It’s rare for a set of earbuds not made by Apple, Inc. (Nasdaq: AAPL) to cause so much excitement. It’s even more rare for the buzz to be centered around the packaging.
The latest noise-cancelling earbuds from Sony Group Corp. (NYSE: SONY) are winning widespread accolades from tech reviewers, yet its the minimalist, post-consumer packaging that might be a sea change for investors.
Sony changed the rules for consumer electronics companies. Others are certain to follow.
To be fair, Sony is not the first company to delve into the use of planet friendly packaging. IKEA has been using paper products for packaging for several years; however, its products are unintentionally disposable.
The new Sony WF-1000XM4 wireless noise-cancelling headphones are a durable device surrounded by packaging that goes to the next level of sustainability.
The Japanese company developed an original blended material comprised of bamboo, sugarcane fiber and recycled paper. Then, designers meticulously removed every piece of plastic from the packaging. The box, shelf hanger, cushioning and component carriages are all made from paper. The entire package can be recycled.
From PC Mag to the Verge and even Apple Insider, tech reviewers gushed about the amazing sound quality, the solace of the noise cancellation software and the distinctive design that make the new Sony earbuds best in class.
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Then, the same reviewers spent a moment talking about the paper packaging and how other consumer electronics companies such as Apple need to take a page from the Sony packaging playbook.
Never was so much time devoted to throwaway material … and that is exactly the point.
The target market for today’s best electronic gear is savvy about environmental issues. Companies are spending a fortune catering to their values. Institutional investors have noticed.
Morningstar analysts noted in 2020 that $81 billion flowed into sustainable funds globally. Interest in environmental, social and governance — so-called ESG investing — jumped 85% in 2019, up from 71% four years previously.
Bloomberg reported in February that global ESG funds are on track to exceed $53 trillion by 2025, a sum that would comprise a third of all funds under administration.
Fortune 1000 companies all over the globe are scrambling to make their products and packaging greener and more attractive to rising numbers of socially conscious millennials, women and high-income individuals. Cultivating this market and getting the green seal of approval ultimately means a lower cost of capital.
Investors should begin to focus on the multi-billion-dollar opportunity to move from plastic to sustainable paper packaging in consumer electronics.
The best investment play isn’t with Sony, it’s with Amcor Plc (NYSE: AMCR), the leading innovator in sustainable packaging.
Managers at the British company work with food, beverage, healthcare and consumer product companies across the globe to reduce packaging waste while keeping products fresh and safe for transportation.
Its top customers include:
• Mondelez International, Inc. (Nasdaq: MDL);
• Nestlé S.A. (OTCPK: NSRGF);
• Pepsico, Inc. (Nasdaq: PEP);
• The Coca-Cola Co. (NYSE: KO);
• Colgate-Palmolive Co. (NYSE: CL);
• The Proctor & Gamble (NYSE: PG);
• Abbot Labs (NYSE: ABT) and
• GlaxoSmithKline plc (NYSE: GSK).
Strong recurring revenues from its major partners led to $147.3 billion in 2020 sales and about $1.9 billion in profits, increases year over year of 2% and 8%, respectively.
However … the best is yet to come.
Sustainability is now driving every product line, according to the most recent investor presentation. Clients are pushing for eco-friendly packaging to align with consumers’ concerns about packaging waste.
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That’s why the Sony packaging is so important. And then, when you combine it with an exceptionally great product, it’s a total win.
Sustainable packaging has mostly been concentrated in the food, beverage and healthcare sectors. Minimalistic, paper-based materials are rare in consumer electronics where see-through plastic clamshells have become the norm.
The transition represents a big new opportunity for Amcor, and the company has the scale to make a strategic acquisition.
Shares trade at 14.4 times forward earnings and only 1.4 times sales. The market capitalization is a paltry $18 billion even though the return on equity was 18.2% in 2020 and vibrant new markets are being opened.
Longer-term investors should consider using recent weakness as a buying opportunity.
Best wishes,
Jon D. Markman
