🌾Farming for Yield

Happy Sunday to everyone on The Street.

How in the H-E-double-hockey-sticks is it already November? Time flies when you’re having $FUN. Well, not exactly, if you’re Cedar Fair Entertainment Company, which trades under the ticker, FUN. The amusement park operator’s stock is down over 20% this year, tracking the broader S&P 500, which has also been a roller coaster ride over the past few months.

Speaking of waterworks, Wall Street may have shed a tear this past week after Jerome Powell said, “It is very premature to be thinking about pausing” the rate hike campaign. Stocks fell on the news Thursday, as hopes for a Fed Pivot faded. Oy vey.

So, in terms of what’s next, most experts think a sustained rally is a can that has been kicked down the road by the heavy-footed Fed. But hey, there’s always a way to play it. In fact, Carl Icahn is very excited about cans. The activist investor recently took an 8% stake in Crown Holdings, the beverage-can maker, and is now the company’s second-largest holder.

Ichan wants the company to divest or spin off noncore assets to focus just on the beverage-can business. Deutsche Bank agrees and thinks if Crown followed Ichan’s instructions, the stock would pop 45% from its current price. We’ll be following along from here, but it goes to show that no matter the ups and downs, there’s always a way to get creative. Let’s review our polls from last week and then dive in.

• Are you bullish or bearish on Paccar over the next 24 months? 70% said BULLISH, 30% said bearish.

• If you had $1 million and you had to bet it all on one sector, which one would it be? Semiconductors came in first place followed by Cybersecurity, Electricity Transmission, and then Copper or Aluminum.

Review

US stocks rose Friday as investors studied the latest jobs data and worked to digest last week’s rate hike from the Federal Reserve.

October’s jobs report from the Labor Department included better-than-expected nonfarm payrolls, as the economy added 261,000 jobs, while closer to 200,000 were anticipated. At the same time, the October unemployment rate rose to 3.7% on a monthly basis, which exceeded estimates.

This mixed report may have lifted sentiment on Wall Street by showing that the labor market is starting to cool without the entire economy screeching to a halt. That’s a positive sign for many market observers, because it suggests the Fed’s rate hike campaign may be working without causing a major crash.

That sort of optimistic thinking received a further boost Friday when regional Fed presidents Thomas Barkin and Susan Collins suggested the central bank’s rate-hike campaign could slow in the coming months.

Overseas, reports continue to circulate that China may look to dial back its zero-COVID policy, helping lift US-listed shares of Chinese companies, such as JD.com and Alibaba. Oil prices rose as well. Traders appear to be betting global demand for oil will rise if China faces less disruption due to lockdowns.

Elsewhere in company-specific news, Twitter founder Jack Dorsey’s Block posted increased revenue amid growth of its Cash App. Coffee giant Starbucks said its profit was eroded due to higher wages and investments, but the company also posted record sales for its most recent quarter.

On the flipside, cloud communications software company Twilio sold off after falling short of earnings expectations and cutting its guidance. Fintech company PayPal saw its share price fall after cutting its revenue forecast.

For the week as a whole, the Dow lost 1.4%, ending four weeks of gains. The S&P and Nasdaq fell 3.35% and 5.65%, respectively, snapping two-week winning streaks.

Preview

Tomorrow, we will get a peek into how much money Americans collectively owe when the consumer credit level change report is published for September. In August, consumer credit increased 8.3% year-over-year on a seasonally adjusted basis.

Tuesday, the October NFIB small-business index will be released. This measurement of confidence among small business owners rose in September, although respondents indicated inflation remains a major concern. Tomorrow is also election day, and the midterm elections have the ability to impact the stock market.

On Wednesday, September’s wholesale inventories data is due. A higher-than-expected reading for this metric means that wholesalers have many goods waiting to be sold, which is a bearish sign for the economy.

On Thursday, both Wall Street and Main Street will be watching as the October consumer price index – or CPI – will be released. This week’s initial jobless claims and last week’s continuing claims are also due, as well as the October federal budget in comparison to last year’s. Investors will be paying close attention to see if the Fed’s hawkish policy is working to slow inflation.

On Friday, despite the Veterans Day holiday, markets will remain open. However, aside from initial estimates for the University of Michigan’s November consumer sentiment and inflation expectations, no major economic reports are set for release.

