GLP-1 companies like Novo Nordisk’s (NYSE: NOVO) Ozempic and Eli Lilly’s (NYSE: LLY) Mounjaro are creating a whole new market opportunity we are calling the protein trade. A common side effect of these GLP-1 medications is a reduction in muscle mass. When the body loses weight quickly it also loses muscle. Physicians understand the concept of the faster you lose weight, the more muscle you lose. For example, when taking Ozempic, 60% of the weight loss is from fat reduction and 40% comes from the loss of lean muscle mass. This disproportionate loss of weight of the wrong type of mass is actually making people fatter. This body type is called “skinny fat” and the only way to stop the muscle loss is through the consumption of protein and exercise. There are a number of stocks slated to benefit from the protein trade as people try to avoid Ozempic face.
Sharon Ozbourne is one of the celebrities bringing light to this condition that makes people look much older. She is speaking out and trying to bring awareness of the side effects of Ozempic. Her journey is described in an article in Woman’s World.
When the GLP-1 stocks first started running, the snacking and baking companies like Hershey Co. (NYSE: HSY), Pepsi (NASDAQ: PEP), and Mondelez International (NASDAQ: MDLZ) took a big hit on the expected 2.5% reduction in calories over the next decade. There was an immediate rush out of these stocks despite the fact that the caloric reduction was expected over a decade. Needless to say they recovered but now the buzz is all about the protein trade and how people are going to need to increase their protein intake to combat the effect of the GLP-1’s.
The top protein stocks are Tyson Foods (NYSE: TSN), Hormel Foods (NYSE: HRL), Cal-Maine (NASDAQ: CALM) and Nathan's Famous Inc. (NASDAQ: NATH). Most of these companies make beef and chicken products. Another fun fact is that TSN produces 20% of the beef, pork, and chicken in the United States. Other sources of protein include plant protein, fish, pork, and eggs. Unfortunately you can’t just buy these stocks because one of the biggest risks facing the protein trade is Bird Flu. H5N1 has made its way into the food chain. Earlier this year a number of Dairy Cattle were found to be spreading H5N1. It's made its way into the food chain and affected the milk supply. If the egg laying birds are affected then that would lead to a spike in prices because the only way to deal with bird flu in animals is by culling the flocks. In the past 6 months CALM had to halt production twice due to bird flu culling close to 1.9 million chickens.
Beef is the second most important animal protein and it’s suffering from droughts, floods, inflation, man made climate change which has driven excessive GreenHouse Gas Emissions, and stormwater run off pollution problems. Add to this the recent record Texas Panhandle fires, which wiped out over 1.1 Million acres of cattle grazing grass lands in just days. The Cattle and dairy industries are in crisis.
The time honored concept of investing in the pick and shovel makers instead of the miners is a better way to approach the protein trade. Investing in the suppliers to these feedlots is a great idea, but unfortunately there is little to no money in it unless of course they have a disruptive product.
The biggest input into beef is the cost of feed. It is estimated that 80% of the cost of production is spent feeding the animal. The only problem with the feed business is that it is extremely commoditized and dominated by big players like Archer-Daniels-Midland (NYSE: ADM) which rose with the price of food and has fallen back down as prices have subsided. Most of the feed sellers are large privately held companies like Cargill, Land O’Lakes, and Perdue Farms.
Ingredion (NYSE: IGNR) has more of a value add in that they focus more on the digestive health of animals in terms of nutrient absorption. Only 11% of their revenues are feed based sales so it's not a pure play on feed which is actually a good thing considering the margins. Their focus is on selling food ingredients like high fructose corn syrup, the one ingredient we can't seem to part with and many other core ingredients that use corn, potato, rice, wheat, sugar, and fruits in their formulation. They have a solid balance sheet, growth in the mid teams and have effectively managed their commodity costs with their hedging program.
Zoetis (NYSE: ZTS) is another one of the specialty players in the protein play but they address animal health in a different way. Their products cater to both pets and livestock. They are all about preventing, detecting, and treating animal illness. While they are well known for their pet business with drugs for cancer and heart failure, they also have antibiotics, anesthetics, and a number of other products for hospital use.
In the livestock business they have DNA and blood tests that cattle ranchers use to not only help them select the healthiest animals but to also maintain their health. They also have a number of vaccines to prevent disease as well as a number of antibiotics to treat disease. Another interesting stat is that 75% of all cattle were treated with antibiotics. That is a big business and ZTS is the leader. For dairy producers they have a number of tests related to the genetic lactation potential of the cows. They also have a number of vaccines and have developed a device they sell that injects vaccines while in the egg. This same tech is used by large scale vaccine makers that use the egg based vaccines for influenza. It’s the razor razor blade model. They are also working on a Bird Flu vaccine for chickens which could come to market soon as the cost of culling tens of millions of birds annually is not sustainable.
Impact Fusion International (OTCMKTS: IFUS) is a cattle feed technology company that just started selling a new, proven cattle feed, made in part from agricultural waste fiber. They take bagasse which is the byproduct of sugarcane production and enhance it with their proprietary mixture Nutri-Mastic(™) making the feed extremely digestible for cattle. There is way more to the tech than simply mixing two things together because there is the proprietary process method, the machines, and also the packaging that enables the feed to be compressed into shelf stable for long term storage, bricks thereby aiding transportation. They have a chance to completely disrupt the feed business dominated by the $30 billion giant ADM because they can reduce feed costs by 85% while increasing milk and beef production at no added cost.
