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🥤 A Big Beverage Short
Plus, more ESG funds have closed in 2023 than in three prior years.
Happy Sunday to everyone on The Street.
It’s been an interesting stretch for the ESG industry. A couple of headlines caught my eye recently.
For example, one from Bloomberg this past week noted that “more US sustainable funds have closed in 2023 than the prior three years combined.” At the end of last month, CNBC led with one that said, “The word ‘ESG’ is vanishing from earnings calls.”
As you may remember, these thematic vehicles saw major inflows in 2020 and 2021. This year, however, “Investors pulled more money from the funds in the first half of the year than they put into them,” according to Bloomberg. Why?
Well, Bloomberg says “The closings underscore shifting fortunes for sustainable investing as returns disappoint investors and anti-ESG rhetoric persists.” CNBC hints at the rhetoric as well, saying “It comes at a time when ESG has become increasingly fraught in the political sphere.”
CNN also picked up on the fact that “ESG investing is dying” but added that “it’s a good thing.” Quoting Robert Jenkins, head of global research at Lipper, the outlet says “Instead, [ESG] should be integrated into the fundamental analysis of every investor.” Should it, though?
If you have ESG exposure in your portfolio and you’re looking to “diversify” you could always explore the God Bless America ETF, ticker: YALL. The vehicle invests in companies with no “political activism and social agendas at the expense of maximizing shareholder returns,” according to its Securities and Exchange Commission filing. It’s year-to-date returns are 22%. None of this is investment advice, it’s just a rambling commentary on this crazy world we live in. Alright, on to the show.
PRESENTED BY SAFETY SHOT
🚀 Introducing Safety Shot (Nasdaq: SHOT)
Safety Shot, Inc. (Nasdaq: SHOT) is the first patented beverage on Earth designed specifically to help you feel better faster by reducing blood alcohol content and boosting clarity. Not only that, but Safety Shot's team of experts is fueled by industry know-how, ensuring top-notch quality and innovation.
Recently, Safety Shot announced its intention to develop the Safety Shot functional beverage platform in a unique concentrated form, aiming to treat alcohol poisoning in hospital and emergency settings.
In 2022, the non-alcoholic beverage industry reached $760 billion. Safety Shot – which has seen its stock price rise more than 320% – is poised to take this market by storm with its groundbreaking product.
With strong research backing, Safety Shot offers rapid alcohol detoxification that consumers can trust. With a robust multi-channel strategy, Safety Shot aims to dominate e-commerce and secure prime retail shelf space.
Review
U.S. stocks were mixed on Friday, ending September deep in the red for the worst month of the year.
Better-than-expected inflation data had helped stocks higher early in the trading session but faded after the Republican spending bill failed to pass in the House, increasing the likelihood of a potential government shutdown.
The Dow Jones Industrial Average fell 160 points or 0.5%, while the S&P 500 declined 0.3%. The Nasdaq Composite was up slightly at 0.1%. August Core PCE showed inflation increasing by just 0.1% month-over-month, the slowest pace since November 2020.
The annual rate of inflation fell to 3.9% from 4.2% in July, marking the lowest level since May 2021. Headline inflation rose 0.4% in August and 3.5% year-over-year. American consumers also kept reaching into their wallets, with personal spending increasing 0.4% in August; the largest contributions came from housing and gasoline.
Personal income growth matched the spending increase at 0.4%. Compensation from wages, assets, interest, and rental income all saw monthly gains.
In company news, cruise operator Carnival reported a strong third-quarter performance with its first quarterly profit since before the pandemic, income of more than $1 billion, and all-time high revenue of $6.9 billion. The company also highlighted higher booking volumes for 2024 and reduced its debt by almost $4 billion since the start of 2023.
Elsewhere, shares of meal kit company Blue Apron jumped 134% after the company announced it would be acquired by van delivery company Wonder Group for roughly $103 million. The acquisition is expected to expand the Wonder app and enhance the company’s ability to deliver meals across the country.
And here’s one non-finance thing we learned this week: “Dreamt" is the only English word that ends in the letters "mt."
Preview
It’s a jobs week! Between August job openings coming on Tuesday, the ADP employment report on Wednesday, weekly jobless claims Thursday and the government’s September jobs report Friday, there is plenty for investors to digest. America’s labor market continues to be tight after months of hawkish monetary policy by the Fed.
Other data of note includes looks at the state of business activity in the manufacturing and services sectors, and an update on the U.S. trade deficit in August.
Earnings Spotlight
The week kicks off with McCormick & Company (MKC), owner of McCormick spices and Frank’s RedHot sauce set to announce earnings. It will look to spice up its strong Q2, in which sales rose 8% annually.
On Tuesday, egg producer Cal-Maine Food (CALM) will debrief its latest quarter and likely discuss its recent agreement to acquire the assets of its century-old peer company Fassio Egg Farms.
On Wednesday, earnings reports will come in from lighting firm Acuity Brands (AYI) and healthtech company Accolade (ACCD). Accolade recently announced plans to expand its care delivery team.
