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When consumer staples aren’t staples anymore, the best international ETFs, and look who has suddenly gone quiet about the markets

Cereal maker Kellogg has been battling weak sales amid growing consumer preference for healthier foods.

TOM STARKWEATHER/BLOOMBERG NEWS

The Simpson's episode when Lisa became a vegetarian includes a brilliant parody highlighting that, while nutrition is a daily concern for everybody, few people want to know the details of how food reaches their home. A sell-off in consumer staples stocks this week spurred by a weak earnings report by General Mills Inc., however, underscores changes in the food industry that might change both lives and portfolio values.

General Mills blamed rising wage and transportation costs for their lower profit guidance, but the struggles in the processed food and beverage industry are much more long term and go far deeper, as The Atlantic feature story Diet Coke's Moment of Panic indicated. General Mills and Kellogg Co. have been hit by steadily falling cereal sales.

The New York Times published The Extraordinary Science of Addictive Junk Food in 2013 and it's still my all-time favourite piece on the industry. The story had details on a clandestine meeting of industry CEOs and executives to address their contribution to the obesity crisis (the good intentions quickly fell apart, according to author Michael Moss).

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The report also contained some alarming nutritional information. Yoplait yoghurt, for instance, was found to have twice as much sugar as marshmallow-enriched Lucky Charms cereal. Prego pasta sauce contained more sugar than Oreo cookies.

The food industry's position is that if sales jump when extra sugar or salt is added to a product, they're just giving people what they want. This is true as far as it goes, but the decline of soda sales and the popularity of organic foods and veganism are just a few of many signals that health-conscious nutrition is a growing trend.

In terms of investing, the simple solution two years ago would have been to buy Whole Foods stock but that company was swallowed by the Amazon.com behemoth. The stocks of remaining organic food providers like Sprouts Farmers Markets and United Natural Foods have performed poorly.

Whole Foods itself was down significantly from its peak share price when acquired, so it's entirely possible that the healthy foods sector is not mature enough for investment. The finance implications here might concern what stocks not to buy, that the food and beverage companies in the consumer staples index are miscategorized, and won't be staples in our diets for long.

-- Scott Barlow, Globe and Mail market strategist

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Stocks to ponder

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Pinnacle Renewable Holdings Inc. (PL-T).  This is a newly listed dividend stock that may appear on the positive breakouts list in the near future once it has more trading history. It's a stock yielding 4 per cent that popped while the market dropped. It was one of the few stocks whose share price increase on Thursday, while the S&P/TSX composite index dropped 275 points or 1.76 per cent. Richmond, B.C.-based Pinnacle is the third largest industrial wood pellet manufacturer worldwide operating seven facilities in western Canada with a new plant under construction. Of note, are its Entwistle facility in Alberta and its Smithers plant in British Columbia. Jennifer Dowty reports.


The Rundown

Rob Carrick's 2018 ETF Buyer's Guide: Best international equity funds

Stick to Canadian companies as an investor and you miss out on what's happening in 97 per cent of the global stock market. Adding U.S. stocks to your Canadian holdings brings you up to 55 per cent of the global market. To access opportunities in the rest of the world, try an exchange-traded fund covering international markets. Or, consider a global equity ETF that covers off the United States and beyond in one convenient package. Both of these fund categories are covered in this fourth instalment of the 2018 Globe and Mail ETF Buyers' Guide.

The week's most oversold and overbought stocks on the TSX

The S&P/TSX Composite fell 1.7 per cent for the trading week ending with Thursday's close, but, despite the magnitude of the decline, there are surprisingly few oversold index stocks this week. The benchmark's Relative Strength Index (RSI) of 40.2 is still above the buy signal of 30, that would indicate is was oversold. The RSI sell signal of 70 is a long way away.

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U.S. stock market cheerleader-in-chief goes quiet in downturn

Investors have long toasted the U.S. stock market boom that emerged from the depths of the 2008 financial crisis, but one of the bull market's most vocal and visible cheerleaders has abruptly fallen silent: the U.S. President. Since his inauguration in January last year, Donald Trump has regularly taken to Twitter to proclaim the gains in U.S. stocks, often appearing to take credit for their rise. But after a violent selloff - prompted by fears of U.S. inflation - wiped over $4 trillion in global stock market capitalization earlier this year, the president's Twitter feed has gone quiet on the subject: the second-longest spell without a tweet about the market since his election.Trump's last tweet on the market came shortly after the shakeout, warning investors they were making a "big mistake" for selling stocks despite "good news" about the economy. The S&P 500 and global stocks have struggled to recover since the rout in early February.

For new investors, these last few weeks have provided a powerful lesson

The tumultuous return of volatility in the last few weeks, accentuated by a sudden, steep drop in stock prices, comes at an interesting time, says Larry Sarbit. He has been rereading The Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb. As you probably have determined, the title gives a strong hint about his topic. And it has direct applicability to recent events in the market. He thinks we can learn a great from his perspective as it pertains to market behaviour.

Top Links

The TSX has been a global laggard. Here's why

Others

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Friday's small-cap stocks to watch

Friday's Insider Report: Companies insiders are buying and selling

Trump trade tripped up by tariff trauma: Here's who's hurting

Here's what the Street is saying about Facebook's crisis response

Stock rout could be just the start of troubles for momentum chasers

Gold just had its best week in nearly two years. Here's why

After $900-billion stock rout, Here's what Wall Street is saying

Number Crunchers

Six auto stocks in the driver's seat as NAFTA talks shift gears

Ask Globe Investor

Question: We bought shares of BCE Inc. for our grandchildren and ourselves in DRIP accounts and have had them for years. Is there a simple way to calculate the adjusted cost base (ACB) per share when we sell, rather than having to calculate the four dividends per year for approximately 10 years for each account?

Answer: Calculating the ACB for stocks in a dividend reinvestment plan takes a bit of time, but if you keep all of your records (strongly recommended), it should be relatively painless. The first step is to determine your total cost, which is represented by the sum of a) your initial investment; b) any subsequent optional investments and; c) the total value of dividends reinvested since you joined the DRIP. To calculate your per-share ACB, you would simply divide the total dollar value invested by the number of shares you own. When you sell your shares, you would use the ACB per share to calculate your capital gain. Remember, if you sell only a portion of your shares, the per-share ACB for your remaining share does not change. Need more help? Adjustedcostbase.ca has a handy ACB calculator and a helpful blog post for DRIP users. BCE offers an "ACB Estimator" on its website at bce.ca/ACB/PurchaseBCE.

--John Heinzl


What's up in the days ahead

David Rosenberg will provide us with his top survival tips for investors amid this volatile transition in markets and in the world itself. And what should dividend investors make of this week's volatility? He'll have the answers in Saturday's Globe Investor.

Click here to see the Globe Investor earnings and economic news calendar.

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Compiled by Gillian Livingston

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