Trimmed-down packaged food stocks

Stocks rose on Friday on continued momentum from bets that the Fed is done with its assault on inflation… and your 401k portfolio. Housing Starts and Building permits rose when analysts expected them to decline, reminding us that shelter continues to be a mystery and a challenge to inflation fighters.

Loss of appetite. It’s turkey week on Wall Street, USA. That means serious traders have at least 2 days to get their big trades in before… the end of the year. As I reminded you last week, traders get pretty lazy around this time of year, often choosing to watch sports instead of the markets on their screens. Oh yeah, and spend time with family to recharge batteries, and possibly at religious gatherings to pray… for a better market next year. This is also the time of year where we tend to forget those diets and bulk for the cold months of winter, just around the corner. That all got me wondering if this year might be different than the last 50-something of them I have celebrated, though I can only remember as far back as 1971 for some reason. What would make this holiday season on Wall Street different? Think about it… keep thinking.

Ok, I will just blurt it out: OZEMPIC! In case you haven’t heard, America’s median A1C is about to decline. Which, I suppose, is a good thing, but most of Americans could care less about their A1C levels. Rather, most care about their waists. I know that you have probably heard about it, but if you haven’t, it is a medication sold by Novo-Nordisk and others under different brand names, originally created to help folks lower their A1C, which, simply put measures your average blood sugar over the past 3 months. A side effect of the self-administered jab is noticeable weight loss. The internet discovered it and now everyone’s gotta have it. You don’t believe me? Go out on your front porch and throw a rock in a random direction. There is a respectable probability that it will hit a neighbor’s house containing someone who is either already taking the medication or who is seriously considering it. In the land that invented junk food and fast food, and yes, even fast junk food, you can imagine that it’s pretty big news.

So, you are thinking, “I wish I bought Novo-Nordisk’s stock before all this.” For the record, the company is a Danish company, but you can buy the ADR (NVO) here in the US. Before you go out and buy the stock, I want to remind you that this is, kind of, old news, so you might have missed the opportunity. The stock is up by nearly +50% year to date, compared to the S&P500’s +17.57% YTD gain.

Do you know any other side effects of Ozempic? Well, if you own any stocks that manufacture packaged goods you probably know the answer. They are pretty much all in the red this year as investors shed them in fear that Ozempic will lower demand for junk food… forever. Oh, those savvy investors… always one step ahead of the market (that was humor). But are they? It’s Monday, so I am going to pop a chart into this note. It is a tough one, but I promise I will lighten up later in the week. Take a look and then keep reading for a description.

Ok, ready? This is an analysis of the spreads between the daily returns of Novo-Nordisk and the S&P500 Packaged Goods Index. The index contains companies like Tyson Foods, Hershey, and Kraft Heinz. I won’t get into the math of this (you can call me, and I would be happy to deep dive with you), but all you have to know is that packaged goods moved in the opposite direction of Novo-Nordisk, which shouldn’t surprise you if you have been reading attentively. You can see that graphically on the top left panel (normalized) which shows the divergence of packaged foods (orange line) from Novo-Nordisk (white line). You should also notice that those 2 lines traded quite similarly up until earlier this year. If you are bold, or you are one of my academic friends, take a look at the right-hand side of the chart. On the bottom-right panel you will see the distribution of the spread. The biggest bar is the mean, while the yellow line is where the spread is today. That is visually about 2 standard deviations away from the mean... um, 2.28 to be exact! While that is not crazy, it is not likely.

On Wall Street, we like to talk about reversion to mean, which means, in simple terms, that the spread you are seeing above will most likely, eventually go back to its longer-run mean/median. Of course, there are no guarantees on Wall Street, and I will say, that I have seen how effective Ozempic can be on weight loss. But I am wondering if America’s obsession with weight loss will cause enough of a decline in Oreo cookie sales to put Mondelez out of business. Will the iconic Hershey Bar only exist in history books and old movies? Will your kids and grandkids stop eating chicken nuggets from Tyson Foods? Will Gatorade and Quaker Oats sales decline so much that Pepsico will fall on hard times? All because of Ozempic? This should all make you wonder if the weight loss of these types of stocks in investors’ portfolios will stay off, or if it will be just temporary.

STOCKS ON THE MOVE THIS MORNING

Microsoft Corp (MSFT) shares are higher by +1.37% in the premarket after a late Sunday announcement that Sam Altman would be joining the company to head up its internal AI initiatives. Altman is the well-known founder of ChatAI who was unceremoniously fired a few days ago. Microsoft, who has a $13 million investment in ChatAI was keen to scoop up the founder and his co-founder after failed attempts to reinstate Altman. This news is unfolding as we speak, so keep close tabs on it today. In the past 30 days 45% of analysts have adjusted their target prices, 24 up, 3 down, 29 unchanged, and 3 dropped. Dividend yield: 0.81%. Potential average analyst target upside: +10.1%.

Bristol-Myers Squibb Co (BMY) shares are lower by -4.17% in the premarket after announcing that the FDA will be looking closely at an application for one of its cancer drugs. Bayer halted a trial of a similar drug causing its shares to hit 2009 lows. Dividend yield: 4.48%. Potential average analyst target upside: +23.1%.

YESTERDAY’S MARKETS

NEXT UP

• Leading Economic Index (Oct) is expected to have declined by -0.7%, same as the prior period.
• Richmond Fed President Thomas Barkin will speak today.
• Later in this abridged week: still more Q3 earnings along with regional Fed reports, more housing numbers, FOMC Meeting Minutes, Durable Goods Orders, and flash PMIs. Download the attached economic and earnings calendars for times in detail. Don’t forget to check out my daily chartbook, also attached, and all my daily posts going back to… a long time ago here: https://www.siebert.com/blog/.