CAFFEINE LONGS (CELH, MNST, BRCC, WEST)
Our Macro Team has called for another sell-off in the market which would be an opportunity to add one of our favorite trend and tail duration Long Ideas. In Consumer Staples, our tail duration long ideas consist of companies with strong secular growth tailwinds. Caffeine consumption is one such tailwind as consumers use more of the habit-forming drug in our always-connected lifestyles. Within caffeine, consumers are adopting cold coffee and energy drinks driven by younger consumers' preference for taste, convenience, and flavors. We have several Best Idea Longs in the caffeine sector from coffee companies including Westrock Coffee (WEST) and Black Rifle Coffee Company (BRCC) to energy drink companies Monster Beverage (MNST) and Celsius Holdings (CELH).
Today we are hosting a Black Book presentation at 10 AM ET. CLICK HERE for the webcast and materials. Our investment themes:
Flu Monitor (PRGO)
The CDC estimates that there have been at least 25 million illnesses from the flu this season through the week ended February 3. The flu had surged since Thanksgiving but is declining in most areas despite the Christmas and New Year’s holidays. The flu sometimes has two peaks, but influenza A(H3N2) continues to be the main subtype. If that continues this season’s flu will have started early and ended even earlier. The cumulative hospitalization rate was roughly equal to the highest cumulative in-season hospitalization rate observed for this week since 2010-11. This in-season cumulative hospitalization rate is still lower than end-of-season hospitalization rates for all but four pre-COVID-19 seasons. 11.1% of deaths that occurred during the week were attributed to pneumonia, influenza, or COVID-19, above the 6.8% threshold for an epidemic. Perrigo’s Q4 is mostly set for the cough & cold season as orders are already in and production is maximized, especially for liquid medicines. Most retailers are short of cough & cold medicine. A larger or longer cough & cold season would be seen in Q1 results as retailers reorder more inventory.
Grocery Traffic (GO, SFM)
Weekly traffic to Grocery Outlet as reported by Placer.ai has been running up LDD% in January, an acceleration from December. Traffic to Sprouts Farmers Market has been down ~8% in three of the four weeks of January with the other week down 12%, representing an improvement from December’s 16% YOY decrease. Sprouts had a surge in traffic in January 2022 with the Omicron variant outbreak while Grocery Outlet did not see much change in trend. Both chains have a high percentage of their stores in California which has experienced different traffic trends since the pandemic than other states.
