Organic Food Stocks: How The Pandemic Benefitted Healthy Food Stocks and How AI Knew First

motek 1The organic food stocks article was written by Chloe Peng, Analyst at I Know First. Master of Science of Finance candidate at Brandeis University.

Summary

  • The COVID-19 pandemic has been changing people’s eating habits, 43% customers are consuming more healthy food.
  • Many organic food producers’ stocks benefitted from this trend in the food industry, for example, United Natural Foods more than tripled its stock price in 3 months, outperforming the index PBJ.
  • I Know First’s predictive AI is able to identify the next winner in the industry and help you win.

Coronavirus Effect on Food Trends

The coronavirus has been affecting people’s life in every aspect – from the way people work to the way people eat. Before the pandemic, experts predicted momentum for meat alternatives, low- or no-alcohol beverages and sustainability-driven purchasing behaviors. Now, it’s obvious that people are baking and cooking at home with more familiar and common food, but you see in the following chart that consumers are still buying plant-based meat. Plant-based meat sales decreased less 4 weeks post peak buying than animal meat sales.

meat sales during pandemic
(Source: Statista, plant-based meat sales growth during COVID-19 in US in March and April)

Another prevailing trend now is that, however, people are re-evaluating their diets because it has underlined the link between food and health.

organic food stocks-organic vegetable
(Source: Flickr.com, organic vegetable at Whole Foods Market)

The trend under the new normal aligns with a current trend that has gained more mainstream attention over the last couple of years, as consumers have looked to embrace the concept of active nutrition. This has resulted in consumer attempting to exercise more and seek out products with health boosting ingredients (instead of just focusing on avoiding dietary evils) to stay healthier until as late in life as possible. This is a trend that will continue to grow in 2020 and beyond as a result of Coronavirus

FMCG Gurus report

Although this healthy food trend has been ongoing for years, the outbreak of the virus has further accelerated the demand for added health benefits in daily food supplies. Organic foods are considered to be healthier and safer than their conventional alternatives. Thus, the sales get a boost especially when people are looking at disease prevention and nutrition improvement. You see in the following graph that over 4 in 10 consumers in US report healthier food habits.

organic food stocks-healthier food trend
(Source: Foodinsight.org)

Organic Food Stocks Benefitted From The Pandemic

In this section, I will present how the trends described above are reflected in the stock market.

United Natural Foods

organic food stocks-unfi
(Source: UNFI website, UNFI and its private brands)

UNFI is the largest publicly traded wholesale distributor delivering healthier food options to people throughout the United States and Canada. With a portfolio of 5,000+ quality – trusted products in 200 categories, UNFI Brands+ delivers bold strategies, better consumer experiences and insight-driven solutions. It provides only organic, non-GMO and free-from products for customers.

organic food stocks-unfi stock
(Source: Seeking Alpha)

UNFI stock price tripled in 3 months, from 6.78 to 22.44. According to the company’s Q3 earning call on June 10 for the period ending May 2 2020, the demand increased significantly as consumers began loading their pantries with outsized purchases of items. While their third quarter results did benefit from this pantry loading, net sales continued to increase at a double-digit pace over the remaining weeks of the third quarter. The company expects this trend to continue into the early stages of the fourth quarter and not return to pre-COVID levels until fiscal 2021.

unfi earnings

One can see from the above graph that United Natural Foods Inc.’s earnings have declined from $1.12 to an estimated $-7.21 over the past quarters, while the upward curve indicates that an improvement in future earnings growth may occur.

Natural Grocers by Vitamin Cottage

NGVC is a Colorado based health food chain founded 1955. The company produces organic food and body care products. It doubled its stock price in 3 months since March. See the graph below.

organic food stocks-ngvc stock
(Source: Seeking Alpha)

According to the company’s Q2 2020 earning call on May 7, the company saw a significant acceleration of daily average comparable store sales growth, peaking in mid-March as consumers responded to the growing pandemic. For the quarter, revenue was up 20.4%. The trend continues when people care more about their health conditions during the pandemic. Net income for the quarter was $9.7 million compared to Q2 earning of $3.9 million last year.

