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Shrinkflation, upset shoppers, and excessive meat sticks

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Shrinkflation, upset shoppers, and excessive meat sticks


This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:

The investor appetite for big food stocks is as thin as I was back in the mid-1980s.

Note in that time period I was about five years old.

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“From a generalist investor standpoint, I would say it has been pretty quiet [around packaged food names]. Your typical kind of institutional money has been quieter in the space,” youthful, energetic packaged food analyst at Bank of America Peter Galbo said on Yahoo Finance’s Opening Bid podcast (video above; listen below).

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The way Galbo explained it to me, investors are in search of faster-growth stocks ahead of a prolonged stretch of Fed rate cuts. Think of the desire to devour Nvidia (NVDA) shares on any dip, as opposed to eating up General Mills (GIS) on a pullback.

You can easily see that in some Yahoo Finance-sourced data.

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Nvidia’s stock is up a sizzling 168% year to date. General Mills is only up 10%. PepsiCo (PEP) and Conagra Brands (CAG) are both up roughly 2%. Hormel (HRL) is down 4%.

The S&P 500 (^GSPC) is up 21% this year, the Dow Jones Industrial Average (^DJI) 13%, and the Nasdaq Composite (^IXIC) 20%.

But as I digested (pun intended) my in-depth chat with Galbo, I think there are a few other fundamental reasons that are keeping these companies out of investor shopping baskets (pun also intended).

Your shopping list of explanations:

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  1. The companies are still too big inside an investing world that’s no longer rewarding the conglomerate model. Investors want focused strategies executing at the highest level. For instance, does Conagra Brands need to be selling frozen food and also hawking Slim Jim and Duke’s meat snacks? Should Spam maker Hormel have purchased the Planters nut business from Kraft Heinz (KHC) a few years ago?

  2. The companies want to get even bigger despite investors not rewarding the play! Conagra Brands just purchased the Fatty meat snacks line. The company now has the meat snacks market cornered with Slim Jim, Duke’s, and Fatty. Galbo tells me meat snacks are a growth category in snacking. Fair, but I question why one must own three meat snack brands!

  3. The companies are slow to slim down their slower-growth businesses. Only recently did General Mills sell off its North American yogurt business for $2 billion. Campbell Soup is hunting for a buyer for the Noosa yogurt business it got with its Rao’s business. I didn’t get the sense from Hormel’s latest earnings call it’s going to sell the Planters business amid signs the deal may not be working out as planned.

  4. Consumers are pissed off at Big Food for its pricing strategies and are voicing their views by purchasing less. You saw that in PepsiCo’s volumes this week.

  5. The cumulative effects of four years of inflation continue to pressure so many households. Buying snacks is now a luxury.

  6. Traffic at convenience store stores has really trailed off the past year for economic reasons, but shopping has also shifted to club stores such as Costco (COST). Convenience store channels need to be doing well for a lot of food players to do well.

  7. The Ozempic threat on the long-term health of Big Food earnings power is rising every single day as new users of these drugs enter the market.

Bonus reason: The stocks aren’t valued for the realities listed above. They are still being seen as defensive value plays since the companies sell food.

That’s the wrong way to think about it, I believe — it’s hard to defend Hormel trading at almost 19 times forward earnings, which isn’t too far removed from the S&P 500’s forward multiple around 21 times. An old rule of thumb in investing is that a 15 times forward P/E multiple is on the attractive side (I caution this is not always the case and each company is unique, so don’t use my line as gospel).

Then, there is raw commentary that I would argue is weighing on the sector’s multiples.

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First up: These companies have become political punching bags this election season. Vice President Kamala Harris has vowed to tackle price gouging by Big Food if she wins the White House in November.

Senator Elizabeth Warren has been making the rounds talking about shrinkflation and taking food companies to task for it.

All of this rhetoric doesn’t exactly embolden investors to go search for diamonds in the rough in the food space.

There is also what we are hearing from consumer company executives, which suggests a strong rebound in sales and earnings isn’t guaranteed in 2025.

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“We see that [the] consumer is very challenged, and that the consumer is making a lot of decisions. They’re optimizing their full budget, so they might be cutting on food to pay for their subscriptions, or they might be cutting on food to go to see movies on the weekend. Really, there is a lot of trade-offs they’re making when it comes to food.” PepsiCo chairman and CEO Ramon Laguarta told me this past week moments after earnings hit the wires.

The company trimmed its full-year sales outlook.

This aligns with what Walmart (WMT) CEO Doug McMillon told me last week at the retailer’s Bentonville, Ark., HQ.

