Question:
Cal-Maine Foods came up in my stock screener. I wanted to get your take on the stock before I did any more research. Seems like eggs would be a bit of a narrow market, but then again, almost every household buys eggs.
Answer:
Cal-Maine Foods, Inc. (NASDAQ: CALM) is the largest producer and distributor of eggs, but does not meet our investment criteria. The company has a flock of 33 million chickens that produce about 75% of its total volume. Outside suppliers account for the remaining 25%.
The problem with having so many chickens is that you have to feed them. Recently, feed costs, such as, corn and grains, have risen substantially and weighed on the company’s results. The company grew revenues 13% last year, but has since watched their earnings sink nearly 40%. Additionally, profit margins have been falling for several years.
That’s about the opposite of what’s been happening for companies in the last few years since the Recession ended. They manage a little bit of revenue growth but considerably higher earnings growth. While you can get human employees to be more efficient, it’s kind of hard to reason with a chicken to get it to lay more eggs.
We recommend avoiding Cal-Maine because its results are at the mercy of food prices and chickens.
Question:
I’ve just bought shares of Vale for international exposure in the BRIC countries. It’s near its low, so I think I bought it at a good price. What do you think of its future?
Answer:
We hope you purchased your shares either within the last few weeks or at the height of the market panic in 2008.
Vale SA ADR (NYSE: VALE) certainly gives you some diverse international exposure. China accounts for about a third of total sales and now represents about half of global steel production. The rest of Asia, Brazil, and Europe each account for roughly 20% of total revenue.
As the world’s largest iron ore miner and second largest producer of nickel, Vale’s results are heavily dependent on iron ore prices and steel demand, since stainless steel production makes up two-thirds of total nickel demand. With sales plummeting 24% last year, 2012 was certainly a tough year for the miner, as growth in steel production slowed to just 1.2%. Fortunately, steel demand should accelerate this year with improving economies.
While Vale does have some exposure to other base metals, like copper, cobalt, gold, as well as fertilizers, including potash, phosphates, and nitrogen, we prefer BHP Billiton Limited (NYSE: BHP). We hold BHP Billiton in our Equity-Income Portfolio, because it’s a larger and more diverse materials company and not so heavily reliant on steel production.
All things considered, Vale should do fine in the future, as long as the economic backdrop holds up.
Question:
I’ve owned shares of Novo Nordisk for a while. It has had its rough patches, but it keeps showing up on my “hot stock” lists. Is this one worth holding on to?
Answer:
Novo Nordisk A/S ADR (NYSE: NVO) should be fine to hold. It’s a major producer of insulin and diabetes-care products, owning 50% of the world’s market share for insulin.
Unfortunately, people are not getting any smaller, which should certainly lead to growth in the sales of insulin and diabetes-related products. Not too mention, a rising middle class in emerging markets should certainly lead to expanding waistlines in the future. We all know expanding waist lines lead to more cases of diabetes and more sales and earnings for Novo Nordisk.
In 2012, the company saw its earnings soar 30% on an 18% jump in revenue. The rough patches you’re probably referring to were regarding setbacks in its development pipeline. The FDA rejected two new drug applications for long-acting insulin treatments named Tresiba and Ryzodeg. Basically, the FDA requested additional cardiovascular data before it could complete its review. Giving Novo investors a little more hope, both drugs are already approved by the European Union, Japan, and Mexico.
It’s a pricey stock, but its prospects are much stronger than most drug-makers.
At Henssler Financial we believe you should Live Ready. If you have questions regarding your stock holdings, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
