Category Archives: Cleaner Living

Sizing up thematic returns in February

Sizing up thematic returns in February

Equities continued to swoon during February as investors came to grips with the expanding impact of the coronavirus. Amid a growing sea of corporate warnings that led investors to question earnings forecasts for the current quarter as well as all of 2020, all the major stock market indices finished February down 6.4%-10.1%. The hardest hit was the Dow Jones Industrial Average, and the US stock market barometer that is the S&P 500 fell 8.4% in February, which added meaningfully to its decline year to date. 

Despite investors taking profits in the Technology and Healthcare sectors, they along with Communication Services helped temper the market’s February selloff. Names like Regeneron Pharmaceuticals (REGN), Biogen (BIIB) and Gilead Sciences (GILD) saw gains on advances in potential coronavirus treatment development in particular. While markets overall were impacted by unfolding events during the month Energy, Utilities and Consumer Discretionary names seemed to lead the way down. Muted demand for oil due to reduced manufacturing activity and fears of continued softening in the global economy saw oil prices drop almost 17% during the last week of the month. Unsurprisingly, cruise line operators Norwegian Cruise Lines (NCLH) and Caribbean Cruise Lines (RCL) were among the worst performers this month both posting losses over 30% with Carnival Corporation (CCL) not too far behind losing over 23% of its market value as those companies paired back 2020 expectations due to the coronavirus’s impact. The same was had with airlines with American Airlines Group (AAL) down 29.68% and Alaska Air Group (ALK) off 21.88% as they too canceled flights and reduced schedules owing to the virus.  

At Tematica we’ve often questioned the notion of the S&P 500’s construction as well as the ability of an 11-sector framework to accurately capture the evolving landscapes that we and other investors find ourselves confronting as structural changes associated with our 10 investment themes continue to unfold.  In our view a different perspective is needed, a thematic one, to properly identify those companies at the forefront of these unfolding structural changes. For example, cruise lines such as the ones mentioned above fall into the Consumer Discretionary sector while companies such as Omega Healthcare Investors (OHI) that offer long-term healthcare facilities is classified as Real Estate even though both are feeling the tailwinds of Tematica’s Aging Population investing theme on their respective businesses.

Another example of looking at the world thematically is found in the Tematica Research Cleaner Living Index, which focuses on the shifting consumer preference for cleaner products and services that are better for you, your body, your work, your workplace, and the environment.  Despite sharp February sell-offs in several index constituents, including Acuity Brands (AYI). Fresh Del Monte Produce (FDP) and Hain Celestial (HAIN), solar energy systems companies Sunrun (RUN) and SolarEdge Technologies ((SEDG), as well as plant-based alternative Beyond Meat (BYND) and Tesla (TSLA), led the Cleaner Index to slip by only 3.1% in February. That decline more than offset the index’s modest rise posted during January leaving it down 2.6% year to date vs. the S&P’s 8.6% drop at the end of February. 

Of note during February, 

  • Plant-based meat alternatives notched another win as Beyond Meat announced the Beyond Meat sandwich will be available at Starbucks’ (SBUX) nearly 1,200 coffee shops across Canada on March 3. The sandwich will include cheddar cheese and egg on an artisanal bun. Not to be outdone, Impossible Foods announced its plant-based meats will be available across Walt Disney (DIS) theme parks and cruise lines come Feb. 28. 
  • Confirming the drivers for Cleaner Living are global, during February it was reported by the Fraunhofer Institute for Solar Energy Systems (ISE) that 61.2% of Germany’s net public electricity generation was from renewable sources, marking a new monthly record. 
  • And while Tesla has an early lead in the electric vehicle space, BMW is set to take the wrap off its i4 electric concept car and General Motors (GM) is slated to discuss its electric vehicle and battery strategies at its upcoming EV Day on March 4. GM’s battery facing comments will be ones to watch ahead of Tesla’s “Battery Day” slated for April.

