About 5 months ago I wrote a piece on safe haven stocks to pay attention to especially after a particularly bloody week in the market. Well here we are again, the first week of January 2016 and the DJIA has broken below 17,000, NASDAQ has fallen well below 4,700 and the S&P 500 has now fallen below 2,000.
Investor sentiment has started to go bearish and fears of the typical January Effect not being in play this year have many trying to pull out of equities and jump into less risky vehicles like bonds. But for savvy investors, not only could this be a very good time to actually pay more attention to the equity markets but it is also a great time to look back on what were some safe haven stocks the last time the market went bearish this past summer.
My biggest question as a reader is with regard to those stocks mentioned. Are they still a good bet? Have they gone up? Will they continue to be "safe" in 2016? I first mentioned KraftHeinz (NASDAQ:KHC) and cited the multi-billion dollar deal that made the company the third-largest food and beverage company in North America. At that point in time, KHC was trading around $71 per share and since then, shares have seen several rallies, most notably to highs of nearly $80 in late October. Earlier in the month speculators made assumptions about Kraft's possible acquisition of certain divested assets of Mondelez International (NASDAQ:MDLZ). However, that deal has yet to be confirmed, let alone inked. In a statement to Reuters, Mondelez Europe's president, Hubert Weber said, "There were market rumors on that, like there are frequently. We currently have no intention. Of course, we're always looking at the different parts of our portfolio, but there is no intent currently to change our approach to cheese and grocery."
As the new year is under way, shares of KraftHeinz remain flat since my first mention and have more or less maintained the initial target entry price. A recent break below the 20 day moving average suggests potential for a short term pull-back and other concerns such as pending lawsuits also weigh heavy on this position. A healthy dividend of 3.16%, a Merill price target of $85 (other street speculation has a target north of $90), and the fact that KHC has eight $1billion global food/beverage brands are two key aspects that will keep KHC on the safe haven list moving into the first half of the year.
As always, I try to find options for small and micro-cap investment opportunity and in doing so, I had identified Barfresh Food Group, Inc. (OTCQB:BRFH). Though it isn't a giant like KraftHeinz, the company does have a good business model. The company is a manufacturer of frozen, ready-to-blend beverages. At the time of my initial article, shares of Barfresh were trading around $0.62 a share. Since then, the price has climbed by as much as 82% after hitting highs of $1.13 in November. At the start of the New Year, BRFH remains nearly 30% above the entry target as of Friday morning's open (1-8-15). Several favorable presentations at the LD Micro Conference and the Bernstein Consumer Summit in December have helped bring more exposure to the company. Additionally, the latest financial results support a strong growth trend for the company. Revenue increased $185,894 (462%) from $40,233 in 2014 to $226,127 in 2015. According to Barfresh, the increase is a result of its product being distributed through Sysco (NYSE:SYY). "We currently sell into 34 of Sysco's 74 distribution locations. At this time last year we sold our product into 2 of Sysco's distribution locations. We expect to have our product in all of Sysco's 74 distribution locations during calendar year 2016," a statement made in Barfresh's September 30th Form 10-Q.
Other highlights include:
● An agreement with PepsiCo North America Beverages, a division of PepsiCo, Inc. (NASDAQ:PEP), making PepsiCo its exclusive sales representative within the food service channel, to present Barfresh's line of ready-to-blend smoothies and frozen beverages throughout the United States and Canada.
● Successfully developed customized product flavors for multiple significant national account customers, and have received approval to move into in-store testing in select markets during early 2016. Barfresh continues to move forward and make progress with national accounts representing 37,000 individual locations.
● The core business continues to grow, with sales for the quarter increasing 462% from the same quarter in 2014, and 35% sequentially.
A third company more in the beverage space that was highlighted, Constellation Brands (NYSE:STZ), has done nothing but climb since last mention. The launch of the company's venture capital segment has been seen as a larger asset for future growth of the company. This is in addition to Constellation being the third-largest producer and marketer of beer for the U.S. market and the world's leading premium wine company with a leading market position in the U.S., Canada and New Zealand. This past week the company stated that it plans to invest $1.5billion more into its Mexican beer business.
