Investors think that the only stocks exposed to the business cycle are commodity-based names, basic products, and the like, where profit margins and sales fluctuate between high and low based on the pricing of the underlying product being manufactured and sold. However, this affects other stocks that depend on any single material, such as eggs, and today’s PPI index shows that egg prices have gone nowhere but up.
That means margins will likely expand for stocks that deal with egg sales in the United States and those who support the agricultural inputs needed to stock egg shelves whenever required. That’s why today’s list of stocks becomes of importance for investors to keep track of the profits to be made as egg prices keep going higher so that they can line their portfolios up to the potential upside inherent in the industry and its margins.
To cover different verticals and industries with regards to the rise in egg prices and costs, stocks like Cal-Maine Foods Inc. (NASDAQ: CALM) come to give investors the best way to tap into this rise as the largest egg supplier in the United States, then there is Vital Farms Inc. (NASDAQ: VITL) as a less commercial entity to offer investors the same bullish tailwinds seen in the industry today, and finally Costco Wholesale Co. (NASDAQ: COST) as a value proposition in the consumer staples sector to help consumers fight against these rising costs.
Cal-Maine Stock Still Has Room to Run: What Analysts Are Forecasting Next
When it comes to price action as an indicator, Cal-Maine stock has all the sentiment that investors could ask for, as it trades at its 52-wee high today. However, there is a broader misconception about how Wall Street analysts are looking at this company's future, and this is where savvy investors can start to build their next stock buy.
As the trends in the PPI index show, other dairy products and the agricultural inputs needed to produce them are coming down. This means the margins at these companies might start to contract as well, as there is a limit to how much of these costs can be passed down to consumers.
This is why earnings per share (EPS) are projected to contract by nearly 60% for the next 12 months, a view that might be an exaggeration of the actual state of affairs in Cal-Maine stock today. According to the company’s latest investor presentation, Cal-Maine controls over 85% of the United States egg supply.
This means that it probably doesn’t matter what costs do in the coming quarters; the mere scale and reach of Cal-Maine’s logistics chain is enough to protect the stock’s profit margins. Knowing this, institutional investors like State Street decided to boost their holdings in Cal-Maine stock by 3% as of November 2024, a sign of optimism for the name.
Vital Farms Stock Shows Bullish Signals: Why Momentum Could Keep Building
Spotting these trends came in handy for those at Franklin Resources, institutional buyers who decided it was time to load up on some more Vital Farms stock, even though it already trades at 85% of its 52-week high. As of November 2024, these buyers decided to increase their holdings by 10.2%.
After this allocation, the group’s net position grew to $13 million, a bullish sign of the stock’s future. However, some Wall Street analysts followed the trend; these institutional investors weren’t the only ones willing to express their bullish view of Vital Farms stock.
Those at DA Davidson saw enough reason to reiterate a buy rating for Vital Farms stock, boosting their valuations to $48 a share. To prove these targets right, the stock would need to rally by as much as 23.5% from where it trades today, not to mention a new high for the year on this bullish egg margins theme.
Costco Stock’s Value Proposition: A Key Player During Rising Costs
When the rising cost of eggs inevitably makes it to the shelves, customers will be faced with having to pay more for the products they need, which is an ongoing concern in today’s inflation views. This is where Costco stock and its value proposition of affordability comes into play.
Some will call the stock expensive at a 58.2x price-to-earnings (P/E) ratio; others will understand that the market will always be willing to pay up for the stocks it believes will outperform in the coming months or years, and Costco fits this profile.
By trading at a price-to-book (P/B) ratio of up to 18.6x today, Costco stock calls for a significant premium to the rest of the retail sector’s average 5.5x, keeping this premium valuation, which is justified, going for the stock’s momentum during times of high inflation in some products.
Some of these agents willing to overpay for Costco stock’s future earnings came from Geode Capital Management, an institutional buyer who added 1.7% to its Costco stock holdings, netting their position at $8.4 billion today or 2.1% ownership in the company.