Amid the coronavirus headlines investors were digesting during February, there were two powerful reminders of the growing need for cybersecurity and digital privacy solutions. The first was the announcement from gaming and hospitality giant MGM Resorts International (MGM) that it had been the victim of a data breach in 2019. The second was a statement from the US State Department blaming the Russian military intelligence agency known as the GRU for the cyberattacks that hit Georgia last October and disrupted “several thousand Georgian government and privately-run websites and interrupted the broadcast of at least two major television stations.”

Those attacks are but the latest high-profile ones to be reported and point to the increasing need for companies, governments, other institutions and individuals to protect their data, especially as the regulatory environment could increase the frequency of financially motivated cyber-attacks. Each week in Thematic Reads, we share some of the latest headlines and news stories surrounding the Foxberry Tematica Research Cybersecurity and Data Privacy Index. As society becomes increasingly connected as part of our Digital Lifestyle investment theme and as new technologies associated with our Digital Infrastructure investing theme look to connect more devices than ever before, we continue to see an increasing demand profile for the constituents that comprise the Foxberry Tematica Research Cybersecurity & Data Privacy Index. During February the index fell 8.2% as gains registered in the shares of Cloudflare (NET), Norton Lifelock (NLOK) and ForeScout Technologies (FSCT) were offset by declines in Palo Alto Networks (PANW), Globalscape (GSB) and Mimecast (MIME) shares. 

Turning to the Tematica’s Thematic Dividend All-Stars Index, which is comprised companies with at least ten consecutive years of increasing annual regular dividend payments and whose business models will benefit from multiple thematic tailwinds tracked by Tematica’s Thematic Scorecard, its total return for February was -8.1% vs. the total return for the S&P 500 of -8.3%. Among the index’s 65 constituents, only Healthcare Services Group (HCSG), Albemarle Corp. (ALB) and Target (TGT) finished higher in February, leaving meaningful declines at Aaron’s (AAN), Nu Skin (NUS) and Invesco (IVZ) to have a greater impact on this equally weighted index. 

Generally speaking, companies that continually increase their dividends to shareholders tend to see a positive step function higher in their share prices. During the first two months of 2020, just over 25% of the index constituents announced fresh dividend increases including Aaron’s (AAN), Analog Devices (ADI), Digital Realty Trust (DLR), Best Buy (BBY) and AT&T (T). Given the positive impact of tailwinds associated with Tematica’s investment themes, we look forward to sharing news of new dividend increases at the other 72% of the index constituents in the coming months. 

Tematica Research Cleaner Living Index cleans up in 3Q 2019

Tematica Research Cleaner Living Index cleans up in 3Q 2019

 

Last week we closed out the month of September, shutting the books on the third quarter and began the final quarter’s march toward the end of 2019. While US stocks rebounded in September, the quarter in full was still a mixed one, as evidenced by a 1.2% rise in both the S&P 500 and the Dow Jones Industrial Average, versus the Nasdaq Composite Index and the Russell 2000 index that each finished the third quarter in the red. By comparison, the Tematica Research Cleaner Living Index (CLRN) soared 5.1% during the September quarter following its 4.0% move higher just in the month of September.

 

 

The Tematica Research Cleaner Living Index focuses on those companies poised to benefit from the growing demand for items that are better for you and the planet. The outperformance of the index during the last month of the quarter was led by double-digit moves in eight of the index’s 48 active constituents, including the more than 40% rebound in both Fresh Del Monte Produce (FDP) and Tenneco (TEN) shares, and the more than 24% climb in WW (WW) shares. The move in WW shares finished off a September quarter climb that totaled 95.5% in total, leaving them as the best performing constituent during the quarter. Rounding out the top three performers for the September quarter were Fresh Del Monte Produce, and SolarEdge Technologies (RUN), both of which climbed more than 30% during that 90-day period.

