Mad Hedge Technology Letter
June 10, 2020
Fiat Lux
Featured Trade:
(THE TAILWIND BEHIND BEYOND MEAT),
(BYND)
Over 20,000 meat processing plant workers have contracted Covid-19 resulting in numerous deaths. I will explain why this has been a massive contributor to Beyond Meat’s (BYND) recent overperformance.
The Plant-Based Foods Association reported sales increasing over 90% in the middle of March 2020 from the year prior as animal-based meat shortages pervaded meat supply lines across the U.S.
Beyond Meat is one of the few publicly traded food tech companies out there and have been the recipient of several tailwinds all powering the company’s revenue at one time.
The pandemic has underscored the trend of consumers eating plant-based alternative options as a viable alternative.
It has been one of those trends that have gone viral as consumers simply avoid meat because of a surge in prices caused by a sudden shortage.
The 90% growth of plant-based meat sales in mid-March was followed up by 27% growth in April.
The post-March follow-through leads me to believe that more than a few consumers were satisfied with the products and became repeat purchasers.
Since health has been a do-or-die proposition starting in March, there has been a continued evolvement in consumer purchasing toward natural and organic products that enhance health and immunity.
Not only are plant-based meats getting rewarded, but other categories of health foods have seen explosive growth.
Retail sales of plant-based meat products were higher by nearly 150% during peak panic buying in March and stayed above 50% through late April.
Refrigerated plant-based meat was the hottest-selling product registering a blistering increase in sales of 241% year-over-year during the peak panic buying period.
Plant-based foods have gone from the periphery of the food scene to the vanguard of sustainability and nutrition.
The coronavirus has also shined a light on how well companies treat their workers or the maltreatment of workers.
Meatpacking workers were holed up in tight areas causing a rapid outbreak of the virus which was thoroughly reported in the media and left a bad taste in consumers' mouth.
By the beginning of June, a survey revealed that 52% of respondents believe the food industry should focus more on meat-free foods to help reduce shortages.
The same survey of 1000 people also found that half of respondents don’t agree with the meat industry’s level of care about the health of its workers, and 65% don’t think it cares about the treatment of livestock.
The optics not only looked bad for the workers, but also for the product as the bottleneck in processing also led to the largest pig culling effort the U.S. has ever seen as hundreds of thousands of animals were backed up on farms.
This happened all while 40 million workers lost their jobs and bread lines formed as long as the eye could see in many of the big U.S. cities.
The animal-based meat industry has most likely had its worst-ever first half year to any financial year on record.
Fortunately, Beyond Meat has avoided the fate of the meat industry and is running with the momentum by announcing a partnership with food distributor Sinodis to further deliver products in China.
Sinodis, a subsidiary of French group Savencia, is a distributor of imported food products to more than 4500 wholesalers, restaurant chains, and hotels in China.
The deal fortifies Beyond Meat’s presence in China while supplementing new income streams.
Back in April, Beyond Meat also announced a bevy of new China openings with Starbucks (SBUX) and followed that up with deals with Kentucky Fried Chicken (KFC) and Pizza Hut.
The efforts to widen its customer reach has not gone unnoticed with the stock tripling from virus lows this year.
Ultimately, the adoption of U.S. mainstream customers in the wealthier suburbs will be critical to long-term success.
The company plans to broaden its product line into other forms of substitute meat, like poultry, to grow its top-line revenue.
The stock has more room to run and investors should wait for a dip to put new money to work.
Price action is volatile, meaning investors should buy and hold shares and not try to game the stock short-term.
“Some say Google is God. Others say Google is Satan. But if they think Google is too powerful, remember that with search engines, unlike other companies, all it takes is a single click to go to another search engine.” – Said Google Co-Founder Sergey Brin
Mad Hedge Technology Letter
June 8, 2020
Fiat Lux
Featured Trade:
(ZOOM’S LESSON FOR TECH STOCKS),
(ZM)
All signs point to green – that is the big investing takeaway from Zoom’s (ZM) outstanding earnings report.
It also means you cannot be bearish technology stocks.
Investors can lose their shorts trying to short the monopolies of Amazon, Google, and now the mega growth video communications company Zoom.
I still maintain a nuanced strategy of neutrality with a tactically bullish stance because of the rapid run-up from the March 23 lows.
Zoom has been one of the stalwarts of the work-at-home revolution and the numbers back it up.
Quarterly revenue guidance was up a juicy 64%.
The stunning 169% quarterly revenue increase year-over-year are numbers that dreams are made of.
I would like any reader to dig through the collection of companies trading on the New York Stock Exchange and find me one that beat its quarterly revenue target by over 300% during the pandemic.
That is why you invest in tech and that is why you read my technology letter.
What does this really mean?
There is still money to be made in technology.
This isn’t just a fly-by-night, smash-and-grab ploy to only burn down tomorrow like a Potemkin village.
The staying power is real and the stay-at-home movement will be stickier than ever moving forward as companies cut costs, digitize to the extremes, and hope to stave off the next mega-crisis when it threatens to take the food off our tables again.
Even Zoom itself couldn’t wrap their heads around the dramatic transition from enterprise use to consumers' necessity to keep in touch with family and friends.
The company became the “can’t live without” app of the year and grew from 10 million users to over 300 million users this quarter.
If any analyst had them rated as neutral before, this was the signal to issue a buy recommendation.
It is without exaggeration to say these are the most impressive financial results I’ve ever seen in software, and likely will never be repeated in our lifetimes.