PBJ -Invesco Dynamic Food & Beverage ETF

There is also a Food and Beverage index, PBJ, under I Know First’s watch. The index is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including: price momentum, earnings momentum, quality, management action, and value.

The index currently holds a portfolio of 30 well-established US food and beverage producers and distributors. For example, Heinz, PepsiCo, Chipotle and General Mills.

pbj

You see from the above graph generated from our database, PBJ increased from 27.42 to 31.09 in three months and gradually recovered from the coronavirus crisis when restaurants were closed. The index increased by 13.4% in three months and UNFI and NGVC were able to outperform PBJ largely in the period, reflecting the trend that consumers choose to purchase more organic goods.

Artificial Intelligence vs Human Analysts

Although the global shutdown hurt the overall financial market; some companies were able to gain from the situation, for example the organic food stocks I discussed above. As investors, we may not be able to identify opportunities efficiently. We may ignore the trend or choose wrong stocks to invest in. Luckily, artificial intelligence can help solve the problem.

In the past, it’s extremely time-consuming to find the right stocks due to the massive amount of information. Also, traditional trading idea involves identifying trends and patterns that forms on charts and numbers based on historical prices, which are exposed to human error. Similar to gambling addiction, studies have shown that people tend to overestimate its ability to accurately predict the likelihood of an event exacerbating this bias.

However, now the use of AI in investment management has become one of the biggest trends in picking winning stocks. Algorithmic trading is responsible for around 60-73% of all U.S. equity trading, with a CAGR of 11%. Algorithmic trading is rapidly gaining market presence not only because it avoid human errors, but also because of its additional benefits.

ai trading
(Source: Investopedia)

For example, it’s easy for AI to outperform human analysts in identifying the next winning sector or stock because of its excellent ability in analyzing data and identifying patterns. Also, AI identifies entry point and exit point more efficiently. See the following graph how quant funds are outperforming human-managed funds.

quant funds performance
(Source: Toptal)

I Know First’s AI Trading Strategy

As a fintech company, I Know First knows much more than others about the power of AI. The proprietary AI developed and trained on a historical dataset covering 15 years of trading by I Know First can model and predict the price dynamics for more than 10,000 financial instruments for time horizons ranging from 3 to 365 days.

ai strategy

Our AI algorithm can learn from its own successes and failures and re-configure its approximations of the inner workings of the market every day, as it is fed new market data. It can adapt to new patterns and provide predictability indicators. For example, the forecasting result with a predictability score shows you how confident we are with the forecast so that you can make better use of our predictions.

Conclusion

The global pandemic has been changing people’s lifestyle including food consumption. Currently, 43% people are buying more healthy and organic food than before to stay healthy and hoping to protect themselves against the coronavirus. I believe the healthy food trend will continue as a habit even when the pandemic ends. There are some organic food stocks that benefitted, for example, UNFI stock price tripled and NGVC stock price doubled in the past three months. During the same time, the Food and Beverage index PBJ monitored by I Know First increased by 13%.

Also, artificial intelligence becomes more and more popular in the financial market and by nature is helpful in picking the right stocks. I Know First’s predictive AI is able to identify market opportunities ahead of human analysts and make you gain before others do. I recommend you to utilize our predictions and make better investment decisions.

Here at I Know First, our AI-based stock algorithm has modeled and predicted assets price movement worldwide for short-term and long-term time horizons, ranging from 3 days to a year. Since 2011, we have been providing stock market forecast, as well as a gold predictionscurrency forecast, and, in particular, Apple stock forecast. Today, we are producing daily forecasts for over 10,500 assets. These forecasts generated by our quant trading tool are used by institutional clients, as well as private investors and traders to identify the best investment opportunities in the market.

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