Stock Market Commentary
I have been a long-time skeptic of Beyond Meat (BYND) but a technical turn of events attracted me to a potential speculative trade in the stock. Combining a positive post-earnings reaction, a confirmed breakout, and today’s push higher above a consolidation period, BYND took on the look of a stock that can run at least through January. BYND may not be THE speculative trade for the next 6 weeks or so, but it will top MY list (unless it invalidates the technical signals). I made the case in the video posted below. For readers, I provided a bulleted summary of the transcript (with an assist from ChatGPT).
Introduction
- I have had a long-standing negative view on Beyond Meat
- My perspective changed given the technical setup
Historical Performance and Speculative Bubble
- BYND was a classically overhyped pandemic play.
- BYND experienced a significant run-up post-IPO, coinciding with speculative market fervor.
- The stock topped quickly but sustained a trading range thanks to an expert press release machine that kept hyping up promise and potential.
- After the trading range gave way, BYND practically plunged straight down.
Technical Analysis
- BYND showed resilience in the last post-earnings reaction
- A key technical indicator is the ability to break out above the 50-day moving average (DMA) and maintain a second higher close.
- The on-going downtrend forced prior 50DMA breakouts into short-lived affairs.
The January Effect
- BYND is a candidate for the ‘January Effect’, where stocks rebound after year-end sell-offs for tax purposes.
- I am encouraged by the current 6% stock increase and the breakout above consolidation.
Peer Comparison
- Beyond Meat’s price-to-sales ratio is probably attractive to long-term investors.
- I compared BYND to Hormel Foods Corporation (HRL) and Campbell Soup Company (CPB) given Beyond Meat’s valuation is approaching that of its peers (as it should).
- There is still a premium in Beyond Meat’s stock, indicating lingering belief in the growth potential.
Short Selling As An Additional Catalyst
- Greedy bears! An extremely high percentage (46%) of Beyond Meat’s float is sold short, which could fuel future price increases as shorts close up shop.
- This extreme short position is a potential additional catalyst for the case on BYND (although not a necessary catalyst).
Managing the Risk of A Speculative Trade in BYND
- I am targeting a rally that fills the post-earnings gap from August.
- I am willing to accumulate shares down to a test of 20DMA support, with a stop-loss below the 50-day moving average.
- This case for a speculative trade is not a recommendation for anyone to do anything. Traders should do their own homework and make their own decisions.
Conclusion
- I want to hear feedback. Does this setup make sense? What is missing?
Full disclosure: long BYND, long HRL
I can give you a long-time “bottom feeder”‘s perspective: I would have bought the confirmation of support on Nov 28, so at about $6.50. My sell target for most of the position would be the 200 DMA, currently around $12, perhaps holding a small fraction (“house money”) to sell at the gap fill at $15.28, with a stop loss at $11.50 if the 200 DMA doesn’t hold.
I agree about the potential of short-covering, but the nervous shorts are assisting (possibly driving) the current breakout, which has driven Price/sales back above the competition’s. I think that provides confidence to the remaining shorts to stubbornly refuse to cover.
P.S. The “A” is Amortization 😉
I never would have bought at that bottom because of the downtrend. Not to mention at $6.50 BYND was still below 50DMA resistance. What I missed for my own rules was the confirmed 50DMA breakout. NOW, the risks of buying are indeed high but that’s why I am prepared to accumulate shares on a pullback to support.
I remembered what the “A” meant after the recording. Not worth going back and doing the whole thing over! 🙂