It will come as no surprise when we say the September quarter was filled with a lot of drama. It began with signs of the global economy slowing further, continued with more “two steps forward and one step back” on US-China trade talks, and ended with the impeachment inquiry winding through Washington that could stall any legislative efforts to be had by the current administration. More recently, September data published by ISM and IHS Markit have reignited global growth concerns, and the continued protests in Hong Kong have raised doubts over luxury good sales during the quarter.

All of this sets the stage for what is likely to be a tenuous, if not volatile, September quarter earnings season. Adding wood to that fire are recent earnings reports from FedEx (FDX), US Steel (X), HB Fuller (FUL), Actuant Corp. (ATU), and Landec (LNDC) that included weaker than expected guidance and we are also starting to see negative earnings pre-announcements like those from AXT Inc. (AXTI) and GoPro (GPRO) rear their head.

Taking all of those factors in full, we’ve seen year over year 2019 EPS expectations for the S&P 500 group of companies fall to just 1.8% currently, down from roughly 10% this time last year per data from FactSet. By comparison, the constituents for the Cleaner Living Index are expected to deliver EPS growth of 3.7% in 2019, led by Fresh Del Monte Produce, Brookfield Renewable Partners (BEP)Atlantica Yield (AY)Sanderson Farms (SAFM) and TerraForm Power (TERP).

We’ll also be watching with an eye toward 2020 as investors begin to focus on earnings growth prospects for the coming year and companies begin to gingerly share initial expectations that will shape 2020 forecasts. Based on current 2020 EPS expectations for the Cleaner Living Index constituents, in aggregate, the group is projected to deliver year over year EPS growth of 36.0%, far and above the 10.3% growth forecast for the S&P 500, again per FactSet data. Of the 48 Cleaner Living constituents, 2020 EPS expectations that are likely to have the greatest influence on year over year growth are Tesla (TSLA) and Freshpet (FRPT) as they go from generating bottom line losses to positive EPS as well as TPI Composites (TPIC) and NextEra Energy Partners (NEP).

Ep 15 Trump and Trade, Apple event thoughts and Volkswagen swings at Tesla

Ep 15 Trump and Trade, Apple event thoughts and Volkswagen swings at Tesla

On this episode of the Thematic Signals podcast, Tematica’s Chris Versace breaks down the latest trade developments (including why he doesn’t think a two-step deal is likely) and discusses the European Central Bank rate cut before shares his thoughts on the continued plight of brick & mortar retail as Forever 21 is slated to file bankruptcy this weekend. We see no slowdown in the Digital Lifestyle tailwind that is a headwind for those like Forever 21. Chris then moves to why he was nonplused by Apple’s 2019 iPhone event even though it announcements made during the event mean problems for Netflix and GameStop. Also, hotels in Japan get a makeover, and Volkswagen comes out of the German Auto Show swinging at Tesla. To hear how those two items tie into our Living the Life and Cleaner Living investing themes, as well as why Chris is a little concerned about the Federal Reserve meeting next week, you’ll need to hit the play button and listen.

Have a topic or a conversation you think we should tackle on the podcast, email me at cversace@tematicaresearch.com

And don’t forget to subscribe to the Thematic Signals Podcast on iTunes!

 

Resources for this podcast:

Weekly Issue: Key Developments at Apple (AAPL) and AT&T (T)

Weekly Issue: Key Developments at Apple (AAPL) and AT&T (T)

Key points inside this issue:

  •  Apple’s 2019 iPhone event – more meh than wow
  •  GameStop – It’s only going to get worse
  •  Elliot Management gets active in AT&T, but its prefers Verizon?
  •  California approves a bill that changes how contract workers are treated
  • Volkswagen set to disrupt the electric vehicle market

I’m going to deviate from the usual format we’ve been using here at Tematica Investing this week to focus on some of what’s happening with Select List residents Apple (AAPL) and AT&T (T) this week as well as one or two other things. The reason is the developments at both companies have a few layers to them, and I wanted to take the space to discuss them in greater detail. Don’t worry, we’ll be back to our standard format next week and I should be sharing some thoughts on Farfetch (FTCH), which sits at the crossroads of our Living the Life, Middle Class Squeeze and Digital Lifestyle investing themes, and another company I’ve been scrutinizing with our thematic lens. 

