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Daily Intelligence Briefing

Identifying Change-Driven Investment Themes

Tuesday, March 5, 2019

Each Daily Intelligence Briefing has five sections, click the blue links to jump to the relevant section for more extensive coverage:

1. TODAY’S MARKET INSIGHT

A deep dive into a market-driver undergoing the kind of transformational change that may lead to an alpha generating opportunity.

A Plant-Based Boost is Coming for Retailers and Restaurants →

 

2. MARKET INSIGHT UPDATES

Follow-up analysis of key market drivers monitored by MRP.

North America Put More Robots to Work in 2018 Than Ever Before →

Automakers Find It’s Hard to Make Money on Mobility, Not Cars →

Read All +

 

3. ACTIVE THEMATIC IDEAS

MRP’s active long and short themes, with an archive of ongoing follow-up analyses.

See them here →

 

4. MACROECONOMIC INDICATORS

Key data releases relevant to our Active Thematic Ideas.

US Construction Spending Falls Unexpectedly →

Oil Prices Rise →

Read All +

 

5. JOE MAC’S VIEWPOINT

Monthly reports on big picture subjects from MRP’s Founder Joe McAlinden, former CIO of Morgan Stanley Investment Management. Read more about him here.

After the Inflation Intermission →

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TODAY’S MARKET INSIGHT

TODAY’S MARKET INSIGHT

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Food Retailers continue to shift their offerings toward the growing popularity of plant-based diets, setting off a spree of investments over the course of the past few years. But it’s likely that we are only at the very beginning of this paradigm shift in the standard American diet, and the disruption is set to unravel before our eyes.

 

Restaurants, retailers, and grocers alike are now stocking their menus and shelves with vegan or vegetarian options and bringing in meat substitutes that are getting tastier , and taking up a larger shares of sales and revenue.

While only 3% of Americans told a recent Gallup poll they follow a vegan diet — which eschews all animal products including meat, fish, eggs, dairy and gelatin — some 39% say they want to eat more plant-based foods, according to Nielsen. Nielsen has also reported that the meatless substitute market had around $555 million in revenue in 2017 and it’s growing at around 6% per year; tofu and tempeh sales were up around 2.6% at $99 million. The Plant Based Foods Association projects U.S. sales of plant-based proteins like the burgers will reach $5 billion by next year — nine times more than in 2012. 

 

Kellogg’s Morningstar Farms recently announced that it will go entirely vegan in 2021. Roughly 50% of MorningStar’s portfolio has already been converted to vegan recipes, and about 65% of its products are slated to be all-vegan by the end of 2019. Ahead of their March 7th launch of the brand’s new vegan “Cheezburger”, which will contain 23g of protein, Morningstar has confirmed it will remove more than 300 million eggs annually from its products in pursuit of fully vegan meals.

 

And they’re not alone in their plant-based drive. Nestlé, alongside Bühler, a process engineering company, and Givaudan, the world’s leading manufacturer of flavors, fragrances, and cosmetic ingredients, recently launched a $4 million research program whose goal is to accelerate the development of healthy plant-based food and sustainable products. Nestlé also produces a range of vegan and vegetarian meats under its meat-free brand Garden Gourmet. In 2017 in a bid to expand its healthy food range, Nestlé acquired vegan and vegetarian food brand Sweet Earth that makes Protein Lover’s Pizzas, Kyoto Stir Fry, Cubano Empanada, and Harmless Ham & Chickpea patties.

 

Tyson Foods, the foremost meat producer in the U.S., is also going meatless. The company announced in February that it plans to debut a vegan protein product this year, marking its foray into the plant-based meat market. The move comes following a long period of research, compounded by a decline in sales latest quarter, and falling meat prices in most of its key segments. Tyson launched a 100% pant-based brand, Green Street, in 2018, but their newest will be the first meat alternative under the Tyson brand.

 

Tyson’s real interest in high-protein, plant-based meat alternatives started all the way back in 2016 when they acquired a 5% stake in meat alternatives producer Beyond Meat. Beyond meat specializes in plant-based products and is essentially a pure-play for meat substitutes. Nearly two and a half year after investment from Tyson, Beyond Meat is prepping for its own IPO. MRP covered Beyond Meat back in November, when they first filed for the stock offering with hopes to raise $100 million on top of the $122 million private investors have dumped into the company. While that is impressive, that figure is actually dwarfed by the $387.5 million competitor Impossible Foods has managed to pull in investor funding.