In addition to the $1.5billion to build the new brewery, $500million will be spent to invest in land, water rights, infrastructure and other site requirements at the Mexicali location, according to a press release. The beer, wine and spirits company reported earnings of $1.42 per share this week, while analysts had estimated $1.31 per share. With gross profit margins of just over 48%, a net profit margin of nearly 17.5%, and a 37% increase in net operating cash flow compared to the same quarter last year, Constellation will also be something remaining on my safe haven list for H1 of 2016.
August also saw the highlight of the healthcare sector and mainly focused on retail in the form of pharmacy businesses. I think 2016 is still going to be a strong year for these stocks. Last year we saw CVS (NYSE:CVS) acquire Target's (NYSE:TGT) pharmacies and this year we may see another industry giant, Walgreens Boots (NASDAQ:WBA) do the same with a rival drugstore, RiteAid (NYSE:RAD). In my report from August, I highlighted CVS as the safe haven and though it did see a spike in price, it remains lower than my initial entry target. Earnings for the latest quarter came in at $1.28, under analysts' estimates of $1.29 a share, but revenue of $38.64billion topped forecasts of $37.89billion.
Despite the short-term set-back, the company's investment measures via certain topics like cutting ties with Philidor RX Services LLC and showing consistent revenue growth, net income, and decent cash flows keep this on the list for a safer haven placement, in my book. A look back at the overall trend has shown CVS to be a stock that realizes a general price correction during the earlier weeks in Q1 of a given year.
I will also be adding Walgreens Boots to this list also based on revenue growth as well as the pending RiteAid acquisition. The market for drugstores is relatively fragmented and for investors, the options are limited. This specific reason also leads me to identify potential in the small cap space as well.
Back in August, I highlighted a smaller pharmacy company in South Florida, Progressive Care, Inc. (OTCQB:RXMD) through its subsidiary PharmCo LLC. At the time the stock was trading well under a penny and had just been issued an analyst target of $0.03. Strong revenue growth, filled prescriptions, and the extinguishment of its remaining debt (from a total of $1.8m plus fees) have lead the stock to rally over the last 5 months to highs of $0.033 thus beating analysts short term targets. Recent headlines show, too, that the company has advanced to OTC current status as of Friday January 8th.
Several key standouts to Progressive include month over month, quarter over quarter, and quite possibly year over year growth in revenue, filled prescriptions, and further expansion of its compounding division as well as the new venture into the 340B market. As of the close of 2014, the company had done $11m in total revenue with a heavy debt position on its books. As of the last filed quarterly report, Progressive showed 9 months' revenue of $9.7million.
Assuming the company continues to average roughly $1m a month, Progressives 2015 operating results related to revenues alone should outpace the 2014 numbers by nearly $2million (Assuming $1.07million per month times 3 months remaining to report equates to an additional $3.21million). Pharmacy stocks both large and small cap will remain on my safe haven list for the first half of 2016 and most likely for the foreseeable future as baby boomer populations continue to rise and the need for specialized medicines, IE compound medications, continue to grow.
In addition to these specific stocks mentioned, I will also be watching biotech and alternative energy stocks (outside of solar) very closely in the near term, as these were bullish during the last half of 2015 heading into 2016.
August 25, 2015
January 8, 2016
KHC: $72.47/share ($77.74 high during period)
BRFH: $0.835/share ($1.13 high during period)
STZ: $151/share ($154.31 high during period
CVS: $96.00/share (106.00 high during period
RXMD: $0.0198/share ($0.033 high during period)
KHC: +3.52% to11.05%
BRFH: +34.6% to 82.3%
STZ: +26.4% to 29.2%
CVS: (3.93%) to + 6.1%
RXMD: +161% to 334.2%
4 out of 5 safe havens previously mentioned have continued to show both positive price movement and corporate growth over the last 5 months. CVS as the outlier remains on my list based on the overall opportunity that pharmacy sector poses in 2016 with companies like Walgreens Boots hot on the acquisition trail in addition to the growing necessity of prescription medication for an aging population. I hope to update with even better numbers in the future.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.