 

Apple’s 2019 iPhone event – more meh than wow

Yesterday, Apple (AAPL) held its now annual iPhone-centric event, at which it unveiled its newest smartphone model as well as other “new”, or more to the point, upgraded hardware. In that regard, Apple did not disappoint, but the bottom line is the company delivered on expectations serving up new models of the iPhone, Apple Watch and iPad, but with only incremental technical advancements. 

Was there anything that is likely to make the average users, not the early adopter, upgrade today because they simply have to “have it”? 

Not in my view. 

What Apple did do with these latest devices and price cuts on older models that it will keep in play was round out price points in its active device portfolio. To me, that says CEO Tim Cook and his team got the message following the introduction of the iPhone XS and iPhone XS Max last year, each of which sported price tags of over $1,000. This year, a consumer can scoop up an iPhone 8 for as low as $499 or pay more than $1,000 for the new iPhone 11 Pro that sports a new camera system and some other incremental whizbangs. The same goes with Apple Watch – while Apple debuted a new Series 5 model yesterday, it is keeping the Series 3 in the lineup and dropped its price point to $199. That has the potential to wreak havoc on fitness trackers and other smartwatch businesses at companies like Garmin (GRMN) and Fitbit (FIT)

Before moving on, I will point out the expanded product price points could make judging Apple’s product mix revenue from quarter to quarter more of a challenge, especially since Apple is now sharing information on these devices in a more limited fashion. This could mean Apple has a greater chance of surprising on revenue, both to the upside as well as the downside. Despite Apple’s progress in growing its Services business, as well its other non-iPhone businesses, iPhone still accounted for 48% of June 2019 quarterly revenue. 

Those weren’t the only two companies to feel the pinch of the Apple event. Another was Netflix (NFLX) as Apple joined Select List resident Walt Disney (DIS) in undercutting Netflix’s monthly subscription rate. In case you missed it, Disney’s starter package for its video streaming service came in at $6.99 per month. Apple undercut that with a $4.99 a month price point for its forthcoming AppleTV+ service, plus one year free with a new device purchase. To be fair, out of the gate Apple’s content library will be rather thin in comparison to Disney and Netflix, but it does have the balance sheet to grow its library in the coming quarters. 

Apple also announced that its game subscription service, Apple Arcade, will launch on September 19 with a $4.99 per month price point. Others, such as Microsoft (MSFT) and Alphabet (GOOGL) are targeting game subscription services as well, but with Apple’s install base of devices and the adoption of mobile gaming, Apple Arcade could surprise to the upside. 

To me, the combination of Apple Arcade and these other game services are another nail in the coffin for GameStop (GME)

 

GameStop – It’s only going to get worse

I’ve been bearish on GameStop (GME) for some time, but even I didn’t think it could get this ugly, this fast. After the close last night, GameStop reported its latest quarter results that saw EPS miss expectations by $0.10 per share, a miss on revenues, guidance on its outlook below consensus, and a cut to its same-store comps guidance. The company also shared the core tenets of a new strategic plan. 

Nearly all of its speaks for itself except for the strategic plan. Those key tenets are:

  • Optimize the core business by improving efficiency and effectiveness across the organization, including cost restructuring, inventory management optimization, adding and growing high margin product categories, and rationalizing the global store base. 
  • Create the social and cultural hub of gaming across the GameStop platform by testing and improving existing core assets including the store experience, knowledgeable associates and the PowerUp Rewards loyalty program. 
  • Build digital capabilities, including the recent relaunch of GameStop.com.
  •  Transform vendor and partner relationships to unlock additional high-margin revenue streams and optimize the lifetime value of every customer.