 

Even with less funding, Beyond Meat has jumped out to a lead in the pure-play meat alternative space. Its non-GMO plant-based meats including burgers, sausage, chicken strips and more at over 32,000 retailers including Whole Foods, as well as restaurant chains like Del Taco, T.G.I. Friday’s and A&W. Impossible Foods products, by comparison, are available in 5,000 restaurants across the country (as well as Gordon Ramsey’s Bread Street Kitchen in Singapore) – but the company is planning a grocery store retail rollout sometime in 2019.

 

The newest meat substitute, currently rolling out at Whole Foods and Thrive Market retailers has been Plant-based tuna, made from a six-plant protein blend of pea protein isolate, soy protein isolate, chickpea flour, lentil protein, faba protein and navy bean flour, produced by Good Catch Foods. Plant-based tuna avoids the high mercury levels, PCBs, dioxins and other contaminants found in ocean-based fish. Fish replacements might be the most imperative animal-product substitute as 90% of the world’s marine fish stocks are already either overexploited or depleted. Good Catch Foods has stated that scientists predict global fisheries may totally collapse by 2048.

 

All of this may only be the dawn of the potential for plant-based foods. A new Ginkgo Bioworks-owned startup called Motif Ingredients hopes to speed up the development of the sector by doing the dirty work for food producers. Motif Ingredients wants to outsource the research and development work, which can be a challenge to even established food brands, and which it says would let alt-meat startups focus on branding, marketing, and selling their wares. Using an automated process, Motif will work alongside its parent company, Ginkgo Bioworks, to rapidly sequence genomes and produce ingredients from microbes. After identifying vitamins and proteins in meat and animal byproducts, Motif can reproduce them using engineered yeast and bacteria in a process similar to brewing beer. This kind of work could be essential for advancing new players, or even older brands with little experience in this field.

 

Restaurants are also set to benefit from expanding their menus. The iconic hamburger chain McDonald’s could start serving up high-tech meatless burgers alongside its Big Macs and Chicken McNuggets. According to the company’s Vice President of corporate strategy, “plant-based protein is something we’re keeping our eye on”. However, Shake Shack beat them to the punch some time ago, launching their Shroom Burger all the way back in 2014, and just last year adding the Veggie Shack patty, made with black beans, brown rice and roasted beets, topped with (optional) provolone cheese, lettuce, onions, pickles, vegan mustard and vegan mayo. At fellow burger chain, Bareburger, 15% of total menu sales come from veggie burgers, despite having a menu dominated primarily by meat options. White Castle says it sold more than 350 Sliders, featuring veggie patties from Impossible foods, in a day at some of the 140 chains where the plant-based patties are currently sold. The chain plans to roll out the Impossible Sliders nationally at all 385 restaurants next.

 

Fast food competitor Chipotle has also been moving toward vegan options for some time now – just this week adding a featured Vegan Bowl on its main menu. In 2014, Chipotle added Sofritas (a tofu-based meat sub) as a vegan option to its customizable menu, which has seen a huge spike in demand, leading to 7.5 million pounds of the protein sold in 2018 alone. Vegetarian and vegan meals made up roughly 12% of all the meals Chipotle sold last year. Following their lead, a slew of Mexican-inspired chains have begun to embrace the plant-based revolution, including the aforementioned Del Taco, which added Beyond Meat crumbles to its menus in Southern California last year, as well as Taco Bell, which will soon launch a dedicated vegetarian menu with new vegan options.

 

Going forward, companies that accelerate their adoption of more plant-based vegan or vegetarian offerings stand to gain from shifting consumer tastes. There will be an assortment of pure-play producers like Beyond Meat and Impossible Foods, as well as more broad-based food retailers like Nestlé, Tyson, and Morningstar. Even restaurants which can appeal to the growing share of plant-based dieters should be able to pick up their own share of the pie by expanding their offerings.

 

Along with a number of publicly traded companies named in this report, investors can also gain exposure to the food and beverage industry via the Invesco Dynamic Food & Beverage ETF (PBJ), as well as The Organics ETF (ORG).

