Shifting tastes and preferences have led to the emergence of publicly traded plant-based meat alternatives such as Beyond Meat (BYND), and established food producers are responding.
Plant-based meats have seen a growing market share over the last year
Beyond Meat (BYND), a vegan “meat” company, had a wildly successful initial public offering (IPO) on May 2, and the sharp price gains have drawn attention from investors.
The company, which uses pea protein to create a veggie burger that looks and tastes like beef, is riding the current zeitgeist of people who, after assessing the facts about meats and alternatives, wish to eat healthier and/or are concerned about the environmental impact of animal agriculture like beef production. Beyond Meat advertises itself as an “ethical alternative” as the company looks to capture part of the $1.4 trillion meat industry.
Meat alternatives offer a rare growth opportunity in the food sector, noted Cameron May, education coach at TD Ameritrade. He pointed out that overall consumer meat sales rose only 2% last year, while plant-based meat sales were up 24%. But as with any investment, there are risks and opportunities.
Plant-based meat alternatives are nothing new. Brands like Morningstar Farms, owned by Kellogg’s (K), and Boca, owned by Kraft Heinz (KHC), have had shelf space for years. A few factors make Beyond Meat (and the privately held Impossible Burger) different. They aim to make their products as close to animal meats as possible to entice carnivores, including “bleeding” just like a medium-rare burger does.
There’s also brand recognition, May added. Privately held fast-food operators White Castle and Burger King boast Impossible Burger as vegan alternatives for their signature offerings and use the brand name in their products.
“In the past there’s been no hint of the brand on the menu in vegetarian cuisine,” May said.
Restaurants that partner with companies like Beyond Meat and Impossible Burger could benefit, especially fast-food joints, May explained. “Those distributors have been looking for healthy alternatives for their menus, and one of the roadblocks they’ve had in the past have been taste. They just don’t appeal to their markets.”
He noted that these restaurants have been motivated to find alternatives that aren’t just salads or mediocre veggie burgers. “It’s an offering to a growing audience that won’t eat the traditional items. It’s an effort to stay ahead of the curve.”
By using their brands in restaurants, Beyond Meat and Impossible Burger may have a brand awareness head start with consumers, partly thanks to the widespread distributions those partnerships offer. That could give these companies a bit of a moat when rival products start hitting the shelves. These plant-based meat companies do, however, face several risks.
Competitive risk. As traditional meat companies seek to create their own alternative meats, we may see the competition sizzle. For example, Tyson Ventures, the investment arm of Tyson Foods (TSN), was a partial owner in Beyond Meat before the company’s IPO, and the meat producer plans to launch its version of a plant-based meat this summer, according to news reports.
An upstart like Beyond Meat could be bought by a larger rival, May suggested, noting that the food space saw numerous merger-and-acquisition deals in 2018.
Use stock screener to narrow selections based on sectors.
Log in to your account at tdameritrade.com > Research & Ideas > Screeners > Stocks.
Supply and cost constraints. There are logistical risks as well. Supply risks are crucial because these products are based on commodity crops like peas, wheat, soybeans, and rice. Weather is always a factor with agriculture, and May pointed out that a smaller-production crop like peas could leave Beyond Meat scrambling if there are supply issues.
Costs are another factor. These plant-based meats are more expensive, May observed, and if there is a supply risk, that could also affect prices.
Are meat alternatives healthy? It’s also worth noting that, although these plant-based burgers have a health “halo” to them, nutritionally they’re not necessarily better for the eater. News reports show they have roughly the same fat and calories, and sometimes higher sodium, although no cholesterol. That could eventually turn off some diners.
JJ Kinahan, chief market strategist at TD Ameritrade, pointed out that from a share price perspective, investors need to be wary given how Beyond Meat stock has shot up so far, so fast. Momentum can build upon itself, and share prices have given back only some of the initial gains. At one point, the price had essentially quadrupled from the IPO price of $45.
“You hope it doesn’t fall apart, but it’s one of those things that looks to have the possibility of giving back some of these gains pretty quickly,” Kinahan said.
The valuations are “to the moon,” he commented, adding that “no matter the company, that’s a tough pace to keep in terms of the stock itself.”
Even though demand for vegetarian and vegan food products is growing, Kinahan cautioned that investors should consider a wait-and-see approach. Not all products have staying power, and projected demand can sometimes end up being unsustainable.
“It’s hard to speculate on that. If you remember a few years ago, we were all saying that you had to buy corn because of ethanol use. Corn hasn’t done so well since that time,” he noted.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.
All investments involve risk, including loss of principal. Past performance does not guarantee future results. There is no assurance that the investment process will consistently lead to successful investing.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2020 TD Ameritrade.