“People at lower income levels are always more challenged. They have to make trade-off decisions, and that’s been, I think, more acute since this inflationary cycle on the heels of the pandemic. So, a household income below $100,000 feels pressure in a way that they might not have a few years ago, and you can see that in their behavior. And we are trying to get prices down … some of the more stubborn inflation has been in the prepared foods, dry grocery type, consumable categories, like paper goods, cleaning supplies,” McMillon said.

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I wish Big Food well in regaining the hunger of investors. After all, these companies do feed the planet. It will be tough, however.

Three times each week, I field insight-filled conversations with the biggest names in business and markets on Opening Bid. Find more episodes on our video hub. Watch on your preferred streaming service. Or listen and subscribe on Apple Podcasts, Spotify, or wherever you find your favorite podcasts.

Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on X @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.

Click here for all of the latest retail stock news and events to better inform your investing strategy

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Sam Altman-backed energy stock surges amid AI-driven ‘nuclear power renaissance’

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Sam Altman-backed energy stock surges amid AI-driven 'nuclear power renaissance'


Sam Altman-backed nuclear power company Oklo (OKLO) has boomed on the stock market over the past month as investors look to nuclear energy as the next big AI trade.

Shares in the company, which is designing so-called small modular nuclear reactors (SMRs), have surged nearly 140% over the past month on Big Tech’s growing interest in nuclear power. SMRs are designed to produce cheaper, faster, greener energy than traditional nuclear facilities.

Amazon (AMZN) and Google (GOOG) in mid-October announced substantial investments in SMR projects as they look to balance their climate goals with the growing energy demands of the data centers powering their various AI software. Oracle’s (ORCL) Larry Ellison announced in September that the company intends to build a data center powered by SMRs.

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“A nuclear power renaissance is underway with nuclear increasingly viewed as a solution which solves both the increased need for baseload power and the need to decarbonize,” wrote Craig-Hallum analyst Eric Stine in a recent note to investors. Baseload power refers to the day-to-day energy demand on an electrical grid.

Stine said Google and Amazon’s investments are “truly just the beginning of a multi-decade megatrend.”

Goldman Sachs estimates that global data center power consumption will grow 160% by 2030, driven by demand from artificial intelligence. Meanwhile, separate data from the International Atomic Energy Agency shows nuclear power production in North America potentially doubling by 2050.

Stocks of other firms making similar tech to Oklo’s, such as NuScale (SMƒR) and NANO Nuclear Energy (NNE), also surged following news of Google’s and Amazon’s investments on Oct. 14 and Oct. 16, respectively, before paring gains this week.

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“The opportunity is so massive here in the market that there’s going to be a good number of folks that are successful,” Oklo CEO Jacob DeWitte told Yahoo Finance.

In fact, the SMR market could grow to $300 billion by 2040, according to research cited by Citi analysts.

Oklo went public in May through a merger with a special purpose acquisition company, AltC Acquisition Corp., which Altman co-founded. In addition to Altman, Cathie Wood and Peter Thiel are on its list of investors.

Sam Altman owned a 2.6% stake in the company, according to a regulatory filing in June. He became chair of Oklo in 2024 after serving as its CEO for three years.

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Sam Altman Co-founder and CEO of OpenAI speaks during the Italian Tech Week 2024. (Photo by Stefano Guidi/Getty Images)
Sam Altman, co-founder and CEO of OpenAI as well as chairman of Oklo, speaks during the Italian Tech Week 2024. (Stefano Guidi/Getty Images) · Stefano Guidi via Getty Images

While Oklo was founded in 2013, well ahead of the AI boom, the energy needs of artificial intelligence have been a boon to the firm as it builds its client book, DeWitte said.



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Why This Green Bitcoin Miner Could Be the Next Big AI Infrastructure Stock

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Why This Green Bitcoin Miner Could Be the Next Big AI Infrastructure Stock


The artificial intelligence (AI) revolution is driving unprecedented demand for energy-intensive data centers. The International Energy Agency projects that data centers may account for up to one-third of the anticipated increase in U.S. electricity demand through 2026.

Major tech companies, like Microsoft, Amazon, and Alphabet, are racing to secure clean energy power sources, such as nuclear energy, to meet their mounting energy needs. One under-the-radar company with established renewable infrastructure is uniquely positioned to capitalize on this accelerating trend.

Digital oil rigs mining Bitcoin.
Image source: Getty Images.