The busy third quarter earnings season continues this week.

Tomorrow, Sir Richard Branson’s Virgin Orbit (VORB) releases Q3 earnings. Additionally, the latest quarterly earnings from Take-Two Interactive (TTWO) are due.

Tuesday, HODLers should tune in to hear how AMC Entertainment (AMC) plans to leverage its newfound investor base. Additionally, Disney (DIS) and Tripadvisor (TRIP) will offer snapshot views of the vacation travel market. Meanwhile, earnings calls from Blink Charging (BLNK) and Plug Power (PLUG) will provide the market with insight into the EV charging industry.

Wednesday is a crowded earnings day, with reports due from a range of companies, including EV truck maker Rivian (RIVN), dating app company Bumble (BMBL), marijuana company Canopy Growth (CGC), 4-for-$4 connoisseur Wendy’s (WEN), and SeaWorld (SEAS). Additionally, Roblox (RBLX) and Unity Software (U) will discuss the future of the metaverse.

On Thursday, Six Flags (SIX) will post earnings and provide more data concerning vacation spending. YETI Holdings (YETI) and Toast (TOST) are also set to report.

Finally, the action dies down for the Friday holiday, but the Real Good Food Company (RGF) will tell investors if Americans are buying more or less frozen food.

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Farming for Yield

Time to Snag Shares of Big Ag?

Beef. It’s what's for dinner. It’s also what’s for your portfolio if you’re interested in agriculture. The sector has been on the receiving end of a healthy amount of venture dollars over the past few years.

Cash is being planted into companies automating farm equipment and developing software to monitor crops from afar. Chasing startups in the space seems like the logical way for investors to get in on the action, but in the current environment, it pays to look elsewhere.

Funds are still flowing to startups, but not at the same pace. So far this year there’s been 321 deals totaling $3.5 billion, according to Crunchbase. Last year there were 440 transactions valued at $4.9 billion. Part of this has to do with the industry. However, macroeconomic headwinds have been weighing down entry-level investing in other sectors as well.

Since that’s the case, the best bets may lie in big agriculture companies. They have the balance sheets and dry powder to not only reinvest in their own operations but also be on the lookout for value add acquisitions.

Farm Equipment Gets an Upgrade

Take Deere & Co. (DE) for example. The agriculture manufacturing firm recently closed its deal to buy Kreisel Electric which makes advanced batteries. That will help Deere reach its goal of developing zero-emissions tractors and farming equipment. Last year it bought Bear Flag Robotics which makes self-driving farm equipment. Those are just two examples of how Deere is trying to innovate in the industry through bolt-on buys.

AGCO (AGCO), another big agriculture machinery manufacturer, is also investing in the AgTech space, acquiring JCA Industries this spring. The company makes software for autonomous farm equipment. AGCO also owns Farm Robotics and Automation, which is a precision livestock farming company. Both companies provide investors with access to large agriculture firms that are investing in emerging AgTech.

Cash is King

Trimble (TRMB) and Corteva (CTVA) are also going after the AgTech market to bring more efficiency to the industry. Trimble makes GPS and satellite imagery software to help farmers better tend to their fields. It’s also investing in new technology, recently backing autonomous tractor developer Monarch Tractor.

Meanwhile, this past fall Corteva purchased Symborg which makes biostimulants and biofertilizers that boost results for an array of different crops.

AgTech is normally the domain of innovative startups but with the economy heading toward a rough harvest larger players are filling the void.

How to Play Millennials and Gen Z's Buying Power

Younger Generations Are Getting Older, Richer

Millennials and Generation Z are growing up right before our eyes. As these cohorts grow older, they’re getting richer as well. The disposable income from these generations will have a profound effect on the retail, beverage, food, and payment industries in the future. Whether it's social commerce, buying direct, or mobile payments, these two groups are shaping the investment landscape in ways that are worth paying attention to.

Cowen estimates Gen Z and millennial consumers will represent 70% of the population by 2028. That’s up 10% from today. This group of consumers approaches shopping differently than the generations before them, which will benefit some companies more than others.

According to Cowen’s new research, they include Dick’s (DKS), Nike (NKE), Lululemon (LULU), Alphabet (GOOGL), and Amazon (AMZN).

