While companies like Beyond Meat (BYND) and Impossible Burger are grabbing all the headlines, and investor dollars, there is a better way to play the alternative meat trend.
Beyond Meat shares have soared some 600% since it’s May IPO and now sports a near-$12 billion market capitalization. The company hasn’t yet made a nickel, and trades at a staggering 75 times sales. At that valuation, and with larger food producers such as Tyson Foods Inc. (TSN) moving into the space, it looks very much like a bubble and isn’t a stock I would touch.
But there is no denying the trend towards meat alternatives. It will likely continue to grow as people convert to healthier vegetarian diets. Beyond Meat products are full of fats and sodium– but it’s seen as a means to reduce the huge industrial farming of cattle, pigs, and chicken, which is deemed unhealthy for the planet.
The switch to alternative meats is focused on reducing greenhouse gases and climate change, which are viewed as the number one threat to society, especially by the younger generation.
The key to figuring out how to profit from the trend towards plant-based “meat” is to look down the literal food chain.
These new-fangled proteins are made using a variety of plants including pea and soybean protein as well as various oils from plants such as coconuts and sunflowers.
As with all arable farming, the process starts with the seeds. Some seeds are better than others and sell for a higher price than do less desirable seeds. That means we need to look for the companies that have a history of developing seeds that farmers will buy.
This is where Corteva (CTVA) comes in. The company is purely in agribusiness with a large seed division. The firm boasts “integrated and greatly expanded solutions that combine genetics, chemistry, and precision agriculture.” Such solutions include pesticides, and most notably for these purposes, soybean seeds, one of the key ingredients for Impossible Foods’ meatless burgers.
It’s first earnings report as a standalone public company should come in late July. Initial estimates think the company can earn about $1.50 per share meaning at the current $27 per share its trades at just 18x eps.
This is a new name and a relatively pure way to play the emerging trend in alternative meat.
About the Author: Steve Smith
Steve has more than 30 years of investment experience with an expertise in options trading. He’s written for TheStreet.com, Minyanville and currently for Option Sensei. Learn more about Steve’s background, along with links to his most recent articles. More...