We’ve also summarized the following articles related to this topic in the Servicessection of today’s report.

 

Plant-Based

  • New Startup Is Selling the Building Blocks of Fake Meat
  • Vegan Chicken and Steak Launched By German Meat Giant
  • Kellogg’s-owned veggie burger brand MorningStar farms to go all-vegan by 2021
  • America’s biggest meat producer wants to take a bite out of the vegetarian market

Food & Beverages vs Organics vs Kellogg’s vs Nestlé vs Tyson

vs Chipotle vs Shake Shack vs S&P 500

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YOU ARE HERE

MARKET INSIGHT UPDATES

MARKET INSIGHT UPDATES

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Finance →

FinTech

UBS is using laser beams and 5G to trade stocks in the latest escalation of a technological ‘arms race’

Services →

F&B

Big Food turns to small deals as major M&A transactions likely to pause in 2019

Blockchain

Blockchain, already disrupting the finance industry, sets its sights on electronic gaming

Manufacturing & Logistics →

Defense

Why This MiG-21 Vs. F-16 Dogfight Heats Up A $15 Billion Fighter Contest

Defense

Weapon Makers Declare War on Drones

Technology →

Quantum

IBM has come up with a new way of measuring the progress of quantum computers

Robotics & Automation

North America Put More Robots to Work in 2018 Than Ever Before

Transportation →

Autos

Automakers Find It’s Hard to Make Money on Mobility, Not Cars

Autos

Carpocalypse now: Lyft’s founders are right — we’re in the endgame for cars

Private Space

SpaceX Notches Next Step in Race With Boeing to Crewed Flights

Commodities →

Oil

Crude Advances as U.S., China Close in on Healing Trading Rift

AgTech

The Startup Taking On Bayer With Cheaper, Non-GMO Seeds

Biotechnology & Healthcare →

CRISPR

Why Big Pharma Is Diving Into Gene Therapy

Endnote →

Auto Tech

Auto Tech Trends To Watch In 2019

YOU ARE HERE

ACTIVE THEMATIC IDEAS

ACTIVE THEMATIC IDEAS

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Select a theme to see when and why we added it. Also included is a link to all recent Market Insight reports we’ve written about that theme, allowing you to track its progress.

SHORT

Autos

LONG

Electric Utilities

LONG

Lithium

LONG

Obesity

LONG

Solar

SHORT

U.S. Housing

LONG

Video Gaming

LONG

CRISPR

LONG

Gold & Gold Miners

SHORT

Long-Dated U.S. Treasuries

LONG

Oil & U.S. Energy

LONG

Steel

SHORT

U.S. Pharmaceuticals

LONG

3D Printing

YOU ARE HERE

MACROECONOMIC INDICATORS

MACROECONOMIC INDICATORS

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1.

US ISM New York Index Falls Further in February

 

The ISM New York Current Business Conditions index in the United States decreased to 61.1 in February of 2019 from 63.4 in January, pointing to a new-low growth in the New York area since June. Meanwhile, the Six-Month Outlook improved to 71.5 from 58.3.

 

Click here to access the data +

2.

US Construction Spending Falls Unexpectedly

 

US construction spending decreased 0.6 percent from a month earlier to a seasonally adjusted annual rate of USD 1.29 trillion in December of 2018, down from a 0.8 percent rise in November and missing market expectations of a 0.2 percent gain. Year-on-year, construction spending grew 1.6 percent. Considering full 2018, investment in construction rose 4.1 percent, the lowest since 2011. 

 

Click here to access the data +

3.

Greece 10Y Bond Yield Hits 13-year Low

 

Greece 10 Year Government Bond Yield decreased to a 13-year low of 3.673%.

 

Click here to access the data +

4.

Oil Prices Rise

 

Oil prices rose more than 1% on Monday after Wall Street Journal reported that President Trump and Chinese President Xi Jinping could reach a trade deal at a summit around March 27th and after a Reuters survey found OPEC’s crude supply fell to a four-year low in February. The price of US crude oil increased 1.3% to $56.5 a barrel around 9 AM NY time and Brent gained 1.3% to $65.7.

