Magnifi Communities

While it’s interesting to see what options are trading in terms of absolute volume, it can also be useful to look at relative volume. For instance, Broadridge Financial (BR) traded over 125x its normal options volume one day last week. The banking software company typically only trades 40 contracts per today, so seeing a 2,000-lot

My talks with bankers and technology providers in Tampa last week emphasized how important deposits have become in the world of banking. Even the flashiest fintech companies were emphasizing how their products could help banks attract and retain deposits.

There was a lot of talk about how the industry is changing. Banking is now a digital industry, and firms that cannot keep up are going to have to consider selling out to a larger bank with greater technology capabilities.

While I was in Tampa, we also saw the recent bank rally begin to slow down somewhat.

Although clickbait hunters and instant experts may be selling, there are two groups of people who are getting very bullish on bank stocks.

In today’s video, I show you who they are – and why they’re right…

One is Wall Street analysts.

The other is banking insiders. Officers and directors have their checkbooks out and are going on a buying spree.

I also take a quick look at the recent bank loan and deposit numbers from the federal reserve and what they mean for smaller banks like the one we prefer.

It is far better than the headlines are reporting.
It’s raised its dividend 37.5% on average, could be acquired, benefits from rising interest rates, trades at massive discount, and pays an 8% yield. This is my top pick for income during a rough market. Click here for details.

Once again, technology stocks are grabbing the financial headlines. They have powered most of the gains in the S&P 500 in 2023.

In fact, Apple and Microsoft alone now account for a record 13.5% of the index—the most ever for the top two stocks.

While it’s tempting to buy big tech right now, the safer investing route—and the one I prefer is sticking with—is consumer staples companies that have strong brands.

Consumer Goods Companies Bonanza

Consumer goods companies had a remarkably strong 2022, despite a sharp rise in raw material costs and stretched household budgets. In fact, consumers swallowed big price increases in 2022 without batting an eyelid.

Companies in the sector hiked prices by 10% on average in the fourth quarter of 2022, according to Bernstein analysis, with volumes a mere 2% lower—and that trend has continued into 2023.

Most food and beverage companies were able to pass along large price increases in the first quarter, with sales volumes only edging down.

Here are just a few examples cited by the Financial Times: At AB InBev, North American beer prices rose 5.6% while volumes fell slightly. Kraft has long struggled with sales volumes, and in the first quarter they fell 6%—but prices were up 13%, and margins are widening. And Kellogg’s, best known for cereal, had a 14% benefit to sales from its price mix. Its management said it has been surprised by price elasticity remaining well below historical levels.

The story seems to be the same almost everywhere in the consumer staples sector. Companies up and down the value chain are passing on big—sometimes very big—inflation-plus price increases, and consumers are willing to pay. There is precious little evidence of trading down to cheaper alternatives.

This is a testament to the power of brands. But only companies able to maintain the luster of their product names can pull this off consistently: consumers will pay more for trusted products, which then deliver higher profits to the brand owner, cushioning it against rising input costs. This contrasts with generic products, churned out in high volumes at low margins.

A brandholder has “pricing power”—a Holy Grail for most businesses. And, as long as a company can maintain the quality of its brands, it will retain pricing power. After all, quality never goes out of style.

Let’s now take a look at one such consumer brands powerhouse, PepsiCo (PEP).

Pepsi’s Pricing Power

PepsiCo, founded in 1898, produces and sells food, snacks, and beverages around the world. In addition to its eponymous soda, as well as other beverages including Mountain Dew, Gatorade, 7UP, Tropicana, and various bottled water products, the company also owns food brands including Lay’s, Ruffles, Doritos, Tostitos, Cheetos, Quaker Oatmeal, and Rice-A-Roni. And, PepsiCo also provides tea and coffee products through a joint venture with Starbucks and Unilever.

On average, 11 of the 15 top-selling products in convenience stores come from PepsiCo, and Lay’s is the world’s best-selling snack food brand, having expanded sales from just $100 million fifty years ago to $30 billion today. Overall, PepsiCo ranks first in the $200 billion global savory snacks market, controlling 22% of the market, per research firm Euromonitor.

Pepsi’s net sales should rise by about 6% in 2023 and 4% in 2024, driven by 8% organic revenue growth. In 2022, PEP’s net sales rose 8.7% due to organic revenue growth of 14.4%. Organic sales growth will be driven by price increases—the company’s effective net prices jumped 16% year-on-year in the first quarter of 2023.

I think that investors will continue to favor Pepsi given the company’s ability to raise its dividend and deliver strong growth.

PepsiCo is a defensive blue-chip name with a strong balance sheet and high degree of earnings stability. I like the power of its brands, such as Frito-Lay and Pepsi, in an inflationary environment. It gives the company the ability to successfully pass higher costs on to consumers in the form of price increases.

The company’s shares are included in the S&P Dividend Aristocrats group. In June 2022, PepsiCo raised its annualized dividend by 7% to $4.60 per share. The company also announced a 10% increase in its annualized dividend to $5.06 per share, starting with the June 2023 payment—the 51st straight year PepsiCo has increased the dividend.

Management continues to expect $7.7 billion in cash returns to shareholders, consisting of $6.7 billion in dividends and $1.0 billion in share buybacks.

