Wednesday, January 25, 2006

A few things I'm looking into

I'm not recommending any of the stocks below. This is just a post about a few stocks I'm either looking into or want to look into.
The central theme behind these stocks is that they are all more or less having problems. Pricing issues, rising costs, squeezed margins, etc. So why even spend time on these stocks? Because everyone else is bashing them and I want to see if these problems can be taken care of in the near future.

Another common theme among the stocks is that they all have to do with food. I like this industry because it's somewhat stable in a sense that everyone will continue to keep eating. Are these companies going to grow double digits per year? Maybe, but only through acquisitions and not organic growth.

The first one is ConAgra Foods (CAG).
First of all, I like the chart. This is a packaged food product company that has a ton of products.
The bad thing about this company is that it's balance sheet is not very good looking and its free cash flow can be questioned. The cash flow problem can be detrimental because CAG does have a 5.3% yield.

The next one is Kraft (KFT)
This is a well known brand that has a multitude of products at your local grocery store. Walmart accounts for over 10% of their sales and they are trying to pair back some businesses. They want to sell off some divisions that are not as profitable, while maintaining their market share in the more profitable divisions. This is a fairly major restructuring program, which brings along some risk. Based on the chart, I'm waiting for it to level out a bit. KFT has a 3.2% yield. While they are restructuring they are getting rid of certain businesses and taking on charges. Their margins are getting worse and I would want to see that stabilize and then reverse course. The one thing that I like is that their products have very good brand names.

Who likes chicken? Next up is Sanderson Farms (SAFM).
These companies are getting hammered because of falling chicken prices and worries about the bird flu. I think the bird flu could be a little over-reaction, and this is leading to the falling chicken prices. I seriously doubt chicken companies will go away, and I'm looking forward to a bottoming out in the industry (then I'll start buying).

The last one is Chiquita Brands (CQB)
The name should be familiar to most people. They are going through the same problems as SAFM in terms of product pricing. The prices for bananas and pineapple have been softening and this is causing problems for the company. I think I read that banana prices were starting to rebound. It has a yield of 2.2%

Although I find these companies interesting, I think it will be too risky for me to invest in all of them. They are all generally in the food business and if I bought 100 shares of each, then I would be allocating almost 25% of my net worth into this industry. That might be putting a little too much into food, but some of them might be worth a look if they can over come their problems.

Another blog added: Consumerism Commentary


stockdiva said...

I think that Kraft is your best bet of the ones listed if you're investing for the long term.

Alpha said...

I definitely think Kraft is the safer pick among the ones I listed, but it still has problems. They have an earnings conference call tomorrow and hopefully I'll get a chance to read a transcript.