“There were many ways down Mount Fuji, according to my guidebook, but only one way up. Life lesson in that I thought.”
- Phil Knight (Author)
I’m sure you saw numerous shots of the picturesque Mt. Fuji during the recent summer Olympics in Tokyo. It certainly is established as one of the most iconic Japanese landmarks. Fujisan, as it is called in Japanese, is the tallest mountain in the country at a little less than 12,500 feet, and is considered sacred by practitioners of Shinto and Buddhism (the two major religions of Japan). Its importance in Japanese culture and proximity to Tokyo draw visitors by the hundreds of thousands to its slope each summer. Despite the elevation, it is not a particularly challenging trek.
I was fortunate to have climbed it twice – once as a young teenager and once as a college student. It is no Mt. Everest, but it is nearly twice the elevation of even the tallest peaks on the East Coast. The difference is that what makes the mountain so picturesque – its beautiful and curvaceous slope makes it more of a hike than a climb. Summers in Japan are quite warm and temperate, but climate can be deceiving when ascending to the peak of Fujisan. You often start the climb in a T-shirt and by the time you reach the clouds you are wearing a winter jacket and pulling for air like you are breathing through a straw. Preparation and the proper gear matter more than your fitness.
On my first climb I was prepared for everything (like a dutiful Boy Scout) except for the thin air. I will never forget how tiring just a few steps were once I neared the summit. When I had the opportunity to embark again as a 20 year-old, I wanted to conquer those fatigue memories. I ended up jogging up the last part. Unfortunately, what I forgot to do was to pay attention to the path down the mountain. Taking a different path a couple of feet from the correct path at the summit led to a couple of extra hours of hiking at the base.
Investing can be similar.
A simple trading decision can snowball into to countless hours of work, consternation, and dollars in cost later. That’s why at Hedgeye we are always talking about implementing processes rather than focusing on a decision. When there are mistakes, we look to see if there needs to be a modification. It is nice to say you climbed the mountain one hour faster than you did previously (great rate of change), but if you spent three hours in the dark circling the base of the mountain what did you really gain? How many times have we had a great stock pick only to see it turn into losses later, because you failed to sell it? You need to be a process for climbing up and managing the descent down the mountain.
Back to the Consumables Macro Grind…
As nice as it would be if stock charts could resemble the slope of Fujisan, dips provide buying opportunities. We see Nomad Foods at one of those opportunities. It is a Best Idea Long in our Consumer Staples position monitor. Nomad Foods is the largest frozen food company in Europe, but shares have been weak recently over pandemic comparison concerns.
Nomad Foods benefited from the shift to at-home consumption during the pandemic, but management also took advantage of the environment and its balance sheet. It made two acquisitions in the frozen food category that will further expand the company into new countries, product categories, and markets.
Despite the inflationary pressures the company drove higher gross margins Q2 without the benefit of price increases – a rarity in consumer staples.
The company’s growth formula of LSD% organic revenue growth, margin expansion, balance sheet enhancement, and tuck-in acquisitions driving LDD-mid-teens EPS growth are trading at 13.5x the current run rate of EPS. It might not be the right quad for outperformance at the moment, but it is worth keeping in mind. That valuation offers a mountain sized margin of safety with time on your side.
If you would like to learn more about my research team's in-depth investing research please reach out to .
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 1.17-1.40% (neutral)
UST 2yr Yield 0.18-0.27% (bullish)
SPX 4 (bullish)
RUT 2185-2271 (neutral)
NASDAQ 14,635-14,963 (bullish)
REITS (XLRE) 45.91-47.08 (bullish)
Tech (XLK) 152.26-155.51 (bullish)
Utilities (XLU) 66.31-68.45 (bullish)
Energy (XLE) 48.16-51.39 (bullish)
Shanghai Comp 3 (bearish)
Nikkei 27,317-28,152 (bearish)
DAX 15,530-15,899 (bullish)
VIX 15.02-19.61 (bearish)
USD 91.71-93.20 (bearish)
EUR/USD 1.168-1.192 (neutral)
Oil (WTI) 65.46-74.32 (bullish)
Nat Gas 3.88-4.26 (bullish)
Gold 1 (neutral)
Happy trails,
Daniel Biolsi
Consumables Analyst
