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To start off the week, we’ll look at the causes behind more empty grocery store shelves across U.S., the threat facing Alibaba Group Holding Ltd. (BABA) from U.S. regulators, and the distribution deal PepsiCo Inc. (PEP) just struck with a popular energy drink.
In each instance, our TradeSmith algorithms reveal opportunities to take advantage of and pitfalls to avoid.
I’ll let our team take it away from here.
Enjoy your Monday — Keith Kaplan, CEO, TradeSmith
Snippet No. 1: Where to Invest When Grocery Stores Have Empty ShelvesOverview
If you’re seeing more empty shelves, it’s because grocery store shortages have come back.
While it might not be as bad as at the start of the pandemic, grocery shoppers are once again noticing fewer products in stock and sharing pictures of bare shelves across social media.
The grocery chain ALDI even felt compelled to release an apology to its shoppers.
Some of the reasons are issues with workers calling out sick with the new COVID-19 variant, labor shortages, trucking and shipping issues, and severe weather.
TradeSmith Senior Analyst Mike Burnick previously shared why he wouldn’t invest in grocery stores, and his advice is proving even more prudent with shelves being empty.
Instead, our tools identified a company worth watching that’s even closer to the start of the food production process, making it even more essential than a grocery store.
It may not be at the forefront of our minds, but there’s a lot that goes into producing the ingredients we need to make the food on our tables.
Corteva Inc. (CTVA) is an agriculture company centered around crop production, premium seed products, and digital services that help farmers improve the yield of their crops.
This last part is especially important, as the U.N. states that 52% of all agricultural land is suffering from soil erosion that results in declining crop yields.
Shortages of food will be an ongoing issue without companies like Corteva offering services to improve crop production.
TradeSmith’s algorithms reveal CTVA triggered an Entry Signal two years ago on June 10, 2020.
The stock is currently in our Green Zone, and it also appears in the portfolios of three high-profile billionaire investors we track, including Ray Dalio.
Snippet No. 2: Regulators Confront AlibabaOverview
If Alibaba doesn’t play by the rules, it could get kicked off Wall Street.
The Securities and Exchange Commission (SEC) is flexing its authority to delist Chinese companies from U.S. exchanges if they won’t open their books up for U.S. inspectors to analyze.
China has fought this, saying that access creates national security concerns.
Alibaba wants to keep its listing, but U.S. regulators and Chinese officials aren’t on the same page, opening the door for a dramatic exit for Alibaba from Wall Street.
Even before this news, BABA currently sits in the Red Zone, where it’s remained for nearly 20 months. BABA is trending down and poses a high risk, with a VQ of 36.66%.
Volatility Quotient (VQ) Level Breakdown:
- Up to 15% = Low Risk
- 15%-30% = Medium Risk
- 30%-50% = High Risk
- 50% and above = Sky-High Risk
That’s an “investing clue” that leads to thinking about companies that support this aspect of Alibaba’s business — like ones that create product packaging — and we just happened to find one.
Amcor PLC (AMCR) provides global packaging solutions for the pharmaceutical, medical, home- and person-care, and food and beverage industries.
As boring as that may sound, everything needs packaging, and Amcor has unique offerings like its “Smart and Connected” packaging that provides product authentication, as well as scented packaging that releases a fragrance when a package is rubbed.
When you look at the performance of BABA and AMCR over the last year, AMCR has been able to tread water throughout a tough environment, while BABA has been sinking.
The need for packaging isn’t going away, and AMCR serves as a much more attractive investment opportunity than BABA at this moment.
It has a dividend yield of 3.77%, is in our Green Zone, and has a medium-risk VQ of 23.07%.
Snippet No. 3: PepsiCo Gets EnergizedOverview
PepsiCo announced a $550 million investment in energy-drink maker Celsius Holdings Inc. (CELH), a roughly 8.5% stake.
Not just relying on soda sales, PepsiCo is working with Celsius to capture more of the $53 billion global energy drink market.
To make it stand out among all the other brands out there, Celsius positions itself as a drink that’s part of an active lifestyle.
“We’re different from other energy drinks because we focus on movement,” the company says on its website. “When combined with exercise, our formula is clinically proven to boost your metabolism and help you burn body fat.”
The TradeSmith Takeaway
PepsiCo’s distribution deal (and cash infusion) will benefit Celsius Holdings, but it could be framed as a more speculative investment to add to a watch list.
Celsius could eventually be a buyout target for PepsiCo, but as of this moment, CELH is in our Red Zone.
In comparison, PEP entered our Green Zone in March 2020. It just barely tips into the medium-risk category with a VQ of only 15.84%, and our indicators suggest that it’s ready to begin an ascent from a valley, which is a bullish sign.
PEP is a sterling example of what Mike Burnick calls, “money never sleeps” stocks.
“Money never sleeps for PEP shareholders because every minute of every day, 365 days a year, somebody, somewhere in the world, is buying a bag of Ruffles, Fritos, or Doritos chips. And they are reaching for an ice-cold Pepsi or Mountain Dew to wash it down with. YOU as a shareholder get a little piece of every sale in the form of growing dividends,” Mike says. Currently, PEP has a dividend yield of 2.6%.
One More ThingThis concludes this week’s TradeSmith Snippets, and we’d love to hear from you.
Which did you like best?
Snippet No. 1: Where to Invest When Grocery Stores Have Empty Shelves
Snippet No. 2: Regulators Confront Alibaba
Snippet No. 3: PepsiCo Gets Energized
The TradeSmith team would love to hear what you have to say.