Granted, this is a cursory review, but based on what I’ve seen I am utterly unconvinced that GameStop can turn this boat around. The company faces headwinds associated with our Digital Lifestyle investing theme that are only going to grow stronger as gaming services from Apple, Microsoft and Alphabet come to market and offer the ability to game anywhere, anytime. To me, it’s very much like the slow sinking ship that was Barnes & Noble (BKS) that tried several different strategies to bail water out. 

Did GameStop have its time in the sun? Sure it did, but so did Blockbuster Video and we all know how that ended. Odds are it will be Game Over for GameStop before too long.

Getting back to Apple, now we wait for September 20 when all the new iPhone models begin shipping. Wall Street get your spreadsheets ready!

 

Elliot Management gets active in AT&T, but its prefers Verizon?

Earlier this week, we learned that activist investor Elliot Management Corp. took a position in AT&T (T). At $3.2 billion, we can safely say it is a large position. Following that investment, Elliot sent a 24-page letter telling AT&T that it needed to change to bolster its share price. Elliot’s price target for T shares? $60. I’ll come back to that in a bit. 

Soon thereafter, many media outlets from The New York Times to The Wall Street Journal ran articles covering that 24-page letter, which at one point suggested AT&T be more like Verizon (VZ) and focus on building out its 5G network and cut costs. While I agree with Elliot that those should be focus points for AT&T, and that AT&T should benefit from its spectrum holdings as well as being the provider of the federally backed FirstNet communications system for emergency responders, I disagree with its criticism of the company’s media play. 

Plain and simple, people vote with their feet for quality content. We’ve seen this at the movie box office, TV ratings, and at streaming services like Netflix (NFLX) when it debuted House of Cards or Stranger Things, and Hulu with the Handmaiden’s Tale. I’ve long since argued that AT&T has taken a page out of others’ playbook and sought to surround its mobile business with content, and yes that mobile business is increasingly the platform of choice for consuming streaming video content. By effectively forming a proprietary content moat around its business, the company can shore up its competitive position and expand its business offering rather than having its mobile service compete largely on price. And this isn’t a new strategy – we saw Comcast (CMCSA) do it rather well when it swallowed NBC Universal to take on Walt Disney and others. 

Let’s also remember that following the acquisiton of Time Warner, AT&T is poised to follow Walt Disney, Apple and others into the streaming video service market next year. Unlike Apple, AT&T’s Warner Media brings a rich and growing content library but similar to Apple, AT&T has an existing service to which it can bundle its streaming service. AT&T may be arriving later to the party than Apple and Disney, but its effort should not be underestimated, nor should the impact of that business on how investors will come to think about valuing T shares. The recent valuation shift in Disney thanks to Disney+ is a great example and odds are we will see something similar at Apple before too long with Apple Arcade and AppleTV+. These changes will help inform us as to how that AT&T re-think could play out as it comes to straddle the line between being a Digital Infrastructure and Digital Lifestyle company.

Yes Verizon may have a leg up on AT&T when it comes to the current state of its 5G network, but as we heard from specialty contractor Dycom Industries (DY), it is seeing a significant uptick in 5G related construction and its top two customers are AT& T (23% of first half 2019 revenue) followed by Verizon (22%). But when these two companies along with Sprint (S), T-Mobile USA (TMUS) and other players have their 5G network buildout competed, how will Verizon ward off subscriber poachers that are offering compelling monthly rates? 

And for what it’s worth, I’m sure Elliot Management is loving the current dividend yield had with T shares. Granted its $60 price target implies a yield more like 3.4%, but I’d be happy to get that yield if it means a 60% pop in T shares. 

 

California approves a bill that changes how contract workers are treated

California has long been a trend setter, but if you’re an investor in Uber (UBER) or Lyft (LYFT) — two companies riding our Disruptive Innovators theme — that latest bout of trend setting could become a problem. Yesterday, California lawmakers have approved Assembly Bill 5, a bill that requires companies like Uber, Lyft and DoorDash to treat contract workers as employees. 

