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Imperial Sugar (NASDAQ:IPSU): One Sweet Sugar Stock

Written By Brian Hicks

Posted June 22, 2010

“If you know what’s good for your waistline, you’ll put that Gatorade down and walk away forever.”

That’s the advice my friend Marcy gave me few years ago, long before I ever read about the dangers of high-fructose corn syrup.

Practically a natural food guru, Marcy (not surprisingly) knew what she was talking about.

Here’s why.

You may not realize it, but the greatest dietary change over the last 40 years has been the introduction of high-fructose corn syrup (HFCS).

From pasta to soda… to fruit juice and bread… HFCS can be found in practically everything we eat.

Sweeter than natural sugar, HFCS was rapidly introduced into the American diet beginning in 1975 because it was cheaper than regular sugar and easier to store.

As a result, the corn-based sweetener became an attractive substitute among the vast majority of American food and beverage manufacturers.

But while this shift has certainly allowed those manufacturers to earn better margins, the health consequences of the change have not been as positive.

In fact, the larger truth about HFCS is that it is thought by some to be “toxic” — read: ruinous to your health.

That’s why the corn lobby has been running a PR campaign for years now trying to convince the public otherwise.

Unfortunately though for Big Corn, this is one tide that can no longer be stopped.

The cat’s out of the bag when it comes to the dangers of HFCS, and the public is suddenly more aware of the differences in the products.

To top it all off, HFCS is making us fatter than regular sugar does, adding to obesity rates.

And if you’ve heard it once, you’ve heard it a million times by now… Obesity is a national epidemic.

High-fructose corn syrup and obesity

As Marcy would say, HFCS is undoubtedly one of the culprits in the growing problem of obesity in adults and children in the United States.

The results of a Princeton study released in March discovered that rats with access to high-fructose corn syrup gained significantly more weight than those with access to basic table sugar — even when their overall caloric intake was the same.

From the study:

The first experiment: Male rats given water sweetened with high-fructose corn syrup in addition to a standard diet of rat chow gained much more weight than male rats that received water sweetened with table sugar, or sucrose, in conjunction with the standard diet. The concentration of sugar in the sucrose solution was the same as is found in some commercial soft drinks, while the high-fructose corn syrup solution was half as concentrated as most sodas.
The second experiment: The first long-term study of the effects of high-fructose corn syrup consumption on obesity in lab animals – monitored weight gain, body fat and triglyceride levels in rats with access to high-fructose corn syrup over a period of six months. Compared to animals eating only rat chow, rats on a diet rich in high-fructose corn syrup showed characteristic signs of a dangerous condition known in humans as the metabolic syndrome, including abnormal weight gain, significant increases in circulating triglycerides and augmented fat deposition, especially visceral fat around the belly. Male rats in particular ballooned in size: Animals with access to high-fructose corn syrup gained 48 percent more weight than those eating a normal diet. In humans, this would be equivalent to a 200-pound man gaining 96 pounds.*
*emphasis mine

Now does that sound like something you would like to include in your daily diet?

Of course not — which is we are now bullish on natural sugar.

Bowing to these same pressures, many major brands are removing high-fructose corn syrup from some of their products in favor of the natural stuff.

The list of HFCS-free products now includes:

  • Hunt’s Ketchup

  • Gatorade

  • Wheat Thins

  • Pepsi

  • Mountain Dew

  • Snapple

  • Heinz Ketchup

Needless to say, given these heavyweights, there will be many more products to follow — especially as the dangers of HFCS become more well known.

For more information on that subject I recommend a video entitled Sugar: The Bitter Truth, by Robert H. Lustig, MD, UCSF Professor of Pediatrics in the Division of Endocrinology.

It’s a bit long, but it is something of an eye-opener — especially if your are interested in HFCS and weight loss.

Meanwhile, if I have piqued your interest in this grainy thesis from an investment angle, keep reading…

Because as you can imagine, from a dollar standpoint, the anticipated shift back to natural sugar is going to produce a few winners.

One sweet sugar stock

That’s why I like Imperial Sugar Company (NASDAQ: IPSU) as a long-term investment.

Founded in 1834, Imperial Sugar is one of the largest producers and marketers of refined sugar in the NAFTA region. The company’s brands include Dixie Crystals, Holly, and Wholesome Sweetener, as well as a variety of products that the company sells to major industrial foodservice customers.

That has given the company a sweet spot in the market, since it is one of the only publicly traded sugar companies in the country.

What’s more, the company is well on its way to replacing the lost revenues from a massive sugar refinery explosion the company suffered in 2008. In fact the company expects Port Wentworth to become fully operational again in the third quarter of fiscal 2010.

Additionally, construction is under way on a new $190 million sugar refinery in Louisiana that will be able to produce 1 million tons of sugar annually. That will give the company the future capacity it needs to build its bottom line and send share price higher.

That buildout is the result of a three-way joint venture between Imperial Sugar, Sugar Growers and Refiners, and industry heavyweight Cargill Inc.

Meanwhile, sugar prices are beginning to bottom after reaching a 29-year high in February, when prices soared on expectations of diminished output for the 2009-2010 crop in the world’s top producer and exporter Brazil, and the number two sugar producer and top consumer, India.

Even still, world sugar production is expected to fall short of demand by 9.4 million tons in the 2009-2010 crop year, according to figures from the International Sugar Organization in February.

Moreover, industry insiders are looking for continued tightness in the U.S. market…

“Despite a savage decline in world market prices” said Imperial Sugar Co. Senior Vice President Pat Henneberry, “that market remains tight and the supply demand tightness seems unlikely to be decreased during this calendar year. The best most analysts expect is keeping the current shortfall constant.”

So while IPSU did report negative second quarter earnings last month due to losses in sugar futures, the remainder of the year is expected to be positive.

That puts IPSU in the sweet spot going forward — especially since the earnings miss landed the company a place on the bargain rack.

Your bargain-hunting analyst,

 steve sig

Steve Christ

Editor, Wealth Daily

P.S. Imperial isn’t the only sweet recommendation I have this week… On Thursday, I’ll be releasing a report on a brewing new branch of the biotech sector that’s about to take the market by storm. So stay tuned.