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Guest Post: Chris’ Bear Market Money Makers

Hi, all!  I’m turning the floor over on this final day of 2018 to Wealthy Joe contributor Chris Pascale, who is going to share with us what he’s buying these days.  Take it away, Chris! ~Eric

BEAR MARKET MONEY MAKERS
By Christopher Pascale

If you were following Eric’s advice of buying stocks and holding them, you had huge gains through most of the decade.

2018, however, was a bear year, as you can see in companies like dividend-paying
General Electric (NYSE: GE) and Ford (NYSE: F).

In this article, I’m going to discuss how to get long-term gains of 7% or more.  Then I’m going to talk about four specific stocks that I’m buying right now, and plan to hold through the bear cycle.

The Smart Money: 7% Long-Term Gains

People smarter than me (Eric Milton, JL Collins, and Warren Buffett) will tell you to just invest in the entire US market.

Eric favors wisely chosen single stocks, and offers the service to others practically for free; JL Collins prefers Vanguard’s VTSAX fund, which has historically returned great gains; and Warren Buffett says to “buy a little piece of America,” which means Coca-Cola stock and a house for your family.

And they all agree that you need to avoid things you do not understand, like cryptocurrency in 2016 and websites with no revenue in 1998.

They are right, and you should do those things.  I am doing them, too, by owning a home and investing for retirement. But I’m also investing on the side to try and score bigger returns.

2 Safe Stocks & 2 Gambles

The 4 companies I’m going to discuss, and am investing in, are:

1. Fannie Mae (OTCMKTS: FNMA)
2. Rite Aid (NYSE: RAD)
3. GrowLife, Inc. (OTCMKTS: PHOT)
4. Hemp, Inc. (OTCMKTS: HEMP)

Fannie Mae (OTCMKTS: FNMA)

As a result of taking on the loans for subprime lenders in 2007, Fannie Mae destroyed itself, and should not be in business today.  The stock was well over $60 per share, and had even neared $90 during the tech boom. And then it became a penny stock.

In 2013, it rose from roughly $0.20 to more than $2.00.  In 2014, it went above $5.00, but is now at a 5-year low around $1.00.

If  a) this is truly a bear market, and b) Fannie Mae is not going out of business, you would be wise to invest what you can afford.

I currently have 196 shares of Fannie Mae, and will be buying $200 worth on a bi-monthly basis. If the stock goes down further, then I’ll be happily picking up hundreds of shares at a time that will definitely be worth much more in the coming years.

Having said this, if Fannie Mae goes away, then everything I invest will be gone, which is why we must not invest more than we can afford to lose.

Rite Aid (NYSE: RAD)

Rite Aid has been in the crapper, and the market has taken a giant dump on top of it.

Personally, I think it’s a good thing.  Why?  Because the stockholders aren’t taking any chances, which is why they recently voted to deny the CEO his $3,000,000 bonus and replace the Board of Directors.

Also, according to a Rite Aid employee I spoke to this week, half the company has been purchased by Walgreens, and the other half may be owned by Albertson’s in 2019.  As for the latter, we’ll see.

If a) Rite Aid stays in business through the bear market – on its own, or via corporate takeover – and b) medical marijuana is prescribed through its Walgreens pharmacies, the stock should do very well in 10 years or less.

I currently have 1,100 shares of Rite Aid, which was the result of buying before the recent shareholder vote, then offloading most of that purchase when the stock price jumped afterward. I’m going to do the same thing with Rite Aid that I’m doing with Fannie Mae – invest $200 bi-monthly.

GrowLife, Inc. (OTCMKTS: PHOT)

Before even considering this stock, read Eric’s post Don’t Be Penny Foolish.

This company sells equipment for home and commercial cannabis production. If you think you’d like to start a small business in the marijuana industry, check out their cube product kits.

However, if you want to simply buy some shares and see what happens, you should note a few things.

First, this company has done millions in sales, but has had more millions in losses every year.

Also, the stock is worth less than a penny.  That means that you could buy more than 10,000 shares with $100, but only because the market does not even value a share of this company at more than the coins you step over.

I currently own over 3,400,000 shares of GrowLife, Inc.  On volume trading alone, it should go over $0.015 within the next year as it had in each of the past 3 years.  Also, since the company is making real sales of products that are necessary to an emerging market, it seems to me that the gamble (and it is a gamble, not an investment) should pay off, even if the company is not viable.

Hemp, Inc. (OTCMKTS: HEMP)

Hemp is not marijuana.

It is a high-fiber food with a full amino acid profile that I personally eat every day.  It is also a building material, and not only are homes being built with bricks made of hemp, but the Lotus car company used it in its body, just as Henry Ford once had.

But just because a company is called “Hemp” doesn’t mean that the hemp industry will raise up a company of the same name, so what does Hemp, Inc. do?

First and foremost, they self-promote, which, for me as an investor who wants real news (distribution deals, profitable quarters, etc.), is annoying.

Secondly, they sell their own line of goods, a HazMat absorbent called “Spill-B-Gone,” from in a factory in North Carolina that can also process the crops of other companies and farms.

These are both great things, but the financials stink.

Hemp, Inc. isn’t making many sales, and while the US has been very slow to legalize the crop, some states have, and hemp-based products have been in grocery stores for a couple years now.

I own 100,000 shares of Hemp, Inc.

If Hemp, Inc. a) stays in business through the bear cycle, and b) posts a profit ever, those who own even 100,000 shares (currently $3,300 worth) will become at least a little rich.

On the other hand, if c) Hemp, Inc. stays in business through the bear cycle, and d) just hangs in there with the next bull market, then it’s possible to at least double your money or more for the same reason you could with GrowLife – volume-based fluctuations.

My Current Positions in These Companies

As noted above, my current holdings in these stocks are:
 FNMA: 196 shares
 RAD: 1,100 shares
 PHOT: 3,421,695 shares
 HEMP: 100,000 shares

While this portfolio is worth over $30,000 right now, I have more than that invested in real estate and retirement funds {Roth IRA, 403(b), and a Thrift Savings Plan}.  Also, my passive income is fairly significant.

This is important to know because if you do what I am doing (gambling with stocks), it should be kept in perspective.

Eric Milton and Warren Buffett might pick up shares of the first two, but they would definitely not buy the second two, because the companies have repeatedly lost money, and revenues are not even going up every year, even though the market is emerging out of prohibition.  And as for JL Collins, he thinks single stocks are dumb and a waste of time.

Christopher Pascale is an author, accountant and adjunct professor from Long Island. He is the former CFO of Portfolios with Purpose, and is a current member of the IRS’ Office of the Chief Counsel.

 

My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.

Click the image of the book at left to be taken to its Amazon page.  (Disclosure: As a participant in the Amazon Services LLC Associates Program, I earn a small commission on each sale generated through these links.)