This is one of those times that our thematic lens is being tilted a tad to focus on a regulatory change that will entitle gig workers to protections like a minimum wage and unemployment benefits, which will drive costs at the companies higher. It’s being estimated that on-demand companies like Uber and the delivery service DoorDash will see their costs rise 20%-30% when they rely on employees rather than contractors. For Uber and Lyft, that likely means pushing out their respective timetables to profitability.

We’ll have to see if other states follow California’s lead and adopt a similar change. A coalition of labor groups is pushing similar legislation in New York, and bills in Washington State and Oregon could see renewed momentum. The more states that do, the larger the profit revisions to the downside to be had. 

 

Volkswagen set to disrupt the electric vehicle market

It was recently reported that Volkswagen (VWAGY) has hit a new milestone in reducing battery costs for its electric vehicles, as it now pays less than $100 per KWh for its batteries. Given the battery pack is the most expensive part of an electric vehicle, this has been thought to be a tipping point for mass adoption of electric vehicles. 

Soon after that report, Volkswagen rolled out the final version of its first affordable long-range electric car, the ID.3, at the 2019 Frankfurt Motor Show and is expected to be available in mid-2020.  By affordable, Volkswagen means “under €30,000” (about $33,180, currently) and the ID.3 will come in three variants that offer between roughly 205 and 340 miles of range. 

By all accounts, the ID.3 will be a vehicle to watch as it is the first one being built on the company’s new modular all-electric platform that is expected to be the basis for dozens more cars and SUVs in the coming years as Volkswagen Group’s pushed hard into electric vehicles. 

Many, including myself, have been waiting for the competitive landscape in the electric vehicle market to heat up considerably – it’s no secret that all the major auto OEMs are targeting the market. Between this fall in battery cost and the price point for Volkswagen’s ID.3, it appears that the change in the landscape is finally approaching and it’s likely to bring more competitive pressures for Clean Living company and Cleaner  Living Index constituent Tesla (TSLA)

 

Ep 13 Cleaner Living Solutions with the Degree of Green

Ep 13 Cleaner Living Solutions with the Degree of Green

On this episode of the Thematic Signals podcast, host Chris Versace digs more into Tematica’s Cleaner Living investing theme with Andrew Pace of Degree of Green. Degree of Green was started back in 2007 as a rating system to educate consumers and retailers about the different facets of green.  But today, Degree of Green is an educational portal to teach people how to build healthy AND green.

 

  

On this week’s podcast, you’ll learn how many chemicals dwell inside your home and where there they tend to be most prevalent. You’ll also learn about the varying degrees of what is considered green, with some surprises along the way as we talk about Degree of Green’s proprietary green rating system. If you’re looking to Clean up your existing home or a new one, this is a podcast you won’t want to miss.

Have a topic or a conversation you think we should tackle on the podcast, email me at cversace@tematicaresearch.com

And don’t forget to subscribe to the Thematic Signals Podcast on iTunes!

 

Resources for this podcast:

Keys to July Retail Sales and Walmart Earnings Results

Keys to July Retail Sales and Walmart Earnings Results


Plus the Biggest Threat to the German Auto Industry

On this episode of the Thematic Signals podcast, we’re digging into the July Retail Sales and quarterly earnings results from Walmart as both confirm the hard-blowing tailwinds associated with our Digital Lifestyle, Middle-Class Squeeze, Aging of the Population and Cleaner Living Investing themes.





We also breakdown a recent article in The Wall Street Journalthat discusses how one aspect of our Cleaner Living investing theme — electric vehicles — could threaten the German economy. It’s the same structural shift that should have folks more than a little concerned about Tesla, both its business as well as its shares. All that and much more on this episode of the podcast. 

