Transcript
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Data is everywhere. When orchestrated properly, it sings. At Morningstar, we analyze and enrich data, making it actionable and powerful for you. Morningstar, where data speaks,
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it's pretty otherworldly. I mean, you have, we're beating BY Something like 9% on the earnings that are, that are coming in. However, however you look at it, this is a, is this, this season is the really big deal.
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Hello and welcome to the Barren Streetwise podcast. I'm Jack Howe and the voice you just heard is Jonathan Gollop. He's the chief equity strategist at Seaport Research Partners, and in a moment he'll talk to us about corporate earnings season and whether it's any good. Spoiler alert. It's really, really good. We're going to hear about how long that can continue and what it means for stock prices. But first I'll say a few words about big food dividends and about psychedelic stocks. Psychedelic as in magic mushrooms and stocks as in why are there stocks for magic mushrooms? Let's get into it. Let's start with big food dividends and our thoughts and sympathy are with Mr. Peanut and Count Chocula because this is a difficult time for food stocks. Kraft Heinz was recently down more than 40% over the past three years, not counting dividends. General Mills, Campbell's, Conagra Brands, those were all down around 60% apiece. The S&P 500 has done well over that stretch. It's made 72%. As prices have fallen for food stocks, the dividend yields have plumped up. For the companies I just mentioned, they were recently 7 to 9%. This is normally where Kool Aid man would bust through the wall and say, oh yeah, and recommend putting aside some shares just for the income. But I wrote recently in Barron's that investors should be careful here before barreling in. There are several challenges facing these companies and it soon could get worse. There's inflation and there's stretched budgets for middle income shoppers and market share in grocery is shifting toward mass merchants that can play hardball on price. If you look at an ETF called State Street Consumer Staples Select Sector that has all those food names that we just mentioned and they're all doing poorly. But the fund has managed to eke out a gain over the past three years, and that's because its two largest holdings, Walmart and Costco, are way up. They were recently up 160% and 100% respectively over three years. But the big thing I want to mention, and we've talked a lot about it, is weight loss Shots and now pills from the same companies. There was one approved in December and another one just in April. The medicines themselves rolled news, but UBS argues in a recent report that the adoption of them is just getting started. There are a bunch of reasons to expect many more people to use these medicines soon. The pills will help with that. Prices are coming down and coverage is increasing. So UBS expects big uptake for these medicines through the end of the decade. There's studies that suggest that GLP1 users eat and drink around 30% less. Declines are not evenly distributed. Users stick with their sparkling water, but they drink a lot less booze, for example. You can see where this is headed. UBS predicts an aggregate hit to food and beverage demand and one that will be front loaded. They see a 1.2% decline this year, followed by 0.9% next year and 0.3% in each of the following two years. Those aren't big drops, but this is not a fast growth industry. Okay, now that analysis comes actually from packaging analysts at ubs. And they expect GLP wants to negatively impact companies like OI Glass and Graphic Packaging Holdings. They have exposure to beer and snacks, respectively. They say it just might help a player like Avery Dennison, which makes RFID tags for clothing. You lose weight, you might need new clothes. But we can imagine it could be a difficult stretch for Big Food too. Now turn your attention to a separate piece of analysis from BofA Securities. They point out recently that dividends for some Big Food names look stretched. There are a lot of ways to judge that sort of thing. You can compare payments with earnings and free cash flow. You can look at the target dividend policies for the companies. You should factor in debt levels and looming maturities and credit ratings and what credit agencies have to say about which way things are trending.