TeraWulf (NASDAQ: WULF) operates Bitcoin (CRYPTO: BTC) mining facilities powered by approximately 95% zero-carbon energy sources, primarily hydroelectric power. The company’s revenue surged 130% year over year to $35.6 million in the second quarter of 2024, driven by an 80% increase in operational mining capacity and higher Bitcoin prices.

Moreover, TeraWulf has significantly strengthened its financial position by eliminating its debt ahead of schedule. This clean balance sheet positions TeraWulf to fund its ambitious expansion plans in both cryptocurrency mining and AI infrastructure.

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TeraWulf is leveraging its existing clean energy infrastructure to enter the high-performance computing and AI market. The company has already completed a 2.5 megawatt (MW) proof-of-concept project designed for next-generation graphics processing unit (GPU) technology.

Additionally, construction is underway on a 20 MW colocation facility engineered to support AI workloads. The facility includes advanced features, like liquid cooling and redundant power systems typical of premium data centers. It is scheduled to kick off operations in Q1 2025, according to the company.

TeraWulf recently secured $425 million through a convertible note offering at a reasonable 2.75% interest rate, reflecting strong institutional investor confidence. The company plans to use these funds for strategic acquisitions and the expansion of data center infrastructure to support its AI computing initiatives.

Furthermore, TeraWulf’s board recently authorized a $200 million share repurchase program through December 2025, signaling management’s belief that the stock may be undervalued despite rising approximately 165% year to date.

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WULF Chart
WULF Chart

TeraWulf’s clean energy resources give it a unique edge in the rapidly growing AI infrastructure market. Major tech companies are actively seeking sustainable power sources for their energy-intensive AI operations, making TeraWulf’s zero-carbon data centers particularly attractive.



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Why I’m Loading Up on These 3 High-Dividend ETFs for Passive Income

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Why I'm Loading Up on These 3 High-Dividend ETFs for Passive Income


I want to become financially independent. My core strategy is to grow my passive income so that it will eventually cover my recurring expenses. To reach that goal, I’m taking a multipronged approach that includes investing in dividend stocks, exchange-traded funds (ETFs), and real estate.

I’m loading up on several dividend ETFs to grow my passive income, including JPMorgan Nasdaq Equity Premium ETF (NASDAQ: JEPQ), SPDR Portfolio High Yield Bond ETF (NYSEMKT: SPHY), and iShares Core U.S. Aggregate Bond ETF (NYSEMKT: AGG). Here’s why I like this trio for passive income.

JPMorgan Nasdaq Equity Premium ETF takes a unique approach to generating income. The fund writes out-of-the-money call options on the Nasdaq-100 Index. That strategy generates options premium income each month that the ETF distributes to investors.

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That income has really added up over the past year. The ETF’s dividend yield over the last 12 months is 9.5%. That’s a higher yield than U.S. high-yield junk bonds (7.9%) and the U.S. 10-year Treasury bond (4.4%). However, the payments do ebb and flow based on the options premium income the fund generates, which fluctuates with volatility.

In addition to income, this fund offers price appreciation potential. The ETF also holds a portfolio of stocks the managers select based on data science and fundamental research. The fund’s price rises as that equity portfolio’s value increases. Because of that, the fund offers the best of both worlds: high income and upside potential.

SPDR Portfolio High Yield Bond ETF provides exposure to the high-yield (junk) bond market. These bonds have sub-investment-grade bond ratings because the companies issuing this debt have weaker financial profiles. That puts these bonds at high risk of default.

This fund holds a large basket of these bonds (over 1,900) diversified across sectors, issuers, and maturity. That diversification helps reduce the default risk. If an issuer defaults on its bond, it won’t have a major impact on the ETF. Meanwhile, even if a severe market downturn negatively impacted financially weaker companies, the overall diversification of the fund should help mute the impact on ETF investors.

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Investors get paid well to assume the higher risk profile of these bonds. The fund has a distribution yield currently above 7%. While the monthly distribution payments fluctuate based on interest payments received, the fund offers a relatively steady passive income stream.

The iShares Core U.S. Aggregate Bond ETF focuses on the other side of the bond market: investment-grade bonds. These bonds have a lower risk of defaulting, making them ideal for those seeking a very low-risk income stream.



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Could Buying This Weight Loss Stock Be Like Investing in Novo Nordisk At The Dawn of The GLP-1 Revolution?

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Could Buying This Weight Loss Stock Be Like Investing in Novo Nordisk At The Dawn of The GLP-1 Revolution?


