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Is It Time to Invest in Plant-Based Stocks?

If the North American market is to see a 32X jump in less than 10 years, where the plant based food market is projected to grow from $5 Billion in 2019 to $162 Billion in 2027, then it seems that we are in the final years of a substantial breakout which can no longer be ignored.

As someone with deep ties to conventional farmers on three continents, I will need to suppress some sentiments and address a trend that seems too big to ignore. I do so notwithstanding the fact that my heart goes out to farmers who are not ready for change, who feel like their livelihoods are at risk. They see that the powers that be (governments, WEF, hedge funds) wish to pivot to plant based food and in some countries are actively incentivizing a reduction in livestock farming.

I will aim to have a frank discussion, drawing on insights surrounding the plant-based food industry. Keep in mind that I am an investor, not a trader, my intention is to discuss not only ESG investments for moral gratification, but also potentially profitable investments. The questions I am asking in this context are: at what phase is the industry trend? and who are the most innovative strategic players?

Where is the trend now and where is it headed?

I tend to watch leading innovators and trend setters quite closely by industry. In this case, Sean Dollinger founded PlantX (PLTXF:OTC US) which is a marketplace that seems to act as an aggregator for top brands in the industry. By following Hamutal Yitzhak, the founder of ELSE Nutrition (BABYF) we also tend to discover interesting information.

Recently, Dollinger Cyprus Mail that this is by no means a new trend. He believes that it is perceived as a new trend since recently, both the WEF, Chatham House, Bill Gates and powerful hedge funds started advocating for plant-based diets.

Whereas I partly agree with Dollinger and won’t bet against his innovative track record, I need to add that the aforementioned individuals and institutions carry a lot of sway in the world. ESG investments have soared. In my view, yes, it is an old trend, however it has received a major boost from the most powerful forces in the world.

I have never been one to blindly follow the wisdom of the crowd - even if the WEF and substantial proponents make a strong case. However, I see no reason to dismiss plant based food as an investment opportunity, since there are very few opposing forces to the trend, with a perfect storm driving the winds of change.

Where as none of us have a crystal ball to predict the future, what stands out is the fact that the plant-based food industry nearly doubled between 2017 and 2019, reaching $5 Billion and that numerous research sources including Bloomberg suggest the industry size in North America will reach $162 Billion by 2027.

If we consider key drivers of the trend, we might be better placed to anticipate the velocity. I will try to cut out all the hype that pre-IPO stock promoters have sent me and focus on what really matters.

5 Key drivers of the plant-based food industry:

#1. The pandemic effect:

Although we still grapple to understand the real impact of the pandemic on the food supply chain, researchers assert that the sustainability of livestock performance and welfare has been impacted on a global scale. Beef prices increased excessively and outpaced soaring inflation. Many Europeans and Americans spent the latter part of 2022 on savings they hoarded during the pandemic - which will soon be spent. 

#2. The Russia-Ukraine war:

The war in Ukraine is a substantial factor since much of the Ukrainian and Russian exports are aimed at supporting livestock: For example, even as Africa faced short supply, Ukrainian grain was used for pig feed in Spain - which is vital to the Spanish economy and cultural food habits. Now, researchers say that adoption of plant-based diets across Europe can improve food resilience against the Russia–Ukraine conflict. The bottom line here is that as the war continues, livestock feed will no doubt be hampered which could further drive-up meat prices and availability.

#3. Mainstream endorsement by powerful institutions:

Yes, the WEF and numerous powerful actors are pushing plant-based foods, whether you agree with it or not. The world does not have time to even contemplate the classic “conspiracy” phase. This is because the writing is against the wall for conventional farmers: In the European Union strict rules are rolling out which effectively reduces livestock farming. Governments such as the EU do represent a form of mainstream endorsement by itself. This is enough to push this trend way beyond its tipping point. Let’s not forget that Larry Fink, the CEO of Black Rock who is arguably just as influential as the aforementioned list, succeeded to roll out a wide ranging ESG investment agenda - which by itself, is highly supportive also of plant-based food.

#4. Innovation:

On the bright side, the ability of entrepreneurs to innovate and produce astonishing plant-based food brands has found great support among investors from the ESG investment community. I would find it incredibly hard to bet against such a powerful combination. Brands like PlantX, Beyond Meat, Oatly and Tattooed Chef have now secured the attention of the investment community and the ball is in their court to show investors how far they can lead during change.

This brings me to the next point in our discussion: which companies can deliver good shareholder value as this trend starts to take off? This is an area we will be analyzing closely in the weeks ahead:

a)     Naturally, like any curious investor, I want to know, besides PlantX, which other marketplaces can give us a wide range of exposure to the most innovative brands? The idea of betting on marketplaces versus solo brands, does provide a level of comfort for the ETF-style investor.

b)     What are the planned responses of the major food chain players: Walmart, CVS and Whole Foods and even Unilever?

c)     With PlantX seizing online supply chains from Amazon to Walmart to expand door to door delivery, how loyal are consumers to plant based food brands VS conventional jerky and burgers on-demand? Are recurring sales on par with conventional items?

#5. Evolution of mankind and research:

It is true that nutritionists, cardiologists, and environmentalists released near simultaneous recommendations - which all advocate for the switch to plant-based food.

Whereas it is doubtful that animal meat will phase out very soon, it is likely to take up a smaller share of the market. There are also segments of the market who will partly adopt plant-based food and reduce but not necessarily stop the consumption of animal meat.

The first three factors may lead to more aggressive adoption as need equals must for many people around the world.

The fear of missing out should not drive irrational decisions

In your lifetime, you will see many trends: some will stay and remain big, others will come and go. Given the overwhelming support we have seen for this cause, I do believe the vegan / vegetarian trend is going mainstream now. This will happen whether we like the pain associated with it or not. Yet nobody should let trader psychology run their life and decisions: Don’t simply act because you feel a fear of missing out.

Some investors may get onboard the same companies where hedge funds and institutional investors already moved in, others will seek out potentially undervalued companies who they consider “unsung heroes” of the plant-based food revolution. My approach would naturally depend on what our future analysis reveals.

Where hedge funds already moved in:

  • Massachusetts Financial Services taking a substantial share in Ingredion (NYSE:INGR),
  • Wellington Management Co. LLP invested heavily in Nomad Foods Ltd (NYSE:NOMD),
  • Goldman Sachs, Baillie Gifford & Co AND Massachusetts Financial Services took strong positions in Oatly Group (NASDAQ:OTLY),

Where hedge funds have not yet seized the moment: Companies like Else Nutrition (BABYF), PlantX (PLTXF:OTC US) and Maple Leaf Foods Inc. (MLFNF) have thus far been flying under the radar with hedge funds. Watching these stocks closely in the news over the next few weeks should reveal if and when the moment is seized by institutional investors. I would not discount the potential of activist investors striking out and moving ahead of institutions, which time will tell.

Conclusion:

If we had to compare the plant-based food trend with EV’s, since both are ESG investments: Institutions were way less supportive of the EV trend when Tesla started. The overwhelming support lended by the powers that be, with strong citizen support does signal a breakout to the extent that the market size actually reaches $162Billion.

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