How to Take Advantage of the Coming Spike in Beef Prices

Chris Versace

Chris Versace is a financial columnist and equity analyst with more than 20 years of experience in the investment industry.

If you are like me, when times are tough, one of the areas I try to cut back on is eating out. It’s not easy because even though I love to cook, after a long day at work it’s nice to simply order and before too long have dinner arrive. Easy-peasy, as the saying goes. But when times are tough, or you are simply saving for something or trying to put a little extra money into the stock market, there are only so many corners one can cut — and eating out is one of them.

It seems that many Americans were feeling pretty good about things following the federal government shutdown, because the National Restaurant Association’s Restaurant Performance Index (RPI) hit a five-month high in November. The RPI, a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry, stood at 101.2 in November, the strongest it has been since June. November also marked the seventh month the RPI reading was above 100, which suggests the industry is in expansion mode. Backing that up, 54% of survey respondents claimed they were spending on equipment, expanding or remodeling during the last three months. That spending is positive for companies like MICROS Systems (MCRS) that offer enterprise information solutions for the food industry; Mettler Toledo (MTD) and its weighting instruments that are used in food retail applications; and several payment companies like VeriFone (PAY), Heartland Payments (HPY) and others.

Now that all sounds good, but as I recently shared with subscribers to my PowerTrader trading service, which has delivered triple-digit percentage returns since its launch in November 2012 via a combination of stocks, exchange-traded funds (ETFs) and call options, there is pain ahead for the fast food industry. It is one thing to follow revenues, but as I have learned over the years, it is as important to keep a handle on the cost side of the equation. Even if a company’s revenues are climbing, if its costs are rising at an even faster rate, it does not bode well for earnings generation.

Last week, we saw U.S. cattle prices jump to a record, even though overall inflation has been tame these last few months. Sadly, it’s looking more likely that consumers will be feeling the pinch when they go to check out at their local Kroger (KR), Safeway (SWY) or Whole Foods Market (WFM). Even ahead of that jump in cattle prices last Friday, fresh-beef prices rose to a record $5.014 per pound in November, even though U.S. consumption of beef has fallen 25% in the last 30 years. Lest you think the beef industry has suffered from that volume drop, think again. Beef prices exited November 26% higher during the last five years. With beef prices set to skyrocket, odds are that consumers will be far more selective in their spending — for both eating at home and eating out. I suspect rising beef prices also will drive up chicken, pork and other protein prices in the months to come.

Is this move likely to be quick blip? Nope. I say that because it takes months and months to raise the herd before slaughter. In other words, even though beef consumption is expected to fall modestly in 2014 as cattle slaughter drops 7% year over year, it won’t be until 2015 or so that beef herd figures rise enough to drive a meaningful increase in beef production. With that in mind, I’ve made some recommendations to PowerTrader subscribers that will position them to profit from this coming pain point. Come join us.

PowerTalk — Using video and cameras to drive productivity with 3VR
Internet backbone company Cisco sees video being a key driver of Internet traffic, and with more and more devices equipped with cameras, it’s easy to see how. It’s not just smartphones and tablets, there is an increasing demand for video surveillance from retailers, banks and other companies — and even law enforcement.

Joining me to talk about that opportunity on PowerTalk is Al Shipp, the CEO of 3VR. 3VR provides value by enabling organizations to search, mine and leverage video to bolster security, identify and mitigate fraud and better serve customers.

A seasoned technology veteran, Al joined 3VR from Apple, where he built a world-class sales and marketing group and led the Enterprise Division to be one of Apple’s most profitable business units. Prior to Apple, he served in senior leadership roles at Critical Path, Inktomi Corporation, BEA Systems and IBM.

You may be asking yourself: who is using 3VR’s technology? They are organizations such as Hilton, T-Mobile, Chico’s FAS, the Elk Grove California Police Department, Union Savings Bank and many more across a number of industries.

After listening to Al and what 3VR is working on, you may think twice before walking out with that pen you just used to sign your name on the credit card receipt.

Click here to listen to my one-on-one conversation with
Al Shipp, CEO of 3VR, Inc.

In case you missed it, I encourage you to read my PowerTrend Brief from last week about how you can use technology trends to profit in 2014. I also invite you to comment in the space provided below.

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