Highlights include:
The Stock Market
- The stock market is likely to be volatile in the coming months because of the continued issues with COVID-19 and the upcoming Presidential election.
- Fiscal and monetary stimulus should help the recovery and also protect against downside risks.
Peloton (PTON)
- Peloton was a high growth story pre-COVID and the stay at home order turbo charged it into another realm. Coming into 2020, it was expected to grow revenues by 50% and now it is expected to grow sales by 100%!
- Users are highly engaged taking 12.6 avg monthly workouts (3x per week) vs 9.7 last year. People want equipment that they will use, not become a clothes rack. Customer retention 93% yr 1, 84% yr 2, 79% yr 3. Subscription model provides steady, recurring revenues of $40/month per user.
- 63 million Americans spend $45/month on gym memberships. 24 Fitness just filed for bankruptcy. Many people will be worried about returning to the gym. This should provide a strong tailwind for at least the next 12 months.
- 6-8 weeks of backlog exiting March quarter
- Risk: High valuation. New entrants to the space. Exercise is reliant on fads and changing tastes.
Conagra Foods (CAG)
- There has been a decades long shift from cooking at home to eating out. In 1955, a quarter of household food budgets were spent on eating out and that shifted to above 50%. This is the first time we are seeing a reversal of that trend and it is likely to continue to shift on the margin back to cooking at home.
- One way to play this trend is Conagra which has a diversified portfolio of brands like Duncan Hines, Hunts, Chef Boyardee and Marie Callender’s. Conagra has seen one of the largest sequential penetration gains post COVID among the big food companies.
- Since the pandemic started, frozen foods and snacks have outpaced overall healthy grocery demand. Conagra has 40% of their sales in frozen foods and 15% of sales in snacks.
- Grocery demand remains elevated but decelerating; frozen and snacks are outpacing broad grocery demand. Grocery sales are still roughly 20% above pre-COVID levels.
- Gardein provides an option on the meatless alternative category which Conagra views as a $30 billion opportunity. They sell fish, chicken and beef alternatives in the frozen food section of the grocery store. Sales were up +65 year over year in a 4 week period during the initial lockdown. Many new customers are trying the brand for the first time.
What are your thoughts on the resilience of the stock market and risks ahead?