Scientists have known for decades that cattle’s high fiber diet isn’t easy to digest and leads to poor nutrition evident in the methane laden cow patties and the need for supplements but “finding an affordable and nutritious additive has proved difficult.” In 2019 UC Davis researchers found out that a new diet of seaweed showed a 60% reduction in greenhouse gasses. The problem was procuring a stable supply of this wild seaweed wasn’t sustainable. Many are unaware that cows belch methane when they eat and it’s a result of their inability to break down the grasses and extract the nutrients without fermentation. Researchers estimate that 2% of greenhouse gasses emanate from the cows belching methane. This video shows how they measured it.
The amount of methane a cow produces is directly linked to their diet and overall health. For example, cows fed corn and grains produce ⅓ the greenhouse gasses and make weight much faster but they are missing the essential nutrients from the grasses and this takes a toll on their overall health and necessitates the need for antibiotics. Antibiotics aren’t cheap but necessary in the current paradigm. In the end the cow patty tells the tale.
Analysis of the cow manure tells the rancher if their cows are getting the proper nutrition. It's a proven science that ranchers want a grade 3 patty that’s not too hard and not too soft and doesn’t stink and attract a bunch of flies. An interesting aside is that flies can take 10 - 20 pounds off weaning weights as the cows focus on swatting flies instead of eating. The loose and runny cow patty means the cow is sick or is getting too much protein and not enough fiber. The dry firm cow patty indicates the cow is not getting enough nutrients and is eating poor quality forage. The grade 3 patty indicates the diet is just right.
The problem is clearly defined by science but it's also common sense. How hard is it to understand the concept that a healthy animal with good nutrition is going to thrive much better than a sick animal doped up on antibiotics and fattened with corn feed full of fructose which is toxic to the liver. In fact the fructose and ammonia are so toxic, 75% of the beef cattle livers in the US are thrown away, and can not even be used for dog food. Annual losses from the liver abscesses cost the industry $60 million annually. Cattle ranchers need a better feed source that's easily digestible and that will lead to overall healthier cattle that gain weight quicker at a cheaper price. This testimonial video called the sweet by-product sums up the existing problems and the solution for all types of ranchers.
In the big picture, what is so disruptive about the technology is that ranchers can now feed the beef cattle less and actually get more weight gain, in ½ the time. Dairy cows eat less, and produce more and healthier milk. Why? Because the digestive system using SGP+(™) as the majority of the feed, is not wasting energy and feed to make methane gas, and it is not wasting feed out the rear end as toxic ammonia laden manure. Part of the evidence is that there is no odor around cattle eating SGP+(™),and the female flies are no longer attracted to the manure, and the female flies no longer lay eggs in the manure, because they no longer smell a viable food source left in the manure. That means complete healthy digestion took place in the cow patty. Flies cost the US cattle industry $1.5 billion a year. One case study had feed costs of $3.00/ head / day and then put the herd on Supreme Gold Plus (SGP+™) at a cost of $0.60/ head / day. Put another way cattle ranchers can reduce their feed costs by up to 85% and benefit from the faster, extra weight gain, while reducing methane gas and the need for antibiotics.
Investment Summary
The protein play is a niche play within the overall GLP-1 trade. It is gaining traction as investors start realizing that Ozempic face is a real condition that can be treated with greater protein intake versus costly plastic surgery. Just look back to the snack trade that got crushed as GLP-1 gained in popularity. The opposite effect is pushing the protein trade stocks higher. INGR has some exposure to protein, but is more of a play that is tied to the investment concept that our love affair with foods made with high fructose corn syrup is not over. As awareness increases of the impending protein deficiency, TSN is the pure play protein trade to be in because they are vertically integrated from feed to the table and diversified amongst beef, pork, and poultry. This is not without risk, because Bird Flu continues to escalate and culling livestock to control the outbreaks is not sustainable. This is why ZTS benefits from the overall trend in the need to treat livestock (source of protein) and they are furthest along with a vaccine to treat H5N1. They could win either way, if Bird Flu worsens they are in pole position to vaccinate livestock or they benefit from the increased herd sizes to meet the increased demand for protein.
Sitting in the middle of the protein trade is IFUS with its disruptive technology. Their feed is a gamechanger in the beef and dairy industry that enables ranchers to spend less and get more productivity in less time. IFUS is taking a waste product (bagasse) from the sugarcane industry and repurposing it as the base of a super feed for cattle that makes ranchers a bunch of money and helps control greenhouse gasses to boot. Sales and shipments have just started so as rancher adoption increases and ranchers see how SGP+™ impacts their bottom line it’s not hard to envision them capitalizing on the fact that IFUS is a publicly held company with a 50% float, tiny market cap, and disrupting the $31 billion market cap competitor ADM. They understand it's just a matter of time before one of the big feed suppliers that have been in business for 80+ years will need to possess this new technology. The recent news and interest from India, which represents the largest cattle feed market on earth, suggests that the overseas market may be developing faster than the domestic market. IFUS is one to keep on the radar screen and probably has the best alpha of any of the leading protein trade stocks.
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Disclosure: Insider Financial and its owners do not have a position in the stocks posted and have posted this article for free without editorial input. A guest contributor wrote this article and solely reflects his opinions.
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