 

Click here to access the data +

YOU ARE HERE

JOE MAC’S VIEWPOINT

JOE MAC’S VIEWPOINT

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February 28, 2019

After the Inflation Intermission →

Headline inflation has shifted into a downtrend over the past few months, largely due to a sharp decline in energy prices toward the end of 2018. The core CPI, however, shows that, aside from food and energy, inflation remains above 2%.While the Fed is going to need more than that to shift them out of their “patient” position on interest rates, MRP believes thata rebound in the price of crude oil and other commodities, as well as consumer staples and other finished goods will continueto push inflation higher throughout 2019.

Other Viewpoint Reports

January 31, 2019

Joe Mac’s Market Viewpoint: Patience, Patience →

 

December 6, 2018

Joe Mac’s Market Viewpoint: The Next Handle →

 

October 31, 2018

Joe Mac’s Market Viewpoint: A Review of Our-Change Driven Themes →

 

September 28, 2018

Joe Mac’s Market Viewpoint: FX Matters →

YOU ARE HERE

MARKET INSIGHT UPDATES

MARKET INSIGHT UPDATES: SUMMARIES

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Finance

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FinTech

UBS is using laser beams and 5G to trade stocks in the latest escalation of a technological ‘arms race’

 

UBS has begun in recent months to use laser beams and millimeter waves, also known as 5G technology, to send orders wirelessly for its US equity trading business. The Swiss bank tells Business Insider that the new infrastructure will allow it to send orders quicker and reduce the likelihood inclement weather could impact performance.

 

The bank said it has been working with the three major equity exchange groups — NYSE, Nasdaq and Cboe Global Markets — to use the technology on their venues. The installation is in New Jersey where the majority of US equity trading occurs between a handful of data centers.

 

Fiber optic cables are the most common way equity trading orders are sent. Some firms use a more advanced cable, known as dark fibre, while even a smaller subset use microwaves. Laser beams and millimeter waves are the latest innovation. While the technology is not as effective at longer distances, the close proximity between data centers in New Jersey makes it an ideal location.

 

Read the full article +

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Services

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Plant-Based

New Startup Is Selling the Building Blocks of Fake Meat

 

A Ginkgo Bioworks-owned startup called Motif Ingredients says that making the building blocks of meat alternatives available to innovators will free them from hard lab work and empower them to dream up the dishes of the future, according to a new feature in Fast Company.

 

New startups bringing meat alternatives to the market face the daunting task of synthesizing proteins and ingredients. Motif Ingredients wants to outsource the research and development work, which can be a challenge to even established food brands, and which it says would let alt-meat startups focus on branding, marketing, and selling their wares.

 

Using an automated process, Motif will work alongside its parent company, Ginkgo Bioworks, to rapidly sequence genomes and produce ingredients from microbes. After identifying vitamins and proteins in meat and animal byproducts, Motif can reproduce them using engineered yeast and bacteria in a process similar to brewing beer. The end result, it says, is a host of ingredients vital to a healthy human diet which companies producing meat-alternatives can use to create new products.

 

By providing ingredients to the general market, Motif hopes to speed up a technical process for both startups and established food brands.

 

Read the full article +

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Plant-Based

Vegan Chicken and Steak Launched By German Meat Giant

 

German meat company Rügenwalder Mühle has added to its meat-free range with three new products: vegan chicken filet, vegan steak, and vegan chicken cold cuts.

 

The company, which specializes in processed meat like sausages and deli slices, is experiencing success with its vegetarian and vegan range launched in 2014. The Vegconomist reports that 30 percent of Rügenwalder Mühle’s business last year was from meat-free products.

 

Speaking to German consumer goods publication Lebensmittelzeitung, executive director Lothar Bentlage explained that he wants to move the company’s focus from convenience foods like vegan sausage to “fresh” plant-based meat like steak and filets. Rügenwalder Mühle CEO Godo Röben explained to Vegconomist last year that the company is also working to make its vegetarian products vegan.

 

UK-based vegetarian meat brand Quorn made a similar announcement last August. The company invested £7 million into the development of new vegan products and many launches going forward will be free from animal products due to the rising demand for plant-based food.

 

Read the full article +

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Plant-Based

Kellogg’s-owned veggie burger brand MorningStar farms to go all-vegan by 2021

 

MorningStar Farms, a division of the Kellogg Company that produces vegetarian variations of meat-based products like burgers, bacon, sausage patties and corn dogs, will convert its entire product line to be 100% vegan by 2021.