Thursday will be the busiest day of the week with reports from Levi Strauss (LEVI), Modelo and Corona maker Constellation Brands (STZ), and Conagra (CAG).
Perfect Storm for UK Private Rental Market
Supply and Demand
It’s a trend that’s impacting millions of people on both sides of the pond: as interest rates rise, more people are finding themselves priced out of buying a home. Rental property demand is thus on the upswing.
Simultaneously, the supply of rental properties is decreasing, which is causing rental costs to move higher. The problem is especially acute in the United Kingdom.
It’s a perfect storm and an ideal environment for UK-based, public limited companies like PRS REIT and Grainger. Analysts believe the intrinsic supply and demand dynamics may push their share prices higher.
In July, rents had risen by 5.3% year over year. The combination of rising mortgage rates and decreased demand for new houses has been pushing home prices down. As a result, private rental companies are seizing the opportunity to acquire available inventory at lower prices.
Grainger plc, the UK’s largest listed residential landlord, has over £3 billion in assets, and an operational portfolio of 10,000 homes. PRS REIT currently owns over 5,000 family rental homes.
No Vacancy
Investment banks that cover the stocks are highlighting high occupancy rates for the two landlords, with PRS REIT and Grainger sitting at 97-98% and 98.7% occupancy, respectively.
“Grainger sales performance [i.e. rental income] is resilient, with vacant sales volumes up [year on year] with pricing [average] 1.8% below Sept vacant possession values [year to date],” said Jefferies analyst Mike Prew.
Investment bank Numis highlighted that Grainger’s rental growth grew to 6.1% in the first quarter of 2023.
More Profit, More Gains?
Analysts at Jefferies are projecting that PRS REIT will experience a 9% increase in rental income during 2023, along with a 63% surge in its market price over the next year, up to £1.14 per share. (Stocks listed in London are generally traded as pence per share.)
Berenberg is expecting continued “strong organic rental growth to result in continued earnings growth, despite increasing finance costs.”
Numis believes that Grainger’s portfolio is “less reliant on mortgage lending than the wider market,” — a factor attributed to its thriving rental market performance — marked by an impressive 98.7% occupancy rate.
The company's reduced dependence on mortgage lending positions it well to weather falling home prices. Numis forecasts a 48% share price increase to £3.54 over the next year based on this assessment.
Still, with PRS REIT shares down 21% in the past year, and Grainger down 5.4%, the stocks may be worth further due diligence.
Are you bullish or bearish on the UK private rental market? |
This Botched Bank Merger Might Not Be That Bad After All
The Merger That Wasn’t
Truist Financial (TFC), the sixth largest bank thanks to the merger of BB&T and SunTrust Banks, has had a tough go of it. Not only has it suffered from a mini banking crisis brought on by the failure of a handful of regional banks, but from a slowdown in business as interest rates rise and borrowing slows.
Meanwhile, the merger, which closed in late 2019, isn’t living up to its expectations. The result is a stock that’s down 43% since February, worse than the SPDR S&P Regional Banking exchange-traded fund (KRE), which is 34% lower in the same period. That may change as the company takes steps to streamline operations.
Merger Needs Work
Truist recognizes the merger hasn’t lived up to expectations and is working to fix that. For starters, it's aiming to reduce operating expenses by $750 million in the next 12 to 18 months. Of that, $300 million will come from workforce reductions. The rest of the cuts will come from business realignments and tech to support lending and wealth management.
The company is also shedding underperforming single-product units such as its indirect auto lending and bond trading which hasn’t been profitable. Earlier this year Truist shed its $5 billion student loan portfolio and a minority stake in Truist Insurance. The asset sales and cost cuts are designed to boost profits.
There’s a Dividend
Truist is resetting the merger but the potential payoffs could take a while. The next couple of years could prove rocky but after that, in 2025, the changes begin to show.
Wall Street expects net income at Truist to reach $14 billion in 2025, a $500 million increase. That brings revenue to $23.9 billion, which would be a record for Truist. EPS could rise 15% in 2025 from 2024 to $4.10 a share.
Investors have an incentive to wait it out. Truist pays a quarterly dividend of $0.52 which yields 7.3%. That should be safe given Truist needs $2.8 billion a year to cover the payouts and will have net income of $4.8 billion next year.
Truist hasn’t lived up to its merger potential yet. With ongoing cost-cutting and a refocus on core banking, it just might. Investors can get paid to wait it out with this dividend-paying financial stock.
Are you bullish or bearish on Truist? |
PRESENTED BY SAFETY SHOT
🚀 Introducing Safety Shot (Nasdaq: SHOT)
Safety Shot, Inc. (Nasdaq: SHOT) is the first patented beverage on Earth designed specifically to help you feel better faster by reducing blood alcohol content and boosting clarity. Not only that, but Safety Shot's team of experts is fueled by industry know-how, ensuring top-notch quality and innovation.
