In April ’21, I read Conagra’s earnings call (CAG), & saw “inflation” 33 x and “accelerating” 9 x
CPI was 2.6%
6 mths prior, “inflation” appeared 4 x
zero “accelerating”
And other food producers like Tyson (TSN)?
same trend
What about YUM (Pizza Hut, KFC) ?
they buy the animals that TSN “processes”?
Nothing?
Kroger’s April call mentioned “inflation” once – guidance
I was puzzled
But TSN explained it well:
“a substantial portion of our business is contracted on a fixed annual price basis”
“Yes, we’re hedging, but those hedges roll”
“There are some areas of fairly significant inflation in the back half”
“We can’t eat all the inflation we’re experiencing now”
Got it
I refreshed my spreadsheets of input prices
read some economist reports & FOMC minutes
where the Fed said,
“this is an extraordinarily unusual time, & we really don’t have a template”
oh?
so they’ve got no idea
I concluded this was going to be worse than imagined
Because if these folk were listening to companies,
it was YUM not TSN
I had no special insight,
I was simply LISTENING to what those on the ground were saying
ANALYSING my spreadsheets
And THINKING with an OPEN MIND
It was like an earthquake had occurred offshore
triggering a wave
which was rolling through the ocean
but only the fishermen spotted the ripple & knew something was up.
I was a stock picker, all I wanted to know was:
Who is this good for, & who is it going to hurt?
I discussed “inflation” with clients & advisors
even wrote about it
but got pushback
Understandable – the developed world hadn’t seen inflation in nearly 40yrs
The sea looked calm from the beach
and why gaze at the horizon when you’re having fun building sandcastles?
Besides, the Fed’s in the lifeguard chair
Although, no one thought the “bright sun” (aka debt in the system)
might make the “lifeguard” look away
What about investors?
Well, Value beat Growth last year
Only by a “ripple”
but in the 15 trading days so far,
World -6.3%
Quality – 9.5%
Growth – 11%
And Value?
-1.7% (some funds are up 😉)
Of course us Value guys have noticed
but we’re alone at sea
And those with refreshed excel sheets too.
But few are LISTENING
Maybe they’re still building sandcastles?
Maybe others are “looking away” because their clients have so much
Growth & Quality “in their systems”?
Others will only notice this “wave” in the Jan fact sheets
sent in Feb
that’s if they’re still subscribed to Value fact sheets after 10 yrs
Clients will find out in Q1 report backs
when, May?
But like the Fed,
most won’t act until too late.
Some will call Value’s outperformance
“transitory”
and wait another quarter
or two
By which time
The wave may have rolled in
destroying those sandcastles
and “moats”
and “systems”
If you have an OPEN MIND & are THINKING about VALUE
do get in touch