Oh my guac! How to invest in avocados!

Whether it is guacamole on your burritos or rice bowls, guacamole with your nachos, avocado in your burger, avocado roll at your favorite sushi place (oh YES!), or even avocado on your toast, there is some way that everyone appreciates and loves the green fruit. Yes. Technically avocado is a fruit.

I won’t lie, I try to eat one avocado per day. I do so for the benefits. We all know about the healthy unsaturated fats and their benefits. Avocado plays a role in heart health, lowering cholesterol and lowers blood pressure. The green fruit also has loads of potassium, folate, fiber, and are a good source of magnesium vitamin c and e.

The big health trend with avocados right now is Avocatin B, a powerful bioactive naturally found in avocados that can restore balance in sugar and fat metabolism. Many who are trying to lose weight or reach other health goals have avocados as one of their primary staples. Let’s face it. Avocado has become a superfood.

Health benefits already have increased the demand for avocados, and as more people shift to healthier lifestyles, the popularity and demand will just grow. Americans are eating more guacamole than ever. Per-capita consumption doubled in the 10 years through 2020 to 9 pounds, and could surpass 11 pounds by 2026.

Or maybe you could be betting on the popularity of avocado and toast. Seriously, don’t discount this. A few years ago, a Vancouver developer offered a FULL YEAR supply of avocado toast to lure in millennial homebuyers.

Avocados recently appeared on investor headlines as the US suspended all imports of Mexican avocados after a US plant safety inspector in Mexico received a threat. This ban has since been lifted.

Mexico is the largest produces of avocados. Avocados is such a big business in Mexico that even drug cartels are getting involved now. No joke, but ‘blood avocados’ has become a thing, and consumers care where their avocados come from.

Because of the popularity, and profits to be made, many private avocado farms and firms are popping up in California.

Here’s a little secret about avocados: they tend to see a price surge weeks before the Super Bowl. Guacamole is devoured during the big game. One estimate says that football fans eat through 105 million pounds of avocados during the big game, making Super Bowl the day the biggest day of the year for the fruit.

This year we even had an “Avocados from Mexico” Super Bowl TV commercial.

Mexican avocado prices have never been higher due to booming demand, labor shortfalls, higher production costs and wage hikes. There does not seem to be a supply chain shortage especially since the suspension on Mexican avocado imports has been lifted. Although…I must say that it was the first time I did not see bagged up avocado when I went to my local WalMart yesterday. I usually buy avocados that come in that green mesh bag. You save some money than buying avocados individually, which were going for about $1.60 CAD each.

Popularity and demand aside, there could even be a geopolitical play in the future. IF a future Presidential administration engages in a trade war or imposes tariffs on Mexican imports, the price of avocados would increase. I have said that there are farms popping up in California, buy growing avocados is pretty difficult. It takes anywhere from five to 13 years to grow an avocado tree from a seed before it bears any fruit. And as my Agriculture roundup readers know, we are looking at things such as unpredictable weather to disrupt growing patterns. I believe it is great to be bullish on anything farming and growing, but avocados present a niche opportunity, just like coffee, due to its popularity.

Many of the stocks that I am listing below deal with growing and exporting many types of fruits and vegetables, not just avocados. Overall, I think they will be great plays for Agriculture and rising food prices.

Calavo Growers (CVGW) Market Cap ~ $658 million

Calavo is the primarily pure avocado play… or as they say, the first name in avocados. The company mostly sells avocados but also sells tomatoes, papayas and other fruits. Avocados are the main cash crop for Calavo. On March 14th 2022, Calavo reported financial results for the first quarter ending January 31st 2022. Here are some highlights:

• Total revenue of $274.1 million, a 24% increase from the year-ago quarter.
• Fresh segment revenue increased 41% year-over-year to $162.6 million, and Renaissance Food Group (RFG) and Foods segments revenues increased 6% and 4% year-over-year, respectively.
• Gross profit of $13.2 million, or 4.8% of revenue, compared to $17.8 million, or 8.1% of revenue, for the year-ago quarter.
• Net loss of $(4.0) million, or $(0.23) per diluted share, compared to net income of $5.3 million, or $0.30 per diluted share, for the same period last year.
• Adjusted net loss was $(0.4) million, or $(0.02) per diluted share, compared to adjusted net income of $3.0 million, or $0.17 per diluted share last year.
• Adjusted EBITDA of $4.7 million, or $0.27 per diluted share compared to $9.4 million, or $0.53 per diluted share for the same period last year.

And what a great way to start the roundup. Calavo here checking a lot of my checklist criteria for a reversal. We are still ways away from confirming this, but the structure looks promising! We have our long downtrend, it appears as if we are in a range and finding a base. All that is left is the new uptrend. A break and close above $45 is what confirms this. So yes, still ways away.

But we can play this range. The stock has found support at around the $33 zone. A nice group of bids so far as seen by the large candle wicks. It really looks like a good place for an entry, and even if it only a range play, we can make our way back up to the $40s.

Mission Produce (AVO) Market Cap ~ $843 million

Mission Produce engages in sourcing, producing, packaging, and distributing avocados in the United States and internationally. They also have the most avocado ticker on the market: AVO. The company has been in business for decades and recently just IPO’d. They have built the world’s largest and most advanced avocado network, becoming the preferred global supplier of avocados.

