Suggested Link: Pilgrim’s Pride – – The Sky is Falling
I’ve previously discussed chicken stocks in general and Pilgrim’s Pride (PPC) and Sanderson Farms (SAFM) in particular. Last Tuesday, the accounting blog 10Q Detective posted on Pilgrim’s Pride:
Pilgrim’s Pride – – The Sky is Falling
Back in January, I suggested that investors interested in chicken stocks look to Sanderson Farms first. My thinking on the matter has not changed. Below, I reprint part of a post from January briefly explaining why you shouldn’t rush off to buy Pilgrim’s Pride, without first taking a good look at Sanderson Farms.
Remember, the following is an excerpt of an old post, the announcement referenced was made in early January:
These stocks may appear cheap, but appearances can be deceiving. It is not a question of if margins will contract; it is a question of when margins will contract. Some value investors will take Pilgrim’s announcement as a buying opportunity. It may be just that.
However, I wouldn’t be buying Pilgrim’s Pride (PPC). When trouble comes, the much smaller, much more conservatively financed Sanderson Farms (SAFM) will be in the stronger position. Sanderson Farms has the better recent record when it comes to earning a good return on capital. On the other side of the scales, Sanderson Farms does trade at a higher price-to-sales ratio than Pilgrim’s Pride. In a business like this, price-to-sales can be an important number, because there is little reason to expect any one company to consistently maintain a wider profit margin than the rest of the industry.
I won’t pretend I understand this industry. I don’t. I won’t pretend I have any clue as to what these firms will earn over the next few years. I don’t. What I do know is that, if I were looking at chicken stocks, I’d start with Sanderson Farms. I suggest you do the same.
Some other bloggers such as Bill of Absolutely No DooDahs have written some very intelligent things about chicken stocks. If any of them are reading this post, I’m sure we would all benefit were they to comment below with the relevant links (hint, hint).