The Company That Benefitted From The Egg Price Spike

Plus, spending in this sector will rise despite a slowing economy.



Happy Sunday to everyone on The Street.

And Happy Easter to those who celebrate! As you wind down from, or gear up for an Easter Egg hunt, consider this: quarterly revenue at Cal-Maine Foods doubled, and profit jumped over 700%.

Why am I telling you this? Well, Cal-Maine Foods controls roughly 20% of the US egg market. In fact, they're the largest egg producer in the United States. Because a highly infectious and deadly avian flu forced US farmers to kill millions of egg-laying hens, our country's egg supply plummeted, and prices spiked. For example, the average selling price for a dozen eggs at the end of February was $3.30. A year earlier they were retailing for $1.61.

Not great for consumers, but not bad for Cal-Maine. Behind the headlines, there's always someone who benefits. Hopefully, this newsletter provides you with some clues as to where to find these Easter Eggs on a weekly basis. Let's dive in.

Brooks


Review

Markets were closed on Friday, but US stocks finished higher Thursday as weaker employment data signals a looser labor market than previously thought.

The number of Americans filing for first-time unemployment benefits fell by 18,000 to a total of 228,000, but remained well above expectations of 200,000. The previous weeks numbers were also revised sharply higher from 196,000 to 248,000, indicating a much greater number of unemployment applications than initially believed.

Meanwhile, on Friday the Labor Department reported that nonfarm payrolls grew by 236,000 for March, compared to the Dow Jones estimate of 238,000. This was also below the upwardly revised 326,000 in February.

Combined, the readings suggest loosening labor conditions that could influence the Feds rate hiking path in a more dovish direction. On a related note, layoffs have surpassed 270,000 so far in 2023, a near-400% increase from last year. Over 100,000 of those job cuts were in big tech and, in March alone, companies announced nearly 90,000 layoffs.

On the earnings front, with nearly every company in the S&P 500 having reported Q4 results, total earnings are down 5.8% year-over-year. First-quarter results for 2023 will start rolling out next week.

In company-specific news, Walmart announced that it plans to add electric vehicle charging stations to thousands of its US stores by 2030. Between 280 Walmart and Sams Club locations, the retailer already has 1,300 EV stations in operation.

Meanwhile, Bed Bath & Beyond is asking shareholders to approve a reverse stock split so the company will have enough shares to raise $300 million from a stock offering. Shares of Bed Bath are currently trading at about 30 cents, giving the company a market value of roughly $132 million.

On the whole, the Dow Jones Industrial Average added 3 points or 0.01%, while the S&P 500 jumped 0.36%. The Nasdaq Composite was up 0.76%.


Preview

This week promises to be a busy one for investors and analysts alike, as a plethora of economic indicators and speeches by Federal Reserve officials are set to be released.

  • Monday: February wholesale inventories
  • Tuesday: March NFIB optimism index, Chicago Fed President Goolsbee speaks, Philadelphia Fed President Harker speaks, Minneapolis Fed President Kashkari speaks
  • Wednesday: March Consumer price index, Core CPI, Richmond Fed President Barkin speaks, San Francisco Fed President Daly speaks, Treasury Budget, Minutes of FOMC meeting.
  • Thursday: MarchProducer price index,Core PPI,Initial jobless claims,Continuing jobless claims
  • Friday: March US retail sales, Import price index, Fed Gov. Waller speaks, March Industrial production, March Capacity utilization, February Business inventories, and April Consumer sentiment.

Earnings Spotlight

Investors will be paying close attention this week as several major companies are set to announce their quarterly earnings. All eyes are on Friday as some of the country's, and the world's, largest banks report:

  • Monday: PriceSmart Inc. (PSMT)
  • Tuesday: Albertsons Cos. Inc (ACI) and CarMax (KMX)
  • Wednesday: Apogee Enterprises Inc. (APOG) and Rent the Runway Inc. (RENT).
  • Thursday: Delta Air Lines Inc. (DAL) and Progressive Corp. (PGR)
  • Friday: Wells Fargo & Co. (WFC), JPMorgan Chase & Co. (JPM), Citigroup Inc. (C), BlackRock Inc. (BLK), and UnitedHealth Group Inc. (UNH)

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Petcare Spending on the Rise Despite Slowing Economy

Pet Pampering May Benefit Zoetis

Consumers spend a fortune taking care of their furry friends. Thats not expected to change, even if the economy is slowing and inflation remains stubbornly high. Pets are part of the family, after all. This bodes well for Zoetis (ZTS), the pure-play global animal health company, which was spun out of Pfizer (PFE) almost ten years ago. Since then, profits have climbed and could continue to do so as people spend more caring for their pets.

