Beyond Rational

A classic sign of a topping market is when it irrationally focuses on a small, insignificant stock, taking it up to incredible heights.

That is exactly what is going on with Beyond Meat (BYND), a manufacturer of vegetarian meat alternatives. The company’s claim to fame is that their hamburgers taste merely OK, instead of disgusting, as have all previous hamburger alternatives.

On the strength of this, the shares have risen a spectacular 660% since the initial public offering on May 4. It is far and away the top performing exchange-listed stock of 2019.

Certainly, the company founders have to feel like they were mugged by lead managers JP Morgan (JPM) and Credit Suisse. Pricing at $25 a share there was a ton of money left on the table. On the other hand, the shares they still own, thanks to the lock-up period, have gone up 6.6-fold in a month. It is a nice problem to have.

Never mind that the stuff is made up of Water, Pea Protein Isolate, Expeller-Pressed Canola Oil, Refined Coconut Oil, and Contains 2% or less of the following: Cellulose from Bamboo, Methylcellulose, Potato Starch, Natural Flavor, Maltodextrin, Yeast Extract, Salt, Sunflower Oil, Vegetable Glycerin, Dried Yeast, Gum Arabic, and Citrus Extract.

If you broke conventional beef down into its constituent chemical components, they would include a lot of toxic long-chain unsaturated fats and synthetic hormones, not exactly great for your long term health.

And laugh as you might at fake meat, the fact is there is a huge future for the alternative meat industry. The average American eats 200 pounds of meat a year, an all-time high, and consumption is rising. So far, alternatives account for less than 0.1% of that.

It takes six weeks to grow a conventional chicken. You can ferment the same exact protein cells in large scale bioreactors in only six days with no need for antibiotics. This makes possible enormous reductions in costs. Your next steak may not be grown on a ranch, it may be brewed.

The antibiotics fed cattle to maximize yields and profits is rendering conventional antibiotics useless. Modern pathogens are rapidly evolving to become resistant, if not immune. Within a decade. They may not be useful for treating human diseases at all.

There will also be enormous support from environmentalists for a move from the farm to the industrial lab. You know that quarter pounder with cheese you had for lunch? It required 500 gallons of fresh water to produce. No kidding.

Cattles are thought to be the source of 25% of the world’s carbon dioxide emissions. Conventional ranching also creates immense mountains of manure. I know, I used to shovel it.

Beyond Meat founder Ethan Brown says he commissioned the University of Michigan to study his inputs. They concluded that his alternative burgers produced 90% fewer greenhouse gases and used 93% less land than conventional ones.

Given the eye-popping performance of (BYND), there certainly is going to be a deluge of copycats and camp followers floating stock. Wall Street will feed the geese when they are quacking. (BYND) will not be the last artificial meat company you are invited to buy.

I think synthetic meat will find its main market in low-end fast food restaurants, like McDonald’s (MCD), Carl’s Jr., and Wendy’s (WEN), and in the poorer emerging markets where taste is not an option.

However, creating a high-end steak of the type found on Morton’s and Ruth Chris Steak House would be a stretch. There will always be demand for these, albeit at much higher prices.

Make mine medium rare.

What are Brown’s favorite alternative meat recipes? He loves a hamburger-based, spaghetti-based bolognaise, and his breakfast sausages are to die for.