What’s Love Got To Do With It?

For What It's Worth -

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Hi there!

Love is in the air, but unfortunately so are mysterious surveillance balloons. Worsening US-China relations put a damper on markets at the start of the week, but artificial intelligence was a bright spot. After Microsoft-backed ChatGPT revealed its potential to disrupt industries and change the way you search, investors have been buying up shares in AI-related companies. China’s search giant Baidu jumped after it announced its own chatbot project. Could this be the latest stock craze and gimmick, like when mere mentions of crypto or marijuana sent prices soaring? We’ll have to wait and see, but it helps to use your own intelligence and be careful during any buying frenzy.

Grammy acceptance speeches are still trending, but two other speeches on Tuesday had investors’ attention. President Biden said he wants to put the brakes on stock buybacks by quadrupling the new 1% tax on them. This practice, which sees companies use profits to repurchase their own shares, is an investor-pleaser, and corporate America spent a record $1.2 trillion on it last year.

But opponents of these payouts believe the money should be invested in employees, physical assets, innovation, and the products and services that drive revenue at these companies. They argue irresponsible buyback spending can sacrifice long-term value and leave firms vulnerable during crises, as we saw with the airline industry. Now, Biden’s proposal is unlikely to be passed in Congress, but it could be a sign of things to come. Experts say companies may raise dividends in such a scenario.

Meanwhile, at The Economic Club of Washington, DC, Fed Chair Powell’s words on easing inflation cheered investors hoping for slower interest rate hikes, but this optimism quickly waned when they remembered that he also said that strong economic data, like January’s job report, would be met with more aggressive tightening than is expected now. Click here to learn how interest rates and inflation are linked.

Finally, our thoughts are with the people of Turkey and Syria this week. If you’re looking to help, The New York Times has assembled a list of charities responding to the tragedy and accepting donations.

Asking for a friend….

We know there is a lot to think about these days, and it can sometimes be a bit overwhelming. To help with those nagging questions and so you have useful resources at your fingertips, here are few links to resources and past stories relevant in these turbulent times:

News you can use

  • The egg shortage making our breakfast and brunch orders pricier than ever has one beneficiary: vegan eggs. Sales of liquid plant-based eggs were up at the end of 2022 as they became cheaper than chicken eggs. The biggest player ran “Plants Don’t Get Flu” ads, and an animal-free egg maker has announced Anne Hathway as an investor. This egg-spensive situation, blamed on inflation and avian influenza, has also sparked interest in backyard chickens and egg smuggling, raised questions about the risks of factory farms, and led to accusations of price gouging.
  • Despite more consumer awareness and regulations, single-use plastic waste rose to a record 139 million tons in 2021, according to the Minderoo Foundation. For investors looking to divest or engage with the biggest contributors, the Australian non-profit has ranked petrochemical companies by waste footprint and emissions. The good news is that the industry seems to be “taking circularity more seriously,” and eight companies, including Dow, have set 2030 targets to use recycled polymer in at least 20% of their production.
  • A district judge has allowed construction to start on the largest lithium mine in North America. Opposed by Native American tribes and environmental activists, Lithium Americas’ Thacker Pass project in Nevada is an example of the dilemmas facing sustainable investors. General Motors has invested $650 million in the mine, which is said to hold enough metal for the production of one million electric vehicles a year. The car maker and Netflix are planning for more EV representation on screen and roped in Will Ferrell for their new Super Bowl commercial.

Investing in love

With five days to go until Valentine’s Day, romantics everywhere are in the final stretch to score a date, land a restaurant reservation, and find the perfect gift to woo that special someone. It appears that the strengthening economy has consumers feeling extra generous this year — the National Retail Federation (NRF) forecasts that consumers will collectively spend $25.9 billion on the holiday in 2023, making it one of the highest spending years on record.

It’s made us think: which companies play a role in sparking and celebrating romance, and how should investors evaluate whether those stocks are a fit for their values and goals? This week, we take a look at the long-term relationship potential of three sectors that might be catching your eye during the month of love.

Chocolate: sweet value for your portfolio

If we asked you to picture a Valentine’s gift, does a heart-shaped box of chocolates come to mind? If so, you’re not alone. Candy is the most gifted item on February 14, according to the NRF survey mentioned above.

A handful of snack food conglomerates dominate the industry, including Hershey, Nestlé, Mondelez International, and Lindt & Sprüngli. Just like grade-schoolers can count on finding at least a few chocolate kisses in their Valentine’s mailbox each year, stockholders count on these companies to produce slow, steady growth and dividend income, like other value stocks. Some experts estimate that sales of cocoa products will grow by about 5% annually in the next several years, reaching $200 billion per year by the end of the 2020s.

