3.8.05

I'm Short "Mexican Mole Sauce"

Mexican sauces are a really "hot" segment. Money inflows to new emerging sauce ETF's have been a beacon announcing the market's interest. But before you gobble up one of these funds, you need to consider what you are sticking your hard earned dollars into.

Mexican Mole Sauce is a storied chile sauce, flavored with cinnamon, and a bevy of exotic spices. Sell-side analysts adore Mexican mole sauce, using their feather pens to scribe about its "dynamic culinary miscegenation opportunities" and its recent "binomial marketing initiative." But fundamentally, Mole Sauce looks like dirt and it TASTES like dirt. It takes a lot of tequila and a lot of Mexicans to produce. Altogether it is a costly and lengthy process.

Management has not addressed the risks of competitive sauces sourcing Mexicans from China. In fact, Mexican Mole Sauce has no China strategy whatsoever. And a footnote in the K reveals an even deeper problem. Listed in the ingredient section: "one teaspoon anise seed." We recommend shorting Mexican Mole Sauce and shorting anise seed as well. Target price 7 pesos.