Beyond Meat’s meteoric rise may not be over.
Shares of the alternative meat company are up nearly 87% this year and about 465% since its 2019 IPO, but Todd Gordon, managing director at Ascent Wealth Partners, said there could be even more runway ahead.
“There’s been reports of a 10% reduction in beef processing nationwide and a 20% reduction in pork processing” in light of the coronavirus-driven economic slowdown, Gordon told CNBC’s “Trading Nation” on Tuesday.
“Beyond Meat is poised to take some of that market share, plus we have a strong technical position,” he said. “In light of Covid-19, we’re seeing a very strong move higher.”
Looking at Beyond Meat’s chart, Gordon noticed the stock has “a pivot point,” or an area around which it’s likely to change course, at about $130 a share.
“You can see there’s a series of support here that was ultimately broken on the move down towards the IPO [prices],” he said. “We’re coming back above, and it seems to be that we’re now using that area as support. So, obviously, that’s the pivot point here, and if we could sustain a move above, we should be able to go back and retest those highs, specifically if those meat processing facilities continue to come offline.”
Beyond Meat hit its all-time high of $239.71 last July. The stock traded almost 4% higher early Wednesday to around $141.20.
“There isn’t the facility and the capacity to process some of the beef, so, that points to an alternate solution like this,” Gordon said, adding that the stocks of Beyond Meat and meat and poultry processor Tyson Foods are developing something of an inverse trading pattern.
“They both fell with the initial reaction to Covid-19, but you can see Beyond Meat moving up as Tyson is really starting to show some resistance here,” Gordon said, referencing the below chart.
“We’re seeing a bit of an inverse correlation,” he said. “Tyson is about a $21 billion market-cap company where Beyond is about an $8 billion. So, there’s a lot more room to go there in terms of capturing market share.”
One way that investors could bet on another leg higher for Beyond Meat is via the options market, Gordon said.
Looking out to the Aug. 21 options, Gordon suggested setting up a call spread by buying a $150 call and selling a $170 call. That represents a bullish bet that Beyond Meat could run by as much as 20%.
“Not looking to swing the bat and make a major home run here, but by buying a $20 call spread out of the money, you’re only paying about $6, which is $600 per spread, which is your max defined risk. Your possible profit, if you hit it perfectly, would be $1,400,” Gordon said at the time of the trade.
If traders lose around 50% of the $600 they paid, “maybe it’s time to move on from the trade and manage that risk,” he said. “You shouldn’t face the full $600 of risk per spread.”
Disclosure: Gordon personally holds shares of and options for Beyond Meat.