Zoetis looks to be a really good long-term bet, Craig Sarembock told Barrons in an interview. The principal at Bartlett Wealth Management recently added the stock to its portfolio. It has always been a pricier stock, given its a monopolistic business model. But relative to its own valuation, its near a five-year low.

Stock Cheap?

Over the past year, shares of Zoetis are down close to 16 percent and are trading at slightly less than 30 times forward earnings. That may seem pricey but it's less than the five-year average of nearly 33 times forward earnings. The stock peaked at nearly 50 times forward earnings. The average Wall Street price target for Zoetis is hovering at $219, implying theres a good amount of upside.

Zoetis is also seen as a defensive play in a slowing economy. Sure, people may reign in dining out or leisure travel but if their pooch is sick they arent going to skip care. During the great recession of 2007 through 2009, the companys revenue held strong.

Wall Street expects more of that this year. The companys EPS is forecast to increase by 10.7% in 2023 hitting a record high of $5.40. Revenue is expected to reach $8.64 billion, up 7% year-over-year. In 2024, earnings are projected to increase an additional 12.3% to $6.07 per share.

Innovations to Drive Sales

Thats not the only reason bulls are so excited about Zoetis. It's also innovating in the animal healthcare space which gives it even more of a competitive edge over its rivals.

What is underappreciated and what really makes Zoetis attractive is the pipeline of innovation, Joseph Ghio said. The equity analyst at Williams Jones Wealth Management also has a position in Zoetis.

Ghio pointed to Zoetis Simparica Trio drug which is used for parasite prevention. The drug rolled out in 2020 and as of last year, sales hit $744 million. Meanwhile, Zoetis canine monoclonal antibody osteoarthritis drug, Librela, which is sold overseas and had $100 million in sales, is expected to roll out in the US sometime this year. A feline version dubbed Solensia got FDA approval last year.

That really gives Zoetis a unique organic volume growth story that other animal competitors dont have, Ghio said. Its an interesting story, to say the least. Time will tell if Zoetis turns into investors best friend.


Defensive Stock-Pile

Stock Up Your Bunker

Defensive stocks are back in vogue and for good reason.

The markets have been volatile thanks to bank closings, tech layoffs, rising interest rates, and slowing economic growth. Investors are looking for stability. That can be found in defensive stocks.

These are companies that offer stable and steady returns, operate evergreen businesses, and have the cash on the balance sheet to weather a downturn. They are leaders in their industry and have the ability to grow even when the economy slows.

The good news for investors is that they can be found in every sector, from semiconductors to cosmetics.

Est矇e Lauder & ON Holding

Take Est矇e Lauder (EL) for one example. The stock has its supporters and detractors. The latter feel shares are too pricey, guidance too conservative, and Chinas lackluster COVID reopening too detrimental to sales.

But fans like Citigroup (C) analyst Filippo Falorni see it differently. He likes Est矇es years of growth and resiliency in previous downturns. Falorni has a buy rating and $295 price target on the stock. On Thursday, shares closed at $241.26

We continue to expect a strong topline/margin recovery with a potential inflection in estimate revisions in 2H23 as China re-opens and EL starts to cycle large inventory reductions, he wrote in a recent research report. The analyst pointed to China, skincare, and sales to travelers as growth drivers.

The Swiss shoe company, ON Holding (ONON), is another defensive play falling on analysts radar. This stock is up 71% so far in 2023, but bulls think it has more upside to go. Shares did fall 55% last year.

Stifel (SF) analyst Jim Duffy says ON Holding has open-ended growth opportunities in the performance and lifestyle footwear and apparel sector. The market size, according to the analyst, is $300 billion. Brand momentum, higher revenue base, and incremental investment in the business to support future growth justify a higher valuation, wrote Duffy in a research report.

What Banking Crisis?

Finally, there is Pacific Premier Bancorp (PPBI), a regional bank hailing out of Irvine, California. If the phrase regional banks sounds like an air raid siren to you, youre not alone. But, in fact, its the failure of mismanaged banks like Silicon Valley Bank that has DA Davidson analyst Gary Tenner confident in Pacific Premier as a defensive play.

The company is well-positioned for current challenges facing the bank sector via the companys risk averse management philosophy, Tenner wrote in a recent research report. With the stock down about 26% in 2023, Tenner sees a big buying opportunity and an ideal way to hide out.