One of the biggest sensations fueling the healthcare space right now is the medication class of glucagon-like peptide-1 (GLP-1) agonists. Even if you aren’t familiar with the term “GLP-1,” you’ve probably heard of Ozempic and Wegovy. Both medications are GLP-1 agonists, used to treat diabetes and obesity, respectively.

These treatments have become blockbuster drugs for their maker, Novo Nordisk, and have helped fuel generous gains for investors in the stock. While Novo Nordisk currently dominates the GLP-1 industry, a number of other players are looking to enter the space.

One leading entrant is Viking Therapeutics (NASDAQ: VKTX). Below, I’ll break down where Viking stands in its pursuit of the weight loss market, and assess whether buying the stock could be like investing in Novo Nordisk at the beginning of the Ozempic revolution.

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Viking has several drug candidates in its pipeline. But the one that investors seem most honed in on is VK2735 — a dual GLP-1 and GIP receptor agonist focused on treating obesity. As a dual agonist, VK2735 could wind up being a more optimal treatment for obesity and diabetes than single-pathway GLP-1 medicines such as Ozempic or Wegovy.

In late October, Viking announced that it will be meeting with the Food and Drug Administration (FDA) during the fourth quarter, about the proper steps and protocols to move VK2735 into a phase 3 clinical trial.

A graphic image of risk and reward balancing each other out
Image source: Getty Images.

Given the information above, you might think buying Viking stock now — prior to phase 3 trials — is a lucrative opportunity. However, there is quite a bit to consider besides anecdotal updates about VK2735.

So far in 2024, shares of Viking have rocketed by a whopping 323% — putting its market cap right around $8.8 billion. Considering that the company doesn’t generate revenue, it’s hard to justify this valuation.

On the bright side, I think Viking is in a pretty solid financial position.

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At the end of the third quarter, it boasted $930 million of cash and equivalents on its balance sheet. Furthermore, the company has spent roughly $105 million in operating expenses through the first nine months of the year. This implies an annual run rate of approximately $140 million in spending on research and development (R&D) and other administrative expenses, suggesting that Viking has ample liquidity to continue funding its operations.

I see Viking Therapeutics as largely a speculative opportunity. While data from its clinical trials so far have been encouraging, there are still plenty of unknowns surrounding the phase 3 study.



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FTX settles lawsuit against the Bybit exchange for $228 million

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FTX settles lawsuit against the Bybit exchange for $228 million


The prices of Bitcoin and other digital assets were significantly lower during the 2022 collapse of FTX compared to current market prices.



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Is SoFi Stock a Buy?

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Is SoFi Stock a Buy?


SoFi Technologies (NASDAQ: SOFI) has done an excellent job expanding its customer base and growing revenue. However, it has contended with sluggish loan growth in the high-interest rate environment, leading to investor skepticism about its short-term prospects. As a result, the stock remains 62% below its all-time high price in 2021.

However, the company has found multiple levers for growth and is seeing encouraging progress in its nonconsumer business. If you’re considering buying SoFi today, here’s what you should know.

In its early days, SoFi focused on helping people refinance their student loan debt. Then in 2020, the pandemic and policies around student loan forbearance forced SoFi to reevaluate its business. One area that helped drive its ongoing growth was personal lending. From 2020 to 2023, SoFi’s personal loan originations grew from $2.6 billion to $13.8 billion.

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The higher-interest rate environment of the past couple of years has been a double-edged sword for SoFi. On one hand, consumers have had to grapple with higher interest rates, which could make it harder for them to pay down their debts.

In the second quarter, SoFi charged off $151.8 million in personal loans, giving it a charge-off ratio of 3.84% on its $15.9 billion personal loan portfolio. This is up from 2.94% one year ago and is one metric that investors have kept a close eye on. Charge-offs have risen across the banking sector over the past couple of years, which many attribute to normalizing conditions rather than systemic weakness across the consumer.

Additionally, SoFi projects that its lending segment revenue will decline 5% to 8% compared to last year. CEO Anthony Noto told investors during the first quarter that the fintech is taking “a more conservative approach in light of macroeconomic uncertainty.”

Conversely, higher interest rates have helped SoFi grow its net interest income significantly. One big reason for this was its 2022 acquisition of Golden Pacific Bancorp, which enabled SoFi to hold deposits and thus, more loans on its books. Since acquiring the bank, its total deposits have grown to nearly $23 billion, thanks to its high-yielding savings accounts offering an annual yield of up to 4.5%.

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Last year, SoFi brought in almost $1.3 billion in net interest income, up over 400% from 2021. This solid growth continued through the first half of this year, with its net interest income increasing 55% to $815 million.



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