I had seen low commodity prices discussed in this article about #3 chicken company and IPO, Gold Kist (GKIS).
aside: Apparently this Gold Coast IPO wasn't such a great success (for sellers and brokers). And the stock still looks expensive to me.
yahoo.reuters.com
Somewhat confusing to me as you had indicated that chicken prices were so low as to perhaps tank profitability while this article suggests that earnings of producers are being helped by HIGH chicken prices. Perhaps it's a judgment and depends on one's perspective.
My opinion: Because commodity prices might have or do have, such a great affect on profitability of the chicken/egg producers, and that commodity prices fluctuate quite a bit (sometimes), that for small companies in the sector that have to compete with well-capitalized giants like Tyson, investors in the smaller producers might best be served by assuring themselves that a margin of safety exists such that these smaller companies should not have a lot of debt compared to capital. To me, there's a risk with CGLA which sports a d/e of about .9, according to Yahoo. So I remain more attracted to Sanderson Farms (SAFM) with a d/e maybe about .1. (I'm looking at it but I have no position.) SAFM also shows more cash than debt, according to Yahoo, although this might be inorrect because SAFM's just paid a special dividend. Again, jmo, I could be very wrong - there are a lot of other factors that could be more significant in affecting stock price of either company in future. |