Above peer capital and loss reserves make PPBI an appealing safe haven name, he wrote. Pacific Premier is, in our view, a long-term core holding for institutional investors.

In times of economic uncertainty, investors need strategic stockpiles to protect from market volatility. These may be just the stocks to pile into your bunker.


Subscribe to CRE Daily

If you are tired of sifting through dozens of dry (and ad-filled) media outlets for timely and actionable real estate news, then you need to subscribe to CRE Daily.

Think of this 5-minute email like your smart, no-bullshit friend, breaking down all the biggest stories, economic trends, and deals of the day into one digestible email that you'll actually enjoy reading.

Read by over 65,000 real estate investors, brokers, developers, and deal junkies, CRE Daily keeps you informed on the top national, regional and property sector news that matters most without all the BS.

Give it a try by subscribing free at CREDaily.com.


Build a Fortress With These Stocks

Batten Down the Hatches

If defense stocks are the resources you need to weather a storm, fortress stocks are the battened down hatches. Fortress stocks earn their name by their tendency to stand up against a slowing economy, largely due to a strong balance sheet and consistent demand for their products and services. That enables them to pay a dividend, invest for growth, or make buys to expand. Like with defensive stocks, fortress stocks can be found in most industries.

Dividend-paying stocks are particularly popular among investors seeking protection. One that fits that bill is Procter & Gamble (PG). The companys dividend pays a yield of 2.5%. This is higher than the S&P 500, which yields 1.61%. It makes products that people are going to buy whether we are in a recession or not, David Bahnsen, Chief Investment Officer at the Bahnsen Group and author of DividendCafe.com told CNBC. Some of the must-have products P&G produces are paper towels, diapers, and laundry detergent.

Simon Property Group (SPG) is another one on Bahnsens list. The REIT, which invests in shopping malls, pays a yield of 6.4% and has good quality tenants. There are things that can go bad in their business, Bahnsen said. Those things are well protected for by having good assets, by having a good balance sheet, and by having $7 billion in liquidity.

Build Resilience With Healthcare

Healthcare companies are typically built to withstand economic shocks. After all, whether the economy is booming or busting, consumers spend money on prescription drugs, medical procedures, and other healthcare services. Some also pay a dividend.

Bahnsen particularly likes Gilead Sciences (GILD), which has a dividend yield of 3.6%, Merck (MRK), which yields 2.7%, and Johnson & Johnson (JNJ), which has a yield of 2.9%. All three have plenty of cash on the balance sheet, which they are using for research and development, but also to give cash back to investors in the form of higher dividends.

Bristol-Myers Squibb (BMY) is another fortress stock on analyst radars. Fort Pitt Capital Group analyst Dan Eye says it's cheap, trading at about a 50% discount to the broader market. In addition, Eye mentions Bristol-Myers has a strong pipeline of drugs and a dividend that yields 3.3%.

The analyst also has medical device company Danaher (DHR) on his list of fortress stocks. Its one that we have as very defensive because about 75% of their revenue is recurring revenue, which is up from about 45% back in 2015, Eye told CNBC. Once the pharmaceutical companies and the drug manufacturers incorporate Danaher in their production process, theyre generally in there for decades.

The Best Defense Is Defense?

Other areas to find fortress stocks include consumer products and defense.

On the consumer product front side of things, analysts prefer companies churning out products that are in demand in good times and bad. Kimberly Clark (KMB) and Nike (NKE) are among the ones getting love from Wall Street. Diapers, toilet paper, and tissues are pretty inelastic and about as insensitive to the economy as you can imagine, Eye says of Kimberly Clarke. [Its a] business with really strong cash flows. We think its one that holds up very well in uncertain times.

As for defense stocks, Raytheon Technologies (RTX), L3Harris Technologies (LHX), and Lockheed Martin (LMT) make the list. These companies have strong backlog, good balance sheets, and operate in an increasingly hostile world.

Investors need to build a wall to protect themselves in a volatile market. One of these fortress stocks could be the missing brick.


Last Week's Poll Results

If you had to pick, which ETF will outperform over the next 12 months?

拎拎拎拎拎 Healthcare ETF (IDNA)

劾劾劾兩儭漎儭 Cybersecurity & Tech ETF (IHAK)

Are you bullish or bearish on Humana over the next 12 months?

拎拎拎拎拎 Bullish

劾兩儭漎儭漎儭漎儭 Bearish

Are you bullish or bearish on Sanofi and Regeneron over the next 12 months?

拎拎拎拎拎 Bullish

劾劾兩儭漎儭漎儭 Bearish


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