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hey everyone me kevin here so obviously

inflation is like all the rage to talk

about right now everybody is talking

about inflation and in this video i want

to look at something very particular

when it comes to inflation what spawned

this was actually me taking an export of

all of the inflation that we've been

seeing and then comparing that by

sorting the year-over-year inflation

with everything that's been going up

sorted by highest inflation to lowest

inflation and this is what i got right

here this is the chart and you can see

we've got gasoline we got fuel we got

motor oil we got cars and trucks and

kerosene and energy a lot of

things that we kind of expect to go back

down over time right like at commodities

especially energy commodities tend to go

down over time supply shortages and cars

new and used should subside over time

but i mean look at some of these things

they're up anywhere between 30 percent

uh year over year for used cars and

trucks

to uh over 58 for motor oil it's insane

but then i looked at the rest of this

chart and i'm like man

there's

something else going on here look at

this

what is this

uncooked beef roast 26

then we have uncooked beef steaks 24

uncooked beef and veal 24

pork roasts steaks and ribs 22.9

we got lodging thrown in there away from

home but that could be coming out of the

midst of the pandemic where everybody

lowered prices just to fill vacancies so

i don't really expect that to be much of

an issue there but look at that

bacon breakfast sausages beef

veal bacon related products pork meats

and so it got me thinking a little bit

what

what

what is happening

with meat

and i am meat kevin so i figured let's

talk about meat and i did a little bit

of research into meat and together we're

kind of looking at this like

wait a minute

maybe there's something sus going on

there's something sus going on with meat

is there potentially also something sus

going on elsewhere and what does that

tell us about inflation

let's talk about that in this video

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this crazy inflation again

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market okay folks let's look at this

when we started researching meat price

inflation the first thing that we

learned is that there were a lot of

things that potentially hit supply and

demand for meat and that was during

covid

production was shut down at many plants

farmers were left with nowhere to send

their beef so they had to ultimately

cull cattle and other livestock which

means killing them without actually

being able to use the mead and farmers

skilled back their production at the

time in fact production for pork fell

6.9

and so it makes sense if production goes

down then prices move higher right but i

mean

6.7 percent doesn't really explain 24

right like production down six percent

price is up twenty percent that that

didn't didn't really jive with us

we're like okay well well maybe there

are other excuses

okay there were storms that led to

production shutdowns there are you know

fud

uh fears like worries about proposition

12 in california which california is not

only the largest state in the country it

is also the largest pork consumer in the

entire country

and

california has this massive proposition

called an animal welfare law that

starting in january 2022

pork availability and pork prices might

be dramatically affected in california

because

individual cattles and eggs and hen and

pigs and chicken and all this stuff they

have to have enough room to stand and

turn around so it doesn't just affect

pork

but a lot of folks are pointing to pork

prices potentially going up because of

this fear around california's

proposition 12.