Recently, Safety Shot announced its intention to develop the Safety Shot functional beverage platform in a unique concentrated form, aiming to treat alcohol poisoning in hospital and emergency settings.
In 2022, the non-alcoholic beverage industry reached $760 billion. Safety Shot – which has seen its stock price rise more than 320% – is poised to take this market by storm with its groundbreaking product.
With strong research backing, Safety Shot offers rapid alcohol detoxification that consumers can trust. With a robust multi-channel strategy, Safety Shot aims to dominate e-commerce and secure prime retail shelf space.
Coca-Cola Short Seller Says Dominance Fizzles In Face Of Bubbly Upstarts, Weight Loss Drugs
A Tough Reality
Coca-Cola is recognized globally as a beverage giant with roughly 200 brands under its name and products consumed over two billion times each day.
Though traditionally viewed as an emblem of American enterprise and stability in fluctuating markets, a recent short report by Edwin Dorsey’s "The Bear Cave" addresses alleged discrepancies between the perceived stability of Coca-Cola and the unfolding reality. Here's what investors need to know.
Prime Time
Coca-Cola is dealing with stiff competition from nascent brands flourishing primarily through modern advertising platforms like TikTok, Instagram and influencer partnerships, Dorsey wrote to investors.
Prime, a start-up founded by Logan Paul and KSI in January of last year, brought in over $250 million in sales within its first year, which illustrates the rapid ascent possible for new entrants utilizing influential platforms. Dorsey lined up Prime's growth against BodyArmor, a brand later acquired by Coca-Cola, which didn't book $250 million in sales until seven years after it was founded.
Similarly, Celsius Holdings, Inc. (CELH) a "better-for-you" fitness drink company that leverages influencer endorsements, saw its revenue spike from about $50 million in 2018 to nearly $1 billion recently, leading shares to surge over 4,200%.
In essence, Coca-Cola's failure to innovate and resonate with younger demographics is catalyzing the rise of competitive upstarts, thereby eroding its market share, Dorsey said.
The bottled water market, saturated with numerous contenders, is seeing innovative brands like Liquid Death outpacing stalwarts such as Dasani with its unconventional marketing and brand positioning. Liquid Death's sales trajectory, from $2.8 million in 2019 to an anticipated doubling in 2023 from $130 million in 2022, indicates a shifting consumer preference in the $15 billion market.
Dorsey also noted Coca-Cola's Dasani saw a roughly 3.9% decline in sales, aggregating to approximately $950 million for the 52 weeks ending May 21, 2023.
Weight Loss Drugs Might Weigh On Coke Shares
The emerging popularity of weight loss drugs such as Wegovy and Ozempic — a Novo Nordisk A/S (NVO) drug that suppresses appetite and alters taste preferences — poses additional challenges to Coca-Cola, Dorsey said. The drugs may have pivotal implications for consumer beverage preferences, possibly diminishing the appeal of Coca-Cola products.
The shifting beverage landscape and evolving consumer preferences induced reflections among investors, including Warren Buffett, Coca-Cola's largest shareholder, regarding the company's sustainability in a dynamic market.
Dorsey highlighted that in a 1999 interview, Buffett spoke about his investment in Coca-Cola and said the company had "marvelous share of mind around the world," and he'd give "that same answer 10, or 15, or 20 years from now."
To that end, nearly 20 years later in a May 2018 CNBC interview, Buffett spoke about the investment again and said, "It doesn't look as good as it did five or 10 years ago."
It should be noted that Buffett's Berkshire Hathaway Inc (BRK) owns 400,000,000 shares of Coca-Cola at just over $28 billion. Coca-Cola accounts for 6.92% of the entire Berkshire portfolio, according to its latest 13F filing.
The company is navigating a transformative beverage landscape characterized by the rise of disruptive upstarts, changing consumer preferences, corporate cultural upheavals, intensified scrutiny on environmental practices and potential repercussions of weight loss drugs, Dorsey's report underscored.
Are you bullish or bearish on Coca-Cola over the next 5 years? |
Last Week's Poll Results
Are you bullish or bearish on Mercury Systems (MRCY)?
🟩🟩🟩🟩🟩🟩 🐂 Bullish
🟨🟨🟨🟨⬜️⬜️ 🐻 Bearish
What percentage of your overall portfolio is sitting in cash right now?
🟩🟩🟩🟩🟩🟩 0-10%
🟨🟨🟨⬜️⬜️⬜️ 11-25%
🟨🟨🟨🟨⬜️⬜️ 26-50%
🟨🟨🟨🟨⬜️⬜️ 51-75%
🟨🟨⬜️⬜️⬜️⬜️ 76-100%
Which stock will underperform over the next 5 years?
🟩🟩🟩🟩🟩🟩 General Mills (GIS)
🟨🟨🟨🟨⬜️⬜️ Kellogg (K)
🟨🟨🟨🟨⬜️⬜️ Post Holdings (POST)
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