The food industry
UBS forecasts that the “plant-based meat” sector will thrive, according to the bank, with a number of companies poised to gain.
Givaudan, a Swiss manufacturer of flavors, fragrances, and active cosmetic ingredients, was one of UBS’ stock picks. According to UBS analysts led by Charles Eden, plant-based meat currently accounts for about 1.5 percent of Givaudan’s sales and is a key area of focus for the company.
International Flavors & Fragrances (IFF) — As the name suggests, IFF is a major player in the ingredient manufacturing market. UBS emphasized its merger with DuPont’s Nutrition & Biosciences unit, claiming that it now provides a number of components to the plant-based meat market. Flavors and seasonings, plant-based protein, and emulsifiers are examples of these. According to the analysts, plant-based meat currently accounts for less than 5% of IFF’s total sales.
Symrise — Another major ingredient competitor is the German company Symrise. Plant-based sales account for less than 1% of total sales, but UBS analysts said it was a key focus for the company.
Kerry — According to analysts, Kerry, a London-listed Irish food producer, is the global leader in ingredients and flavors, with an approximate 8% market share. In 2019, it launched its own plant-based range, Naked Glory, in UK supermarkets Tesco and Morrisons, and expanded a couple of its other meat-product lines to include plant-based alternatives. Plant-based meat accounts for about 2% of Kerry Group’s sales.
Along with Kerry, UBS identified some other food producers and restaurants that would benefit more broadly from the expansion of the plant-based meat space.
Nestle — UBS analysts said that, outside of the market’s “pure-plays,” Swiss food producer Nestle was best positioned to benefit from the boom in this area. According to the analysts, it has a number of plant-based meat brands, including Gourmet Garden. Its “Incredible Burger” is available in several European countries, as well as as a vegan option at McDonald’s in Germany. Meanwhile, its Sweet Earth brand’s “Awesome Burger” had recently been launched in the United States.
Nomad Foods — Nomad Foods, a New York-listed European frozen food company, was also on UBS’s buy list. Its Green Cuisine brand is sold in 12 countries and is expected to generate 30 million euros ($36 million) in sales in 2020. It intends to reach a sales volume of 100 million euros by 2022.
Yum! Brands — UBS liked Yum! Brands partly because of its partnerships, such as with Beyond Meat to sell plant-based food through its Pizza Hut and KFC restaurants.
UBS highlighted a similar trend with rival fast food operator Restaurant Brands, with Burger King selling Impossible Food’s “Impossible Burger.”
McDonald’s — UBS rates McDonald’s as a buy, though it is less optimistic about the stock than it is about competitors such as Yum! Brands and Restaurant Brands. According to the analysts, McDonald’s is preparing to launch its McPlant food line, with Beyond Meat set to be its preferred supplier for plant-based burger patties.
Netflix set to raise
According to Bespoke, the company has outperformed expectations for first-quarter earnings and sales 78 percent of the time, but shares have only risen 39 percent of the time the next day. The stock also has a tendency to gap down or open lower the morning following the report.
Netflix’s recent earnings reaction has not been positive. According to Bespoke, the stock has fallen in the session after reporting seven of the last eight quarters, and Netflix has missed Wall Street’s earnings per share expectations for four consecutive quarters.
According to Bespoke, the stock has seen large swings in both directions following the April earnings report in the past.
Netflix fell nearly 13% in 2016 after missing revenue estimates and lowering guidance. The previous year, the stock ripped 18% higher earnings per share, coming in well ahead of expectations.
Overall, the fourth-quarter report usually sparks the biggest rally in Netflix stock. In fact, despite the fact that the reaction to first-quarter results is usually negative, the stock rises 0.5 percent on average in the session following quarterly reports because the fourth-quarter results are so strong.
As of Monday afternoon, Refinitiv polled analysts predicted Netflix would earn $2.97 per share on $7.13 billion in revenue in the first quarter. In early trading on Tuesday, shares were up less than 1%.
The overall market
Marko Kolanovic, a senior strategist at JPMorgan, said on Tuesday that short-term bearishness in equities connected to economic growth and interest rates would soon show to be a short-term phenomenon. Investors were wary about the U.S. economic recovery at the start of the year, so they reopened trades and interest rates went up consistently from the end of last year through the beginning of March, but that bullishness has dissipated in recent weeks.
“In our opinion, the reflation and reopening trade will resume, with yields rising and a shift away from growth, quality, and defensives and toward value and cyclicals,” Kolanovic wrote. Energy, Financials, Materials, Industrials, small caps, high beta stocks, and various reopening and inflation themes will be beneficiaries.
This transition will accelerate as the United States enters the late spring and summer months, and the slower rollout of vaccines in Europe and emerging markets will help to extend the rotation, he added.
During the pandemic, Kolanovic rose to prominence for his accurate market predictions, including being one of the few who correctly predicted the market’s bottoming out in March 2020. He was previously the head of macro quantitative and derivatives strategy at JPMorgan.
In recent weeks, these reopening and cyclical plays have receded. The Energy Select Sector SPDR Fund, for example, has fallen more than 10% since its peak in mid-March.
According to the strategist, this presents an opportunity for investors to re-enter the market ahead of the rotation’s return.
“Given our view on reopening, reflation, and factors, as well as the significant pullback in the reopening theme over the last few weeks,” Kolanovic said, “we believe investors should buy reopening epicenter stocks and sectors.”
“With cases in the United States and Europe now declining, the rapid pace of vaccination, and seasonal tailwinds (northern hemisphere), we believe that the reopening and reflation trade will resume with a larger move than we saw earlier this year,” he added.