and so then then i got to think myself

okay but like again fear over

california's proposition

and maybe temporary production shutdowns

for for me that that doesn't make much

sense there has to be something else

going on and so then we found something

listen to this

a friday white house economics team

report looking at the financial

statements of some of the biggest meat

processing companies in the country

that have somewhere between a 55 to 85

percent market share of all meat in the

country

show that gross profits across all of

these companies

have grown 120

percent

and their net incomes have gone up by

500 percent that's substantial now i

didn't i didn't really believe that

these net incomes and profits have all

gone up this high so i wanted to do a

little bit of a trend myself and

understand okay because you know you

could kind of play the math game a

little bit and go well we're comparing

that quarter backward or whatever so i

wanted to get a little bit of a longer

term trend so i looked at tyson foods

financials and i looked at their net

margin so how much they're actually

bringing to the bottom line

and when i applied a moving average to

the bar chart of their net income take a

look at this folks

their net margin in the last three years

has never been higher

and it is trending

up the line here is the moving average

of a trend up of net income at tyson

foods one of the nation's biggest

food uh and meat producers

that's a big deal

take a look at this this is the simple

linear uh trend line so to speak and

this is where software tells us the

trend line is you just apply that

and uh the spreads spreadsheets are

great tool master using them but anyway

this was really simple i mean i spit

this together in like three minutes

these little charts here because you

just take the data plot it apply the

trend line and boom it's like oh my gosh

net profits are going up but wait a

minute they're blaming

potential issues in california they're

blaming production shutdowns but really

what's happening is these meat companies

are making more money hand over fist and

then they're suggesting that well you

know uh

it's biden's fault uh or it's jerome's

fault yeah prices are going up it sucks

doesn't it

wait a minute that really got me

thinking to myself

if prices for meat are leading uh

companies to be able to raise prices 20

25

isn't it also possible that companies

like

apple nvidia and uh basically any

company end phase etsy amazon you name

it anyone selling anything someone

selling courses online

isn't it possible with a coupon code

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theory

anybody could just raise their prices

under the guise of inflation because

we're seeing inflation which is kind of

us comparing back to

the whole of 2020 but then also all of

these supply chain constraints right

that

because we have inflation we're seeing

companies raise prices simply to fatten

their profit margins

and uh that the inflation we're seeing

right now reported in cpi is really just

sort of this potential lingering effect

of companies going hey uh

we can raise prices we can raise prices

so we are

and now that's not to say that there

isn't actually inflation happening there

is

but when you see

production shortages of like six to

seven percent and maybe prop 12 in

california a big deal and some of these

things that might affect the pricing of

meat by

10 12 13

but all of a sudden meat is actually up

twice as much and profit margins are

skyrocketing at the meat companies you

can't help but wonder if maybe some of

this

inflation is really just an opportunity

for companies to take advantage of more

profit and building up higher profit

margins passing along more

of the cost to consumers than they're

actually incurring thanks to labor or

production shortages and all of a sudden

what you end up with is a company like

tyson meat which has you know forward

compounded annual growth that in some

cases is quite frankly negative but

the growth rate is is not that

phenomenal for them i mean here take a

look at this this is barclays forward

estimate their revenue is expected to

grow at 4.6 on average over the next

four years but their net income is

actually expected to shrink 4.1 percent

over the next uh four years so you start

looking at these numbers like wait a

minute

are these companies just taking

advantage of short-term

inflationary talk to raise prices

increase their margins insulate

themselves in this crazy market and that

we can actually see margin compression

over a lot of these companies that seem

like they're doing really well over the

next

year to two years and really the

companies that we're actually going to

want to invest in are probably companies

that can sustain high margin that is

what happens if all of a sudden the

tyson food margins start going back down

so this trend line these trend lines

start rotating back down

tyson foods valuation probably going to

plummet i mean right now it's selling

for 10 times 20 25 earnings it's seen as

a value play that has turned into a

growth play but if that growth goes away

maybe we could go back to five times

2025 earnings just feels low feels

almost like a value play but then again

we're projecting out four years right

because if you compare to google which

is also selling for like a 10 to 12

times 2025 multiple what would you

rather have would you rather have google

or tyson

well even if you have margin compression

at google you're still going to be

bringing a crap ton of money to the

bottom line

in excess of 20 to the bottom line you

have margin compression at tyson foods

from 6.5 percent down to 2.7 again

you're barely making money

and so to me this is a little bit of a

lesson that

if companies are being opportunistic

about inflation and they're raising

prices the ones whose stocks are

probably going to get hurt the most

going forward are going to be companies

that when this

brief euphoria of inflation and the

opportunity to kind of hide under the

cloak of inflation oh yeah all the costs

went up meanwhile they're just raising

the prices even the costs haven't gone

up uh

that that's going to go away and those

companies are probably at the biggest

risk of in my opinion failing

uh maybe i shouldn't say failing but

having their valuations compress the

most

in 2022 2023 and on so what are

companies that

probably can sustain margin or have that

fat room well in my opinion companies

that could sustain that margin would be

high growth and high margin companies

like apple microsoft google nvidia amd

enfaze you know these are companies with

a lot of room a lot of margin

a lot of i mean look at visa for example

visa they take over 40 cents to the

bottom line of every dollar of income

they make that's really incredible

so these are things to think about

and i think the two-folded bottom line

here and i'll talk a little bit more

about tyson as well in just a moment but

i think the two-folded bottom line here

really is

some companies that have done very very

well in 2021 might not do so well going

forward because they've kind of

hidden under the cloak of inflation to

prop their margins up artificially

that's one

and number two

i think

when

we get compression again when prices

start coming down again and things have

to start getting competitive again as

inventory starts stacking up whether

it's in new cars or used cars or

whatever

or even meat

then we can see prices of some of these

things substantially collapse really

hurting margins and then the companies

that win are not going to be companies

like tyson now don't get me wrong tyson

food has a an 84 price target for

december of 2022 by j.p morgan they

believe there's going to be continued

and extraordinary strength and industry

beef spreads they actually think that

margins will improve in 2022 as

processes become more efficient they

believe that 90 plus percent of the

tyson food staff is vaccinated and they

believe that'll help keep production

lines up and running keeping that

efficiency up the same time you've got

barclays suggesting that they're

expecting better revenues in chicken and

other international segments both

growing at double digits year over year

but they're worried about overall volume

potentially leading to underperformance

in 2022 but they also still have an 89

price target so you've got institutions

looking at this from the limelight of

hey well maybe the growth will keep

going and that's what makes me nervous

is when companies

and people believe that oh well the

growth is just not going to stop it's

just going to keep going

but if prices do all of a sudden start

slowing down or the growth of prices

start slowing down because all of a

sudden we have much more inventory and

there's much more competition between

meats again again between cars or other

products

i think it's companies like tyson that

are going to get hit the hardest and

let's not try to try to bag on tyson i'm

just saying

if you're looking for something to

invest in especially in this dip that

we're feeling right now

probably you still want to look for

those high margin companies

and or high growth companies that

doesn't mean you want to pay a crazy

valuation hey take the discount where

you can get it

but

yeah margin is gonna be critical for

2022 just my opinion and this tyson

thing about them hiding the price

increases uh basically under the guise

of inflation while making a ton more

money was an eye-opener to me that maybe

some of this inflation is just being

created

as an opportunity

anyway thank you so much for watching

this video check out the courses linked

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in fairness i know that sounds kind of

similar but in fairness the prices of my

courses even before we had inflation

always go up because i never want

somebody who buys in to think they got a

worse deal than somebody who bought two

or three or four weeks after them

especially since the content is

perpetually expanding

so

hopefully i can be seen as different

from that but i understand anyway thank

you so much check out those programs

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appreciate y'all and we'll see in the

next one thanks bye