Social Commerce Trending

Take social commerce for starters. These two groups of young people find new brands on TikTok, Instagram (META), Snapchat (SNAP), Facebook (META), and Twitter (TWTR). When looking to buy, they turn to Amazon to purchase the goods.

The ecommerce giant is also the first place millennials and Generation Z go when searching for clothing and accessories. “The reliance on Amazon by these consumers is crucial as they enter their prime spending years, and this should act as a tail wind for Amazon expanding its wallet share in the U.S. in the coming years,” John Blackledge, an analyst at Cowen wrote in the research note.

Google is the second place young adults turn to when searching for clothes and accessories. Both stocks have been battered this year, but that’s part of the souring sentiment for high-growth names set against a rising rate environment. If the long-term growth driven by these two generations comes to fruition, we may look back on this moment as an attractive entry point.

Forget the Middleman

Buying direct is also a preferred method of shopping for Gen Z and millennials. Two popular brands with these consumers, according to Cowen, are Lululemon and Nike. Cowen says Gen Z and millennials prefer Nike for its athletic-performance wear and portfolio of mobile apps. Its partnership with Dick’s, which gives app users access to an expanded menu of products, boosts loyalty and demand.

“Performance and materials innovation, and substantial digital immersion which increasingly syncs with Nike membership, attracts and retains the audience,” wrote Cowen analyst John Kernan in the same research report. Lululemon is also popular with both generations. An expanded product offering and a stock that is down 25% are also reasons Cowen has it on its list.

Millennials and Gen Z will drive the economy in the future and can’t be ignored. Investors who want exposure to that shift may want to try on some of these stocks for size.

Get Smarter in 5 Minutes

There’s a reason over 4 million people start their day by reading Morning Brew — the free daily email that delivers the latest news across business, finance, and tech straight to your inbox.

Let's face it: traditional business news can be dry, dense, and boring - but Morning Brew is written in a witty yet educational tone that makes reading the news actually enjoyable.

The best part? It's 100% free and only takes 5 minutes to read so that you can get all of the most relevant updates and move on with your day.

If you’re interested in business, current events, or just want to learn something new there’s really no reason not to try it.

Social Media Subscriptions Are Here

Tricked-Out Avatars

With online advertising projected to slow thanks to a weakening economy and Apple’s (AAPL) privacy changes, social media companies are looking for new ways to make money. That’s where subscriptions come into play. To get access to exclusive content the likes of Snap (SNAP), Twitch (AMZN) and recently Twitter (TWTR) are rolling out ways to charge users for more. Even sites like Match (MTCH) are getting in on the action.

Snapchat already has about 1.5 million subscribers paying monthly to access experimental and pre-release features. Meanwhile, some Twitch users are paying $24.99 per month for add-ons like custom “emotes” and subscriber badges. At Match’s Tinder, you can pay extra to see people outside of your area while on Discord users spend more for tricked-out avatars.

Twitter Sees an Opportunity

Twitter, which already offers Twitter Blue, a $4.99 per month subscription that gives users the ability to access articles free of ads, is toying with taking it to the next level under new CEO, Elon Musk. With so many bots on the social media app, Musk wants to charge a monthly fee to verify users. Musk got into an online spat with Stephen King about the concept of paying for a blue checkmark this past week.

Advertising makes up the majority of Twitter’s revenue but Musk is aiming to grow subscriptions to half of the social media company’s sales. It’s an ambitious goal that many of the social media companies would like to emulate.

The Key Metric to Watch

It makes sense that social media companies would turn to subscriptions to boost flagging sales. According to the Wall Street Journal, consumers spend close to seven hours per day on their favorite social media apps. Consumers are already used to paying more for upgrades elsewhere in life. Whether it's to turbo-charge the engine of a car or pay for marble countertops in the kitchen, this isn’t a new concept. It’s just tricky when most of the products have been free for a long time and suddenly items are being put behind a paywall, where pricing becomes a factor.

With this subscription push comes less focus on the number of users and more time spent on the app. That should favor TikTok, Facebook, and Instagram, all of which had double-digit increases in time spent on their platform in the first quarter. Snapchat and Twitter, on the other hand, saw declines.

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