Mission also released Fiscal 2022 first quarter financial results. Earnings were negatively impacted by rapidly rising fruit costs, rising transportation rates, and declining volumes across the industry. Here are highlights:

• Total revenue of $216.6 million, a 25% increase compared to the same period last year, impacted by average selling price increases of 50%, partially offset by an 18% decrease in avocado volume sold, compared to the same period last year
• Net loss of $(13.4) million, or $(0.19) per diluted share, compared to net income of $2.2 million, or $0.03 per diluted share, for the same period last year
• Adjusted net loss of $(12.2) million, or $(0.17) per diluted share, compared to adjusted net income of $7.9 million, or $0.11 per diluted share, for the same period last year
• Adjusted EBITDA of $(10.4) million compared to $12.5 million for the same period last year

The stock gapped down into new record all time IPO lows after disappointing earnings. Saw buyers step in though and $11 is now the new support. If we close above $12, there is a nice breakout set up, however I would be a little wary of the gap. Gaps tend to be resistance. The way to play a gap is wait for it to be filled. In this case, a close above $12.50.

Hormel Foods (HRL) Market Cap ~ $27.85 billion

Hormel Foods Corporation develops, processes, and distributes various meat, nuts, and food products to retail, foodservice, deli, and commercial customers in the United States and internationally. How is this an avocado play? Because Hormel owns the #1 US refrigerated guacamole brand, and also began competing with Calavo and Mission Produce by rolling out Whooly Avocado.

Hormel’s first quarter sales beat expectations:

• Volume of 1.2 billion lbs., up 2%; organic volume1 down 4%
• Record net sales of $3.0 billion, up 24%; organic net sales1 up 13%
• Operating income of $320 million, up 19%
• Operating margin of 10.5%, compared to 10.9% last year
• Pretax earnings of $309 million, up 11%
• Effective tax rate of 22.4%, compared to 19.7% last year
• Diluted earnings per share of $0.44, up 7% compared to last year
• Cash flow from operations of $384 million, up 87%

The stock initiated a new uptrend when it broke out above $43.50. Met all our technical reversal criteria too. (Again why I am excited about Calavo). Since the break, Hormel has made one higher low in this uptrend, and I usually expect at least two higher lows in a trend. Saying this, it looks like another one is coming, which means we will reach price targets in new all time record high territory.

This is a BIG company. Not a pure avocado play like the first two, but a play which will definitely gain on rising food prices and other agriculture headlines.

Dole Market Cap ~ $1.3 billion

I am sure you have heard of Dole. Dole engages in procuring, marketing, and distributing fresh produce, health foods, and consumer goods worldwide. I drove by their pineapple plantation in Hawaii a few years back, sadly, I did not take the tour.

Avocados isn’t the main cash crop. The company deals with many fruits and vegetables. I think they are known for their pineapples and bananas.

The chart is interesting. We did have a breakout above $13.50, meeting technical criteria that we rate as top grade. However, on the retest, we did not hold above $13.50. Buyers however did come back in to drive the price back above. $13.50 once again becomes a key support.

Fresh Del Monte (FDP) Market Cap ~ $1.25 billion

Not much needs to be said about Fresh Del Monte. I am sure you have come across their name at your local grocery store. Fresh Del Monte Produce Inc., through its subsidiaries, produces, markets, and distributes fresh and fresh-cut fruits and vegetables in North America, Europe, the Middle East, Africa, Asia, and internationally. t offers pineapples, fresh-cut fruit, fresh-cut vegetables, melons, and vegetables; non-tropical fruits, such as grapes, apples, citrus, blueberries, strawberries, pears, peaches, plums, nectarines, cherries, and kiwis; other fruit and vegetables, and avocados.

The company reported fourth quarter and full fiscal year 2021 results:

• Net sales for the fourth quarter of 2021 increased 2% to $1,017.3 million compared with $1,002.3 million in the prior-year period; net sales for the full fiscal year 2021 increased 1% to $4,252.0 million compared with $4,202.3 million in the prior-year period. The company’s full fiscal year cycles were impacted by comparability. The 2021 fiscal year consisted of 52-weeks compared with 53-weeks in 2020. The additional week in the prior-year period contributed an estimated $72.0 million in net sales. On a comparable basis, net sales for 2021 increased $122.0 million, or 3%.

• Gross profit for the fourth quarter of 2021 increased 9% to $39.8 million compared with $36.4 million in the prior-year period; gross profit for the full fiscal year 2021 increased 21% to $303.8 million compared with $250.9 million in the prior-year period.

I will be watching for a break above $27 on Fresh Del Monte. I like the fact we held major support around $24, and a close above $27 could see us take back $29 and confirm a breakout taking us to $34 in the long term.

Chipotle (CMG) Market Cap ~ $ 43.49 billion

Let’s end with Chiptole. These guys are one of the biggest avocado purchasers in the US. We all load up on that guacamole when we pick up our meals from Chiptole. Well I know I do. The company did strike a deal to buy avocados directly from Mexico.

This Bill Ackman play might not be the first avocado play to come to mind, but the prices and supply and demand shock of avocados will affect the company. Honestly, I think there are other factors here such as the food inflation play. I find chipotle meals still remain cheap due to the rice and beans. If consumers do begin to look for cheap meals, or want to save a few bucks buy eating at better prices fast food joints, Chipotle will be at the top of the list because of prices and the health factor.

Some are surprised to see the stock trading over $1500 when it pays no dividends. The Bill Ackman effect. On the technicals, like it or not, we may be ready to make higher prices. I am looking for a close above $1600 to confirm a breakout pattern and then a move into previous record highs around $1960.