Have a topic or a conversation you think we should tackle on the podcast, email me at cversace@tematicaresearch.com

And don’t forget to subscribe to the Thematic Signals Podcast on iTunes!

Resources for this podcast:

Bad news for Tesla, auto OEMs killing hybrids to focus on EVs

Bad news for Tesla, auto OEMs killing hybrids to focus on EVs

At the heart of our investment themes here at Tematica we tend to find a structural change underway. There are several embodied by our Cleaner Living investing theme with one of the more recognizable happening in the auto market as consumers look for non-gas powered solutions. This began with hybrid models, which in hindsight were a baby step or two away from all-gas powered engines that allowed them to meet regulatory mandates. We are, however, seeing an acceleration in the shift toward electric vehicles (EVs) as both General Motors and Volkswagen close out their hybrid efforts to focus their formidable resources on the EV market.

As we can see below, GM in particular is looking to move in the EV market in a meaningful way over the next four years. As we’ve seen in our Digital Lifestyle investing theme with Netflix, a company can enjoy an early mover advantage for a period of time but as the market opportunity presents itself others, like Disney, Apple, Comcast and others, will look to tap into that growing market.

The same holds for Tesla, and the question investors will need to ponder is how it will fare in a far more competitive EV market? Legacy auto makers like GM, Volkswagen, Ford and others are well versed in the competitive auto market. This will be new ground and an new battle ground for Tesla and Elon Musk, and it doesn’t have a legacy car business to help it out.

Auto makers for two decades have leaned on hybrid vehicles to help them comply with regulations on fuel consumption and give customers greener options in the showroom. Now, two of the world’s largest car manufacturers say they see no future for hybrids in their U.S. lineups.

General Motors Co. and Volkswagen AG are concentrating their investment on fully electric cars, viewing hybrids—which save fuel by combining a gasoline engine with an electric motor—as only a bridge to meeting tougher tailpipe-emissions requirements, particularly in China and Europe.

GM plans to launch 20 fully electric vehicles world-wide in the next four years, including plug-in models in the U.S. for the Chevy and Cadillac brands. Volkswagen has committed billions to producing more battery-powered models, including introducing a small plug-in SUV in the U.S. next year and an electric version of its minibus around 2022.

Last week, Continental AG, one of the world’s biggest car-parts makers, said it would cut investment in conventional engine parts because of a faster-than-expected fall in demand—yet another sign the industry is accelerating the shift to electric vehicles.

Source: GM, Volkswagen Say Goodbye to Hybrid Vehicles – WSJ

Cleaner Living cleans up in July

Cleaner Living cleans up in July

July was a bit of a roller coaster ride for the domestic stock market, as it grappled with the ongoing U.S.-China trade war, economic data that points to a slowing global economy and the expected interest-rate cut by the Federal Reserve at the end of the month. For the month in full, each of the major stock market indexes finished higher month-over-month, adding to their gains for the year, but exited the month below their July highs. The same was true for the Tematica Research Cleaner Living Index, which rose 1.2% in July, continuing its sharp June rebound. 

Driving the July performance for the Cleaner Living Index were shares of Beyond Meat (BYND) and Primo Water Corp. (PRMW), both of which climbed more than 20% during the month. Those moves reflect the continued expansion of Beyond Meat’s meatless protein products, a growing number of partnerships and expanding consumer awareness of water quality. That last topic was a key conversation point in our recent Thematic Signals podcast conversation with Dr. Roy Speiser. The index’s July performance also benefitted from double-digit gains at Simply Good Foods (SMPL), the company that leverages the Atkins brand in the healthy snack market, Trex (TREX) and Fresh del Monte Produce (FDP). 

Offsetting those gains were continued declines at Tenneco Inc. (TEN). The company’s clean air solutions have been impacted by the combination of a slowing global economy, a weakening of the auto market and on-going US-China trade concerns. Other notable decliners with the index for the month of July included Sprouts Farmers Markets (SAFM) and Renewable Energy Group (REGI). Sprouts continues to confront the traditional grocery chains expanding their natural, organic and healthier for you product offerings. Cleaner fuel company Renewable Energy Group on the other hand is facing falling oil prices, making competing solutions increasingly affordable. 

