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What is essential? What is discretionary? What will be consumed, as confused, weak as it is perilous, and what is postponed when times are hard?
We found the answer today and it is surprising that this has a direct impact on trading the entire session. Coca Cola (KO), arguably the most powerful consumer goods company of all time, a provider of something drunk, saw its headwind swing when its CEO was guided by a very disappointing forecast, much worse than expected, citing macroeconomic forces. It was a poignant coda of the December retail sales figures released this morning, an extremely disappointing report, the worst of the past nine years.
Cisco (CSCO), a pioneer in the field of network equipment, has become an indispensable powerhouse in software and hardware, has raised its forecasts, increased its dividend and announced a strong expansion of its gigantic buyout.
What does it mean?
I think that says that digital technology has become essential, no matter how times have been tortured. Companies can fail if they do not stay up to date with the best network possible.
On the other hand, sweet water, the one that Coca-Cola brings to the world of consumption, can be eliminated when times are tough.
I know that sounds weird. We have always thought that the Coca-Cola stock was the ultimate safety vehicle with a solid yield and a fabulous track record, and that Cisco's multi-million dollar network equipment was weighing down when the times came. were difficult and the stock cost a lot. riskier. Therefore, you should not be tempted to buy Cisco shares in uncertain times, when the Fed tightening, a government and a trade war, even with a yield of nearly 3%, are very similar to those of the 3.39 dividend of Coca-Cola.
The market has always paid for the safety of Coca-Cola which, in my opinion, is nowadays illusory. Cisco's stock is sold at a price significantly lower than Coca-Cola's as it sells multi-million dollar equipment that could be removed if companies worried about the evolution of the time.
I would not have believed it if I had not heard it during the two companies' teleconferences.
What was the exact explanation for which Coca-Cola's CEO, James Quincey, cut the company's forecast? "I think we're cautious about macroeconomics and how it's going to be a little weaker than in 2018. He's worried about the currency, the interest rates and the Taxes? Non-alcoholic drinks? Hmm. North America was a little softer, a little more sensitive to the price increases imposed to absorb input costs because of a "little discomfort vis-à-vis to consumers. "I did not know that dropping a 12-pack of Coke Zero, my wife's favorite, could be too prohibitive.In a gloomy moment, I still think that it's a good thing. is a coke and a smile.
What about multimillion dollar hardware, the biggest of the plane tickets, should not it be set aside? But what did Cisco CEO Chuck Robbins tell us about his sales? "It's certainly one of the most complex macro-geopolitical environments we've seen in a while with all the moving parts, but to be honest, from the first to the last day of the quarter we've seen zero difference." Robbins said: "We have seen a very strong demand throughout the quarter and we have seen excellent execution from our teams."
Reflecting on this incredible change in the valuation of companies and therefore their actions, I have drawn several conclusions that can help us earn money at a time that both CEOs recognize are difficult at most. people.
First, packaged consumer goods companies may, in some cases, have their prices too high and a savvy consumer has learned to live without them. Maybe young consumers, Y-generation kids, gen-xs and zs just do not eat the products the way my generation does. Perhaps they would prefer to carry bottles of Nalgene and drink tap water. Maybe they do not think it's worth it, especially when there is no redemptive nutritional value.
The same can be said for so many thousands of articles on the super market that have lost their carrying capacity, taking with them the safety of their actions. Take Conagra (CAG), the maker of Slim Jims, Hunt Tomato Paste, Duncan Hines and Hungry Man. His stock dropped from $ 39 to $ 23 in less than a year. His condiments can be made without. Kellogg (K) missed the quarter. Four dollars for a box of Corn Flakes is no longer enough for these consumers. The Campbell & # 39; s Soup (CPB) stock is a disaster. Last year, tomorrow, it was selling at $ 48, it is now at $ 34. Canned, salted and canned soup does not resonate with this new customer. You can buy the stock of Kraft Heinz (KHC) if you think processed ketchup and cheese will be eaten whatever happens. But where is it, and the dividend now yielding 5%, does it leave you? How about the poor house while the company's shares went from $ 72 a year ago to $ 47 now.
These stocks are about security, yes, security last.
Now let's take a look at what Cisco really does. It allows a company network to securely connect with its employees of all types around the world while integrating with all types of clouds, private and public. A poorly scanned company is a water-dive company, which Cisco customers know well. That's why he can increase his dividend and increase his forecasts. That's why it has a pricing power allowing it to charge more for its machines because it's impossible to get by without them.
We see this new essential essential commodity all over the place these days. Companies that want to sell something to customers can not do it so effectively without Salesforce software (CRM). Want to manage a complex bank? What happens if someone hackers your most sensitive inner shrine, where the keys to the kingdom exist. You have to pay for the protection, the protection offered by Cyberark Software (CYBR), hence the value of its action that climbed $ 17 to reach a record level of stellar income. Do you want to rationalize your human resources or financial teams? You need Workday (WDAY). This becomes indispensable, as Service Now (NOW) for the management of information technologies. Try to design a true Interactive Web Commerce System without Adobe (ADBE). It's very difficult to do.
It is now very difficult to imagine the consequences of these changes because it is quite obvious that we are paying too much for consumer products stocks if they are really sensitive to the economy. You may have to avoid the vast majority who have not kept up.
But companies with complex hardware and software solutions that empower modern businesses? If society has pricing power and the smartest people in the world to write the best code? We have to pay a premium for them. They are rare and vital.
There will always be outliers. I think that Clorox (CLX) and Procter & Gamble (PG), which publishes a report tomorrow, have been able to cope with price increases and I think that tomorrow PepsiCo (PEP) might be less price sensitive. But do not forget the message today: old – fashioned security can be illusory. Security in new times is essential for both the business and perhaps for your wallet.
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