Going Long Consumer Staples
We are hosting our 1H22 Consumer Staples Themes call tomorrow at 2:30 PM ET. We will outline our thesis for going long Consumer Staples.
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CLICK HERE for the live webcast and materials at the time of the event. |
Hedgeye’s Macro team is calling for either Quad 1 or shallow Quad 4 in Q1, followed by an increasing likelihood of Quad 4 in Q2. Consumer Staples has the highest expected value of any sector in Quad 4. However, not all companies will enter Quad 4 with the same outlooks.
We see an inflection in margins ahead for the sector. Cost increases have become increasingly larger headwinds for margins in Consumer Staples. CPG companies are experiencing cost increases for everything from labor, to packaging, to food ingredients, to transportation. Peaks are generally processes, not points. Since food at home is a relatively small portion of CPI, we can have peak inflation while food prices continue to make new highs. Food manufacturing costs are peaking while price increases are accelerating, signaling strengthening margins ahead.
We reshuffled our position monitor to account for international sales mix, exposure by commodity, pricing plans, the elasticity of demand, margin outlook, competitive dynamics, and secular growth trends. We added General Mills, Keurig Dr Pepper, and Pilgrim’s Pride to the long list. For our short list we added Anheuser Busch InBev and removed J.M. Smucker and Conagra.
We will also do a deep dive into our investment themes for the sector including:
- Inflation
- Price increases
- Cost pressures
- Plant-based food
- COVID-19 peak
- At-home food consumption peak
- Grocery e-commerce
- Government transfer payments
- Supply chain challenges