As we are starting to wind down the 2019 June-quarter earnings season, coming into this week more than three-quarters of the S&P 500 group of companies had reported those quarterly figures. Tallying those results, we’ve seen earnings-per-share expectations for the current quarter fall. The result is that full year 2019 earnings per share expectations for that cohort of 500 companies has risen just 2.7%, compared to 2018. Before too long, investors will begin to focus on 2020 growth prospects, and current expectations have the S&P 500 group of companies growing their collective earnings by 10.8% year over year in 2020. 

By comparison, the Cleaner Living index constituent base is slated to grow its collective earnings by nearly 30% in 2020. That’s significantly faster than the expected year over year EPS growth of 6%-12% in 2020 for the consumer discretionary, consumer staple and utility segments tallied by FactSet. Arguably the difference in those EPS growth rates reflects the accelerating shift by consumers toward natural, organic and healthier for you solutions that speaks to the structural shift captured by Tematica’s Cleaner Living investment theme and index. 

While we very much like the overall vector and velocity of the Cleaner Living constituent base and the collective earnings-per-share growth to be had in the coming quarters, we recognize at least in the near-term the overall market and subsequently the Cleaner Living index will likely be impacted by U.S.-China trade developments, the speed of the global economy and changes in monetary policy from the world’s major central banks.

Signals for Tematica’s Cleaner Living investment theme & the Cleaner Living Index


Performance for the Tematica Research Cleaner Living Index (CLNR) is available through Bloomberg, Reuters, FactSet, and other data aggregators, as well as the Tematica Research website. The index is currenty available for licensing for the use in a variety of exchange traded products or as a data overlay in portfolio screening and management. The Tematica Research Cleaner Living Index is being calculated by Indxx.

Ep 11.  Think that’s clean water you’re drinking? Guess again

Ep 11. Think that’s clean water you’re drinking? Guess again

On this episode of the Thematic Signals podcast, we’re tackling an aspect of our Cleaner Living investing theme that most people tend to take for granted – clean water. To dig into the subject, we speak with Dr. Roy Speiser of water and air filtration company CWR Environmental Products, who for over 35 years has championed the cause to mitigate air and waterborne toxins. As you’ll hear, because of environmental abuse, industrial greed and governmental neglect, the harsh reality is out water supply is not as clean or as safe as we think it is. Dr. Speiser explains how you can find out the state of your own water supply, what common contaminants you’re likely to find, and offers some helpful suggestions on how to ensure you have a clean water supply. He also shares exactly what kind of portable drinking water bottle you should be using, and it’s not likely that metal one you might be carrying around.

Have a topic or a conversation you think we should tackle on the podcast, email me at cversace@tematicaresearch.com

And don’t forget to subscribe to the Thematic Signals Podcast on iTunes!

 

Resources for this podcast:

Ep 10 Beyond Meat – The Next Tesla or the Next Palm?

Ep 10 Beyond Meat – The Next Tesla or the Next Palm?





We are just back from vacation and hitting the ground running during arguably one of the busiest weeks of the year. In addition to the usual end of the month, start of the month economic data, we’ve got more than 1,000 companies reporting quarterly earnings; the Fed’s next FOMC meeting; and the next Democratic presidential debate. And that’s what we know about. We dig into all and share where we think the market could be capped if the trend in earnings continues. We also share our thoughts on Cleaner Living company Beyond Meat, whose shares have been nothing short of a rocket ship ride, but is that rise likely to continue? We discuss just that and much more on this podcast episode. 

Have a topic or a conversation you think we should tackle on the podcast, email me at cversace@tematicaresearch.com

And don’t forget to subscribe to the Thematic Signals Podcast on iTunes!

 

Resources for this podcast: