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| By Jim Nelson |
While the market continues to pretend like everything is fine, there are some in need of a smoke break or a cold one to relax their nerves.
We’ve previously highlighted how expensive stocks are right now.
Last week, Nilus Mattive showed you how everything except bonds are close to their all-time highs.
This week, he showed you two ways to start hedging before others notice and asset values start to slide. (He will add a third on Monday.)
Even the people making the most out of these inflated asset prices are starting to rumble about a potential bubble:
So, what happens if this is a bubble, and it pops? Will everything collapse?
It’s possible for a short time. But this, of course, wouldn’t be our first popped bubble.
The stocks at the center would fall the hardest and the fastest.
But a certain group of stocks have always weathered downturns better than average — sin stocks.
Think tobacco, alcohol and gambling. Cannabis was the newest addition to this list.
The reason is simple. When the economy hits the skids, people don’t give up their vices.
They may downgrade the brands they buy at the grocery store … eat out less … hold off from buying a new car …
But smokers smoke, drinkers drink and gamblers gamble.
That gives the companies that produce those products and services an incredible “stickiness” when it comes to consumer habits and their top lines.
Well, there may be a new one — coffee.
We’re not going to judge the degree to which something is a sin. Some consider caffeine a bit sinful. But that’s not really what we’re talking about.
Coffee is now acting like a sin stock, even if you may not consider it in the same category.
Take a look at this chart:
That’s the price of coffee since late 2015. Twice this year, it hit its all-time high.
Yet, according to a recent Wall Street Journal article, people aren’t giving it up.
A combination of a bad growing season and tariffs on Brazilian coffee has been to blame for the skyrocketing price.
But people still pay whatever they have to.
Sure, just like tobacco and alcohol, overall trends are down on overall number of users … but not the commitment of current users.
Oh, coffee drinkers aren’t happy. But just like the outrage over previous increases in cigarette and liquor prices, customers stayed.
So, it shouldn’t come as a shock that even with the insane inflation in coffee prices, coffee shops are still packed.
You could certainly play those. Starbucks (SBUX) and Dutch Bros (BROS) are right there for the taking.
But if you really want to add coffee to your list of recession-resistant plays, you should focus on companies that sell the stuff in ground and bean form.
After all, drinkers don’t stop drinking … but they do move away from the bars when money is tight.
Consider digging into companies like J.M. Smucker (SJM) — which distribute brands like Folgers, Dunkin and Café Bustelo … or Keurig Dr Pepper (KDP) — which has a near monopoly on K-Cups pods and many coffee brands besides.
So, if you join Nilus and Bezos — a wildly unlikely pair — and think we could see some turbulence in stock prices, add coffee to your list of safety plays.
Here’s what your experts are looking at right now.
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Have a great weekend!
Jim Nelson
Managing Editor, Weiss Ratings Daily
