What, me worry?
By Mark Hulbert, MarketWatch
Last Update: 12:14 AM ET Mar 22, 2006
ANNANDALE, Va. (MarketWatch) -- I was reminded of MAD magazine's famous "What, Me Worry?" line after reviewing what investment newsletters consider the risks to be of avian flu for companies highly dependent on a healthy chicken population.
I was hard-pressed to find much concern or anxiety expressed about any of the companies that are involved in production or sale of products from chickens and other poultry.
I find that noteworthy, given what has happened to chicken consumption in those countries where there has been a major avian flu scare. According to Tuesday's New York Times, for example, "in February, after avian flu was discovered in wild swans, poultry consumption declined 70% in Italy. In France, sales are down 30% since avian flue hit a turkey farm last month. In some areas of India, sales are down 40% since last month's discovery of avian flu in chickens."
And if you believe Michael Leavitt, the secretary of the Department of Health and Human Services, it is "just a matter of time" before avian flu is found in the U.S.
And yet it would not appear as though the stock prices of U.S. poultry companies fully discount the possibility of sales drops of this magnitude. To be sure, the stocks of poultry producers Tyson Foods (TSN :
have on the whole been strong. The Times reports that these three companies sell 45% of the chicken that Tyson Foods, Pilgrim's Pride and Gold Kist produce. McDonald's stock is up more than 10% over the last year, and Wendy's stock has gained over 60%.
I concede that it is dangerous to second-guess the market, since investors collectively reflect far more combined wisdom and insight than any of us can individually bring to bear. So if the market judges avian flu not to be a bigger risk for companies involved in producing or selling poultry, then that judgment ought to be given the benefit of the doubt.
Nevertheless, that doesn't mean we suspend our own judgment of the risks involved. And in the current situation there is at least some reason to believe that the market may systematically be downplaying those risks. For example, a recent survey found that avian flu is tied for ninth place in a ranking of what keeps Americans awake at night, ranking even behind issues such as obesity.
Insofar as you conclude that the market has failed to properly account for the risks of avian flu, you might decide that companies involved with the production and sale of poultry products are attractive short sale candidates. For what it's worth, though, newsletters currently are not recommending the shorting of many of the companies in that industry.
In fact, according to Hulbert Interactive, only one such company is being sold short currently by any of the 190 newsletters the Hulbert Financial Digest monitors. That company is Yum Brands, owner of KFC; last September the newsletter Investors Intelligence recommended that it be sold short. See Hulbert Interactive.
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