Left Brain Thinking: October 14, 2020

Welcome to Left Brain Thinking, where creative investment ideas meet logical analysis. That's the hallmark of Left Brain Investment Research, where the analysts are looking for growth companies with the potential to double in 2 to 3 years and high-yield bonds with the potential for dramatic price appreciation. Today we're talking about Jorvice. That's the system that helps to power Left Brain Thinking. And we'll put it to work on one specific popular stock right now. Here to talk about it is Brian Drass, the director of research at Left Brain. Brian, great to chat with you.

Chuck, it's great to be with you today.

So Jarvis is a system that you guys have developed that basically says, hey, we're gonna do this rigorous analysis that comes from the rigorous side of our brain, and we'll come up with the creative ideas and we'll put them to the Jarvis test. But explain how Jarvis was developed and what it actually does.

Yeah, Chuck. So Jarvis is what we call our securities evaluation application. And so every week we follow about 1,000 stocks and we put those into Jarvis and it gives us some output, gives us the best performing stocks, bonds, and ETFs for each week. And then that's our starting point for our research process as we try to determine our chosen stocks for each month. We run that screen through Jarvis, and then I put my analyst to work to look through those stocks.

How much of it is art versus science? I talk to lots of money managers, and some of them have systems that they rely on 100%, that they're pure quants. And if you said, what's your favorite stock? They'd say, I don't have one, but my computer tells me I like this. At Left Brain, I know you're using both sides of the brain. This is trying to give you that rigorous analysis, but what's the balance between here's what Jarvis tells us and here's what you guys are thinking as you go through the analysis.

So it's just like what we said, we use Jarvis as a starting point, but really it's what our analysts put out in their reports that's really the most important. So, you know, we have a number of qualitative concepts that we're looking for. How is a company addressing its market? Is its market growing? And those type of inputs, that's what we wanna see from the analyst reports. And at the end of the day, the analyst reports are how we make our decisions.

So let's talk about Jarvis's usefulness during pandemic mode. Obviously, one of the things that's happened during the coronavirus pandemic is that when you are looking at numbers, all the numbers were kind of knocked off kilter, right? You can't make comparisons that are year over year because a year ago we weren't in pandemic mode, and a lot of businesses that are now shut down or working at a greatly diminished state, well, they weren't diminished back then. How does that affect things when you're looking at what Jarvis produces versus what the analysts come up with?

Jarvis is trying to help us find momentum in two different ways. We're looking for a momentum in securities prices, but we're really looking for momentum in business results. And so Jarvis really helps us identify the companies that have great momentum in their business results. And in the context of COVID that's really helped us identify a group of something like 50 to 100 stocks that are really benefiting from the current environment. and then we use that to help me make decisions on which stocks our analysts are gonna cover. And so Jarvis really helps us in that kind of way.

Well, let's then piece it together. What's a stock that keeps coming up on your screens that Jarvis happens to like that you have then sized up? That's kind of the example of how it all comes together.

Let's talk about a stock we've actually covered for the last few months, which is Beyond Meat, ticker BYND. We've liked this stock for a while. We like the markets they're in. We like the growing nature of those markets. But in the last 3 weeks, Beyond Meat has come up on my best performing list for the last 3 weeks running. And so that really tells me there's a lot of momentum on the stock appreciation side, on the securities pricing side that makes us really take a second look at maybe there's— this is the time to add even more exposure to a company like Beyond.

So what are the specific things that the analysts like that add to the picture that Jarvis gives you of the business?

Yeah, that's a great question. So there are a number of things that come up with our analyst reports that really make us excited about Beyond Meat. The first is the product versus the competition. This is a pretty new territory. Beyond Meat makes plant-based meat products like sausage and, and hamburgers and like. What we see is there's 52% brand awareness of Beyond Meat versus 23% in May 2019 when they IPO'd. So there's a huge growth in the marketplace for Beyond Meat. And they've grown their market share by 850 basis points in the last year. And then we also found out that Beyond Meat is sold in so many different outlets, major outlets that consumers shop at all the time: Walmart, Costco, Whole Foods, Kroger, Target. And it's actually in some restaurants now, KFC and Papa John's. So Clearly there's some market penetration going on here. And then we looked at this website called Mashable, which is big among the millennials, and also on CNET and Amazon. The reviews are very high for this product, similar ratings to the competitive product, which is Impossible Burger. But what is really exciting about Beyond is it's a non-GMO product, which is really huge for a lot of the consumers out in the marketplace who are looking for the most natural product available.

Now I'm going to play a little devil's advocate here. Now, left brain, you guys are growth investors, unapologetic growth investors. You're not afraid to buy a stock when it's kind of pricey if the right things work. But if I look at Beyond, which has been smoking hot, if you're looking at price to sales, things along those lines, I would say, wow, we've seen a lot of growth. Do you worry at all that we're too late in the growth trajectory now on a stock like BYND?

Yeah, that's a great question. You know, stepping back a little bit, I think this is where left brain differentiates itself because, you know, a lot of times we'll see a stock that's just ripping and you think, wow, this is the time to take some exposure off. But if you look back at the history of growth stocks, companies like this, they'll grow really strongly for a couple of years. But you know what? They'll actually go for about 10 years. So that's what's really exciting about a company like Beyond Meat, because like we were saying, the brand awareness has grown over almost 300% since May of 2019. The distribution outlets have grown over 200% since that time. And the revenue growth in the first half of this year is 96%, which is just enormous, even compared to the price-to-sales ratio somewhere in the 40s. The thing is, is the market opportunity is huge here. Every year, consumers around the world spend some $1.4 trillion on meat, and Beyond Meat's only, only $400 million in, in the last 12 months of revenue. So there's just an enormous runway for additional penetration in the space. And so we think there's a huge opportunity for future growth despite how quickly the company and the stock price have grown over the past few months.

Do you have a price target we should be aware of?

You know, Chuck, that's a good question, but we don't do price targets at Left Brain, especially with these growth stocks. You gotta leave it open-ended because sometimes the market will correct on the upside, will go far beyond what you expected with a price target. So we don't want to limit ourselves. Like I said, the growth trajectory of this business is potentially explosive for the next 10 years. So it would just be impossible to put a target on it with those inputs.

Brian, thanks so much for letting us understand how JarvisWorks, how it's helping you decide on a stock like Beyond Meat, and for chatting with us. I look forward to talking with you again down the line.

Thank you so much, Chuck, and I look forward to talking to you again soon.

Left Brain Thinking is a joint production of Left Brain Investment Research and MoneyLife with Chuck Jaffe. Our conversations are not personalized investment recommendations but are designed to engage your brain. Please do your diligence before making any financial transactions. I'm Chuck Jaffe, your host, and you can learn more about my weekday podcast at moneylifeshow.com or search for Money Life with Chuck Jaffe on your favorite podcast app. Thanks to my guest, Brian Dress, Director of Research at Left Brain Investment Research. You can learn more about the firm and its services at leftbrainir.com, and they're on Twitter @leftbrainir. Left Brain Thinking is available every Wednesday. Please subscribe on your favorite podcast app and Plan to put your left-brain thinking cap on every week. Until next week, stay safe, everybody.