 

The company confirmed it will remove more than 300 million eggs annually from its products, which sell at national retailers like Target Walmart and Amazon MorningStar will also stop using all dairy ingredients, including cheese, lactose, whey and milk powder in its recipes. “More people are looking for options that are vegan,” Mel Cash, head of global marketing for plant-based protein at Kellogg, told MarketWatch. “It’s for anyone who has the desire to eat less meat or more plant-based.”

 

While only 3% of Americans told a recent Gallup poll they follow a vegan diet — which eschews all animal products including meat, fish, eggs, dairy and gelatin — some 39% say they want to eat more plant-based foods, according to Nielsen.

 

Roughly 50% of MorningStar’s portfolio has already been converted to vegan recipes. And about 65% of its products are slated to be all-vegan by the end of 2019. Cash said the vegan products will include the same amount of protein.

 

Read the full article +

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Plant-Based

America’s biggest meat producer wants to take a bite out of the vegetarian market

 

Tyson Foods, the maker of hot dogs, steak strips, and chicken nuggets, announced last week it plans to debut a vegan protein this year, marking its foray into the plant-based meat market as the demand for vegan options reaches an all-time high.

 

Noel White, president and chief executive at Tyson Foods said during its first-quarter earnings call that the brand aims to make “protein alternatives.” The company first invested in California-based vegan meat alternative company Beyond Meat in 2016. It also reported a decline in sales in the latest quarter, as it grapples with falling meat prices in most of its key segments.

 

There may be other advantages to taking a bite out of the vegetarian market. Last month, Tyson said it would recall 36,000 pounds of chicken nuggets after customers said they found pieces of “soft, blue rubber” inside, the Associated Press reported.

 

And there have been more studies about the effects of eating meat in recent years. Red meat is “not essential” and has been linked to mortality and other health risks, a group of scientists said in a major report released last month.

 

Read the full article +

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F&B

Big Food turns to small deals as major M&A transactions likely to pause in 2019

 

After fattening-up on larger transformative deals in recent years, large CPG companies are going on a diet in 2019 with smaller, strategic purchases expected to dominate much of the M&A landscape.

 

It’s a sharp pivot for companies that until recently were not afraid to spend billions on deals to offset slowing demand in their core businesses and expedite their presences in high-growth segments. These large purchases saddled their acquirers with huge amounts of debt, and in many cases failed to generate the promised synergies.

 

“I don’t think there is a lot of transformative M&A happening. Those are few and far between,” Brittany Weissman, an analyst at Edward Jones, told Food Dive in an interview. There isn’t “the pressure to do (those large deals) that there was three or four years ago, so it’s bolt-on M&A.”

 

A big reason for the pause on large-scale deals is that many companies are either digesting recent purchases or working to pay down debt they incurred in order to pay for those transactions. Sean Connolly, Conagra Brands’ CEO, told Food Dive last October that the manufacturer of Banquet, Healthy Choice, Marie Callender’s and Birds Eye will focus on integrating Pinnacle.

 

Read the full article +

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Blockchain

Blockchain, already disrupting the finance industry, sets its sights on electronic gaming

 

Blockchain has its sights set on electronic gaming after disrupting the financial services industry and becoming a bedrock of the cryptocurrency movement. As gamers increasingly purchase digital avatars and tokens to customize their experience, a growing number of observers think blockchain technology will play a bigger role in the explosive growth of electronic sports.

 

“We see blockchain adding a whole new dimension to the gaming industry on many different levels — to extend the life of a game, to make it more interesting to gamers and to provide experiences that couldn’t have been provided before,”” said Steve Grossman, CEO of Planet Digital Partners, a digital securities-funded game publisher.

 

In fact, blockchain’s buzz in the gaming community could have wide-reaching implications for the entire industry, some observers say. One example is in a cooking simulator game “Cooking Mama,” where players are tasked with completing recipe challenges.

 

Grossman said the private keys generated for users, which are essentially a series of numbers and letters known solely to the user, can allow players to change expression algorithms in the game. In turn, players can customize the characters, as well as alter in-game recipes. The private key’s knowledge and accessibility solely to the user also means that players can claim full digital ownership of their creations.