However, chocolate also has a dark side, and we don’t mean a bittersweet alternative to milk chocolate. Many cocoa farms rely on child labor for dangerous work, and the industry is a major contributor to deforestation in the Ivory Coast and Ghana. Luckily, many chocolate makers are starting to clean up their supply chains, but others still fall short of high ethical and environmental standards. In addition to looking up a company’s ESG ratings through MSCI, Sustainalytics, and S&P Global, the Chocolate Scorecard can help you to discover which brands are producing chocolate without child labor, poverty, and deforestation.

If you’re craving some chocolate in your portfolio, buying individual stocks of candy makers isn’t your only option. Many exchange-traded funds (ETFs) hold chocolate companies, like the First Trust Nasdaq Food & Beverage ETF and even some ESG-focused funds, such as the Calvert Focused Value Fund and Calvert US Large-Cap Value Responsible Index Fund. Also, the iPath Bloomberg Cocoa Subindex Total Return exchange-traded note (ETN) offers exposure to cocoa futures, but be aware that investing in cocoa as a commodity exposes you to more volatility and credit risk. And be sure that you understand how ETNs differ from ETFs before venturing in.

Jewelry: more than a fashion statement

Unlike chocolate, which is pretty much always in demand, jewelry sales tend to follow economic cycles. Experts point out that people buy more and spend more on jewelry during good times than bad, leading to more stock price volatility.

One thing jewelry does have in common with chocolate (besides being a top Valentine’s gift choice): ethical and environmental red flags. Mining for precious metals and gems can leave a significant negative footprint on the earth and local communities, as Leonardo DiCaprio famously spotlighted in the 2006 movie Blood Diamond.

But we are seeing many jewelry companies clean up their act. McKinsey estimates that by 2025, sustainability-influenced purchases will account for 20% to 30% of all fine-jewelry sales — triple the sustainability-influenced purchases in 2019.

If you want to add some bling to your portfolio, some ESG investors favor stocks in companies that specialize in ethically sourced gems and lab-grown diamonds (which accounted for nearly 10% of all diamond sales in 2022), like Charles & Colvard and Brilliant Earth. Mainstream brands are getting into the lab-grown market as well, including Pandora and Signet Jewelers, which owns brands such as Kay Jewelers, Blue Nile, and Zales.

Major jewelers are expanding sustainable product offerings in other ways, too. For example, Tiffany’s, which is owned by Louis Vuitton Moet Hennessy, launched a recycled gold line. You can find some additional tips for identifying responsible jewelers in our article on sustainable gold.

Dating apps: an investment match?

Love ‘em or hate ‘em, it’s undeniable that apps are now a fixture of the dating scene. As you may have guessed, about half of US adults under the age of 30 have used a dating app or site. So what does the sector’s profile look like from an investor’s perspective?

For starters, analysts forecast continued growth as the rest of Gen Z reaches dating age. Statista projects revenue from online dating will reach $3.01 billion in 2023 and grow 3.23% annually until 2027. And many of the biggest players in the market retain positive analyst ratings, according to Yahoo! Finance.

One of the biggest publicly traded companies in the industry is Match Group, which owns many mainstream apps like Tinder, OkCupid, and Hinge. But the sector has almost countless niche apps catering to different communities. There’s Bumble, known as the “feminist Tinder” because women have to make the first move, and Grindr, which offers a space for the LGBTQ+ community. Spark Networks targets the 40+ demographic and various religious communities with specialized apps like Christian Mingle and Jdate.

Thinking about swiping right on dating app stocks? Regardless of how intimately familiar you may be with an app’s interface, evaluating it from an investor’s perspective requires a different perspective, particularly for value-aligned investors. You may want to look at what the company is doing to promote safe and inclusive communities, as well as to protect user privacy and data security. Also, what is the company doing to minimize the environmental impact of its operations and to foster a diverse, equitable workforce?

Ready to take the plunge?

Investing in love is about more than the warm-and-fuzzies. Like any investment, it’s important to do your research and make sure you’re putting your capital into companies that align with your values and have solid long-term growth potential. But knowing you’re directing your capital toward companies that bring people together and foster romance? That’s the icing on the cake.

Before you go -

For those more interested in the commercials than the game, here are the 2023 Super Bowl ads that have been released so far.

** FWIW team members own shares of LVMH and General Motors.

Want to learn a bit more about the writers behind FWIW? Have an idea you would like us to cover in the future?