Pepsi’s stock recently hit an all-time high, up 12.5% over the past year and 7.75% year-to-date. Its current yield is 2.62%, but based on its history, Pepsi will continue to raise its dividend on a steady basis every year. PEP is a buy below $200 per share.
It’s not REITs or blue chips like Disney. A small, little-talked about area of the dividend stock market is pumping out market-beating returns like no tomorrow. Over 22 years, they’ve handily beat the market… and I have the #1 stock of these to give you now.

The U.S. seems poised for a manufacturing boom as companies tap into government subsidies, pledging to spend tens of billions of dollars on new projects.

The Chips and Science Act and the Inflation Reduction Act (IRA)—passed within days of each other last August—together include more than $400 billion in tax credits, grants and loans designed to foster a domestic clean technology and semiconductor manufacturing base.

As of mid-April, a number of companies had committed a total of about $204 billion in large-scale projects to boost U.S. semiconductor and clean tech production, promising to create at least 82,000 jobs.

While not all these projects were a direct result of these bills, the projects will probably be eligible for the tax breaks. The amount committed in these projects is almost double the capital spending commitments made in the same sectors in 2021, and nearly 20 times the amount in 2019!

Throw in the Bipartisan Infrastructure Law, and you have something reminiscent of Franklin Roosevelt’s New Deal in the 1930s…except that the sheer numbers are much larger. The U.S. government is putting a whopping $2 trillion behind these acts. Measures in the IRA to support climate change initiatives alone are worth about $400 billion over 10 years.

Two trillion dollars is a huge pile of money. And many companies will benefit from the U.S. government’s incentives.

So, how can you invest to get in on this government gravy train?

Power Up Your Portfolio

I want to focus in particular on the Inflation Reduction Act.

There are a number of subsectors that will benefit from the IRA, including: carbon capture and storage, green hydrogen manufacturing, methane emissions capture from landfills, electric grids upgrading, and clean energy sources like wind and solar.

One example is the installation of utility-scale solar power, which is already the cheapest source of energy. Since last summer, shares in the largest U.S. solar stock, First Solar (FSLR), have risen more than 350%, from about $60 to a high of $221.88. The shares currently are around $177 per share.

I prefer to look at a stock that hasn’t gone up as much, even though it just hit a 52-week high: Quanta Services (PWR), which builds, maintains and improves electricity grids.

It operates through three segments: Electric Power Infrastructure Solutions, Underground Utility and Infrastructure Solutions, and Renewable Energy Infrastructure Solutions. The Electric Power segment provides network solutions for customers in the electric power industry. The Underground Utility segment provides infrastructure solutions for the development, transportation, distribution, storage, and processing of natural gas, oil, and other products. The Renewable Energy Infrastructure Solutions segment helps to build, maintain, and repair wind, solar, and hydropower generation facilities, as well as battery storage facilities.

Through a combination of organic growth and acquisitions, Quanta has grown into the largest provider of transmission and distribution (T&D) contracting services in the United States, with an approximately 15% and growing market share.

Quanta will benefit from accelerated capital spending by electric and natural gas utilities and from the expansion of 5G services and rural broadband. In addition, the company is well positioned to benefit from the aforementioned $1.2 trillion infrastructure spending bill, which included funds for renewable energy and electric vehicle charging stations, as well as for technology aimed at helping utilities to manage extreme weather conditions.

In July 2022, Quata was selected to be a lead provider in the rollout of a national electric vehicle charging network. The company will provide turnkey engineering, construction, and program management solutions for the project.

It should not come as a great shock, then, that Quanta ended the fourth quarter of 2022 with a record backlog of $24.1 billion.

I expect this backlog to continue to grow substantially. The Inflation Reduction Act will boost spending on climate change programs over the next 10 years, with much of the spending earmarked for power generation.

The company’s acquisition of Blattner Energy in October 2021 should also help it to benefit from accelerated spending on solar and wind projects. Blattner Energy is one of the leading utility-scale renewable energy infrastructure businesses in North America, providing engineering, procurement, and construction services (EPC) for solar, wind, and biomass projects. The company has a market share of approximately 30% for wind and 10% to 15% for solar, positioning it at the top of the renewable EPC industry.

Here is what research firm CFRA said about Quanta Services, which it rates as a strong buy:

Our Strong Buy opinion reflects our view of rising demand for power transmission and electrification projects in the next few years as PWR provides skilled resources and technology. We forecast robust growth from utilities as we think the industry is in the early stages of a multi-decade modernization program to replace aging infrastructure. PWR is well positioned to benefit from federal infrastructure stimulus in the coming years, as significant funding is directed towards grid hardening and modernization project work.

Quanta is actually a defensive growth story thanks to its exposure to both electric transmission and distribution, as well as renewable energy. That will be a positive catalyst for earnings growth even if the broader stock market suffers from declining earnings per share.

Goldman Sachs energy equity research analyst Ati Modak said Quanta is still a “best-in-class equity expression” of companies with exposure to the megatrends in the electric grid modernization and renewable generation markets.

I totally agree, making Quanta a buy. The stock is up about 20% year-to-date and 42% over the past year. Buy PWR anywhere in the $155 to $185 range.
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