Fresh opportunities also come in the form of education and telemedicine as reasons for a bullish outlook moving forward.
Zoom will need to fend off competitive concerns from Microsoft and Google, but Zoom’s scalable technology and ease of use have created a strong moat around its business model.
The company has an installed base of 265,000 customers with 10 or more employees with ample chances to cross-sell its Zoom Phone and Zoom Rooms services.
There is a basket of stay-at-home stocks that have outperformed the market since the Covid-19 pandemic began, and I am highly convinced that Zoom is the purest way to play this theme.
Even as lockdowns ease, many workers will demand the new normal of working remotely.
A taste of a good life isn’t enough, and the coronavirus proved that companies could function just as well without the traditional cubicle and office space.
The biggest problem with Zoom’s shares is finding a reasonable investing entry point into the best tech story of 2020.
There is just not enough superlatives to say about Zoom and investors would need to wait for the stock to dip near resistant levels at the 50-day moving average around $160 to put new money to work in Zoom shares.
“You renew yourself every day. Sometimes you're successful, sometimes you're not, but it's the average that counts.” – Said current CEO of Microsoft Satya Nadella
Mad Hedge Technology Letter
June 5, 2020
Fiat Lux
Featured Trade:
(EUROPE’S BIG TECH TAX GRAB),
(COMPQ), (NFLX), (APPL), (AMZN), (GOOGL), (MSFT)
Big Tech regulation gets the protection of the U.S. government.
The U.S. government has announced that it is looking into aggressive regulation originating from foreign countries that would die to have a FANG themselves.
This is just another salient data point to which tech will lead us through the maze of complexity that the world now finds itself in.
Many jumped on the bandwagon saying it was a matter of time before regulation destroys big tech, but I will argue that big tech has become too big to fail and the value generated from stock appreciation and tax revenue has become even more important.
Tech has been the only industry to not get pummeled by the coronavirus and the ramifications of social unrest.
The U.S. government doesn’t want to tip over the last remaining pillar the U.S. economy is clinging to, they are desperate to allow the U.S. tech models to stay intact.
The Federal and State budgets have massive holes in them and crushing tech’s contribution to the revenue coffers would be political suicide.
Understanding how the administration cherishes big tech means viewing them through the prism of how other countries treat U.S. tech companies hoping to take a piece of the pie themselves through clever “regulation.”
The European Union, the Czech Republic, and the U.K. plan to siphon off tax revenue from big tech even though confronted by possible trade sanctions from the U.S.
The U.S. probe also will look into the digital services tax plans of Austria, Brazil, Indonesia, Italy, Spain, and Turkey because they are all looking to skim some cash off of big tech’s cash cow.
To read more about the tax fiasco, please click here.
Europe and the emerging economies have been hit harder than the U.S., not in terms of deaths, but in relative economic terms because they don’t possess the rolodex of Fortune 500 companies that can just issue more corporate debt or a Fed central bank that is delivering trillions in liquidity that has saved the stock market.
Washington has specifically been eying up France for a section 301 investigation after it became the first country to fully implement a digital sales tax in July 2019.
France has been quite aggressive in calling out big tech for undermining and exploiting their economy by not paying tax due.
French Finance Minister Bruno Le Maire has been sharp-tongued criticizing America’s big tech companies for running wild in European markets.
A 3% digital sales tax was in the cards before the U.S. slapped on a counter tariff to French goods which delayed the frosty confrontation.
Europe’s vast network of splintered resources and unbalanced innovation combined with Europe’s infamous avalanche of bureaucracy meant that developing a famous tech company fell through the cracks.
Nothing even remotely close to Silicon Valley was ever conjured up inside the confines of the European Union.
The consequences have been costly with most Europeans relying on Apple cell phones, Google software, Netflix subscriptions, and Microsoft enterprise products to get them through the day just like most Americans.
The tax grab is out of desperation as the EU confronts a post-coronavirus world where they are increasingly controlled by decisions from the Communist Chinese and subject to a graying population that delivers a reduced tax revenue base.
The European Union is one of the biggest losers from the coronavirus.
The hands-off warning by the U.S. government on its own big tech companies puts a premium on their existence to the U.S. economy.
Instead of twisting their arm to squeeze every extra tax dollar out of them, they will most likely get more access to deliver the services most Americans are hooked on.
It’s not a secret that current U.S. President Donald Trump is hellbent on destroying big tech but there is no way to do it without destroying the U.S. economy and the U.S. stock market.
At this point, just a handful of tech companies comprises over 22% of the S&P and this will most likely continue as other industries are still licking their wounds with some analysts believing it will take 10 years to get back to late 2019 economic levels.
The most likely scenario for big tech is that the array of crises has delayed real regulation indefinitely and the U.S. will protect big tech from a tax grab abroad.
The best-case scenario is zero regulation leading to zero extra costs.
Either way, stock appreciation is in the cards for tech’s future.
The end result is that big tech could eventually comprise up to 30% of the S&P in the next 3 years which dovetails nicely with a recent analyst call that Microsoft will hit over $2 trillion in market capitalization in the next 2 years.
“Broadcast TV is like the landline of 20 years ago.” – Said Founder and CEO of Netflix Reed Hastings
Mad Hedge Technology Letter
June 3, 2020
Fiat Lux
Featured Trade:
(ABOUT YOUR RIOT-PROOF PORTFOLIO),
(COMPQ), (WMT), (APPL), (AMZN), (TGT), (JWN), (EQIX), (GOOGL), (MSFT)
