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The meat products industry is one place where investors can find not only plenty of protein but some capital gains, too. IBD ranks it No. 5 out of 197 industry groups, based on past six-month performance. It might be easy to dismiss the group’s recent strength as a defensive play in a choppy market, but some of the stocks in the group hitting new highs are demonstrating sharp increases in earnings based on fundamental factors in the industry. Hormel Foods ( HRL ) is one such stock. It has been moving in a tight range since reporting earnings Feb. 16 that were 23% above a year earlier. That report represented a second straight quarter of earnings acceleration. The stock is in its fourth week of building a flat base, although it’s made a big move over the last several years. The company is benefiting from margin expansion driven by low prices of pork, which is its core business and its biggest business segment. It sells bacon, pepperoni and fresh pork into retail and food-service channels. Hormel also owns Skippy peanut butter, Spam lunch meats and Jennie-O turkey. The company broadened its offerings with the 2015 acquisition of Applegate Farms, the No. 1 brand in the natural foods organic space. It has a Composite Rating of 98, making it the No. 2 company in the nine-member industry group. The No. 1 company, with a 99 Composite Rating, is Cal-Maine Foods ( CALM ), the nation’s largest egg producer, which focuses on the southeastern part of the U.S. The Jackson, Miss.-based company sold more than 1 million dozen shell eggs last year, representing about a quarter of total domestic egg consumption. It has 33.7 million layers and 8.4 million pullets (young females) and breeders (males and females used to produce fertile eggs). Last fall, McDonald’s ( MCD ) announced that it was moving toward using more eggs from cage-free chickens. Then it began selling breakfast sandwiches all day. Cal-Maine doesn’t list McDonald’s among its top 10 customers. Walmart ( WMT ) is the biggest customer, representing 26% of sales. However, Cal-Maine is a major seller of eggs produced from cage-free chickens, and McDonald’s is likely to help egg prices stay buoyant. Cal-Maine’s stock appears to be starting on the right side of a late-stage base, although the stock still trades below its 50-day moving average. Tyson Foods ( TSN ) is another strong player in the group, with a 97 Composite Rating. Every week, it produces 35 million chickens, 128,000 head of beef and 401,000 head of pork for a total of 68 million pounds of meat. The company works with more than 11,000 family farms. Tyson has worked hard to separate itself from peers by adding value to its products through strong brands such as Jimmy Dean sausage and Hillshire Farm lunch meat. It’s working on other products, such as marinated and breaded poultry. Tyson gapped out of a flat base with a 54.52 buy point and has advanced more than 20%, giving investors a good spot to take profits. The catalyst for the breakout was an earnings report that beat estimates easily and was 49% above the year-earlier number. Scalper1 News
Scalper1 News