 

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Manufacturing & Logistics

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Defense

Why This MiG-21 Vs. F-16 Dogfight Heats Up A $15 Billion Fighter Contest

 

An Indian MiG-21 pilot’s capture by Pakistan earlier this week makes New Delhi’s fighter procurement contest to replace its aging fleet even more dire, a top aviation analyst said. Lockheed Martin (LMT), Boeing (BA), Saab, Dassault Aviation and Russia’s United Aircraft Corp., which makes MiG fighters, are all competing for the fighter contract, which could be worth $15 billion.

 

India’s Foreign Ministry said that Wing Commander Abhinandan Varthaman was flying a Russian-made MiG-21 when he was shot down by a Pakistani jet early Wednesday. Varthaman was released Friday. “If that’s true, then something needs to change unless they enjoy losing pilots,” Teal Group aerospace consultant Richard Aboulafia said of the incident. “If it was a MiG, then they tasked an incredibly sensitive, ultra-important mission to a Vietnam War-era plane that has no capabilities and is borderline airworthy.”

 

The loss of the MiG-21 comes as India is looking to replace its fleet of existing fighters, which are mostly Soviet-era aircraft that are nearing the end of their life spans.

 

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Defense

Weapon Makers Declare War on Drones

 

Arms makers are targeting the growing menace of drones at airports and on battlefields with a rush to develop new missile systems, radar jammers and laser cannons. U.S. forces, along with Middle East allies and Russian troops, have been forced to confront hostile drone operations. Commercial flights at some of the world’s busiest hubs—in New York, London and Dubai—have been grounded in recent months amid concerns that nearby drones could endanger airliners.

 

The rising number of incidents has put the threat in the public eye and propelled interest in anti-drone technology. Defense industry officials say armed forces still account for most spending.

 

The anti-drone market should exceed $1.2 billion in annual sales next year and top $1.5 billion in 2021, Frost & Sullivan estimated. While that is a fraction of the spending each year on combat aircraft, the fast-growing category could become a lucrative new revenue stream for weapons makers.

 

Drones are “starting to become a really big problem,” said Hakan Buskhe, chief executive of Swedish defense company Saab AB. Anti-drone equipment “is something we are in discussion on with many countries and authorities around the globe.”

 

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Technology

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Quantum

IBM has come up with a new way of measuring the progress of quantum computers

 

It’s promoting a yardstick called “quantum volume,” which it claims is doubling every year—an equivalent to Moore’s Law in conventional computing. IBM has proposed quantum volume as a more appropriate single measure of progress. This still counts qubits, but also incorporates things like error rates and the quality of connectivity between qubits.

 

At this week’s meeting of the American Physical Society, IBM is unveiling results that show quantum volume on its machines doubled from 4 in 2017 to 8 in 2018. The company says its recently unveiled Q System One machine has a volume of 16.

 

So far, this is developing much as Moore’s Law has done for coventional computing. Moore’s Law holds that the number of transistors that can be packed onto a silicon microchip doubles roughly every two years (although there are signs things are slowing down).

 

Working out the best way to compare these quantum computers is important, but each company is bound to promote yardsticks that favor its own hardware and software. So here’s another quantum Moore’s Law prediction: the volume of PR devoted to promoting quantum yardsticks is going to double—and perhaps even quadruple—every year…

 

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Robotics & Automation

North America Put More Robots to Work in 2018 Than Ever Before

 

According to A3, robot manufacturers shipped a total of 35,880 robots to customers in 2018, which is 7 percent more than in 2017. Of those, 19,178 robot workers went to automotive customers, down from 21,732 in 2017.

 

Many other industries saw significant increases in the number of robots added to the work force, though — food and consumer goods, life sciences, and electronics saw increases of 48 percent, 31 percent, and 22 percent, respectively.

 

“While the automotive industry has always led the way in implementing robotics here in North America, we are quite pleased to see other industries continuing to realize the benefits of automation,” A3 president Jeff Burnstein said in a press release.

 

“And as we’ve heard from our members and at shows such as Automate, these sales and shipments aren’t just to large, multinational companies anymore,” he continued. “Small and medium-sized companies are using robots to solve real-world challenges, which is helping them be more competitive on a global scale.”

 

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