Trade ideas
BABY.TO Outperforms Sectoral and Market IndexesEyeing market open today, it looks like investors may be in for some relief after a crushing past couple of days of trading. Here I hone in on the chart of Else Nutrition (TSX: BABY). After closing green yesterday and a green open today, it looks like BABY investors are holding the line against the type of capital outflows afflicting US and Canadian markets. First lets take a look at the macro-global backdrop. To date, the US is experiencing a historically severe baby formula shortage as a delayed consequence of supply chain disruptions. The situation has reached a point of severity where US regulators are considering placing purchase limits for baby formula products on major e-commerce platforms like Amazon. As BABY ratchets up production and points of sale both online and offline (just yesterday they announced a strategic agreement with Kroger), they stand to gain from the zero-sum game of formula shortages. Compound this with ever expanding awareness of and desire for plant-based goods by consumers, and BABY appears to be positioning itself as Gerber for the next generation of tots. The company also recently received a Clean Label Purity Award for having the only baby cereal that is heavy-metal free on the US market after a damning consumer safety investigation launched by a congressional subcommittee into the issue of toxins in infant/baby foods.On a final note, last week they announced the acquisition of SNAP eligibility, allowing them to provide plant-based, safe, and nutritious food to America's underprivileged. In other words, bullish catalysts galore.
Now lets take a look at the charts, and I'll qualify this by stating the obvious: markets have officially entered correction territory and investors are feeling the burn. Major exchanges are down double-digits YTD, and the first four months of 2022 were the most bearish for US equity markets since 1939. So in other words, the market as a whole is increasingly looking like a dumpster fire, while BABY is trading strong and maintaining a YTD resistance around the $1.12 mark despite downward pressure from sellers/double digit SIR/short activity. RSI places thus baby in slightly undervalued territory, and its approaching the 50-day MA which, given an upward breakthrough, will be a strong bullish indicator. MACD histogram is started to give of signals of a positive momentum reversal, and given the green markets today I think we're in for some gains. And now for the compare-contrast; over the past month BABY is up slightly, but its massively outperforming practically any baseline. They've left the DJI and TSX/S&P composite indexes in the dust in terms of market benchmarks, and the VEGN plant-based ETF has fared even worse. For the fun of it I threw in BUB.AX as well, an ASX-listed baby food/formula manufacturer, to see a peer to peer comparison. While BABY is ~+1% in the 1M timeframe, BUB is down a whopping 24%.
BABY has been holding its ground during the worst four months for American equities markets since before WWII, and continues to roll out bullish catalysts that aren't just PR fluff but substantive, revenue-generating operational updates. I'm maintaining my personal BUY/HOLD rating for BABY, but that's just my two cents so DYOR.
