Why the market loves food stocks right now: Morning Brief
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Why the market loves food stocks right now: Morning Brief
sales had climbed
This is The Takeaway from today's Morning Brief, which you can receive in your inbox every Monday to Friday by 6:30 a.m. ET along with:
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Economic data releases and earnings
There is one trade being devoured by investors right now — and no, it's not shorting First Republic (FRC).
It's the food trade.
From restaurant stocks such as Chipotle (CMG) to servers of soda in PepsiCo (PEP) to hawkers of chocolate like Hershey (HSY), the market has fallen in love with food stocks. These have been some of the best-performing stocks this week.
And investors are correct in bidding these names up, judging by how the first half of the year is shaping up for the sector.
Consider some of the tailwinds for the food space:
Inflation is slowing for input costs, which is great for margins.
Resistance to rounds of price increases has been generally limited, which is also great for margins.
Recovery stories are playing out in China for multinational names such as PepsiCo.
"You may not be able to go out and get a new car," PepsiCo vice chairman and CFO Hugh Johnston said on Yahoo Finance Live (video above). "You may not be able to go out and get a really fancy piece of technology. But you can afford a bag of Doritos, or you can afford a Gatorade Zero after you workout, or you can afford an energy drink in the morning."
Good point by Hugh.
Do you ever look at how much you just spent on a bag of chips at a 7-11 or WaWa? Maybe, maybe not. But I would bet that bag of chips today is more than 10% higher in price than at this point last year. Maybe 20%, depending on the flavor.
You may not have even realized it, but the CFOs of consumer food companies did, and their shareholders are loving it. Expect more price increases from these giants this year in part because consumers don't appear to care.
Then there is another aspect of the food trade that is getting overlooked. While I will get ridiculed by my colleague Julie Hyman for this statement, I believe we are in the golden age of food innovation.
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