Over time, most investors wind up with a few turkeys in their portfolios. And that’s without even trying.
This year, in celebration of Thanksgiving, you might take a look at the investment potential in a few turkeys–as well as cranberries, a Mayflower and even a couple of Pilgrims.
Several publicly traded companies and mutual funds with Turkey Day tie-ins might be worth stuffing into your portfolio, analysts say. A few others, though, might be better left on the table.
You can start by talking turkey or, more generically, major poultry producers in North America. Five public companies produce the majority of the turkey and chicken in the United States: ConAgra (traded on the New York Stock Exchange under ticker symbol CAG), which produces Butterball; Pilgrim’s Pride Corp. (NYSE, CHX); Sanderson Farms, Inc. (Nasdaq, SAND); Sara Lee Corp. (NYSE, SLE), through its Bil-Mar Foods division; and Tyson Foods, Inc. (NYSE, TSN).
The prospects in poultry companies, says one food analyst, are anything but fowl. But that doesn’t mean that turkey is a solid bet.
“I like the poultry companies right now,” said Jonathan Braatz, senior vice president and research analyst at George K. Baum in Kansas City.
Braatz sees the industry on the upswing, fueled by strong poultry prices, but warns that international problems plaguing other industries may also have an impact on the poultry industry. This seems particularly the case with dark meat, which tends to be more of an export product. He cites the recent closing of the Russian market, which is the world’s largest consumer of leg quarters (or dark meat), as putting pressure on prices.
Braatz’s negative views in the poultry industry are reserved mostly for the Thanksgiving Day bird of choice. He’s somewhat down on turkey, citing overproduction in the marketplace, declining prices and the root problem for turkey: its lack of versatility.
“People eat it for Thanksgiving, and that’s it,” Braatz said. “Let’s face it, you don’t see Turkey McNuggets.”
Most poultry companies have figured this out and are focused on chicken. Sanderson and Pilgrim’s Pride don’t do turkey. Sara Lee currently outsources 35 percent of its Bil Mar turkey breast meat production, and Tyson Foods announced at the end of the third quarter 1998 to sell its turkey-producing and -processing operations.
Braatz is concerned about the level of assets Pilgrim’s Pride has in Mexico and their risk exposure, given the current climate in Latin America. He recently moved his recommendation from “buy” to “neutral.” Tyson, too, has international exposure, but is more insulated as a larger, more diversified company, he says.
Sanderson Farms seems best positioned, benefiting from its domestic focus and the current strong poultry industry in the U.S., he says. Sanderson Farms has “significant upside to its earnings,” according to Braatz,””as they assimilate activities and their plants become more efficient.”
Braatz likes Sanderson Farms, based on its prospects and discounted valuation relative to both Tyson and Pilgrim’s Pride.
“We think there is no reason for that level of discount, and that’s why we have a `buy’ (rating) on Sanderson,” said Braatz.
On our side dish of Thanksgiving stocks is Wisconsin Rapids-based Northland Cranberries, Inc. (Nasdaq, CRBY) which claims to be the world’s leading cranberry grower. Northland grows, processes and markets cranberries and cranberry products at 25 properties in Wisconsin and Massachusetts. But it’s the company’s juice business, rather than jelly and sauce, that is the reason for taking a look at Northland Cranberries’ stock.
The cranberry beverage industry is a $730 million annual market category. Northland only competes in the 100 percent juice category, which is only 15 percent of the total. However, Northland holds 70 percent market share in this niche, according to Braatz, who follows Northland among his flock of poultry and processed food stocks.
“I think the key issue (with Northland) is that they have done a tremendous job of building the juice brand, but in the process have awakened a giant: OceanSpray. Both are investing huge dollars in marketing, which likely will make the category grow but also may lead to price discounting and narrower margins,” he says.
Northland Cranberries is also looking to acquisitions to strengthen its juice business, highlighted by a letter of intent signed in August 1998 to purchase the juice division of Seneca Foods Corporation (Nasdaq, SENEA), which has approximately $105 million in annual sales.
Northland Cranberries also stands to benefit from news last month that cranberries are a proven preventive agent against urinary tract infection. The study by Rutgers researchers, published in the New England Journal of Medicine, identified cranberries and blueberries as unique in exhibiting this health benefit characteristic.
Of course, Thanksgiving is more than just turkeys and cranberries. What would a Thanksgiving portfolio be without some Pilgrims and maybe a Mayflower?
In addition to the ironically named Pilgrim’s Pride, the poultry producer that doesn’t sell turkey, you could consider an investment in the Pilgrim America Bank and Thrift mutual fund, which earns a five-star rating from Chicago-based Morningstar, Inc., which rates funds.
Though the fund is down about 14 percent this year, the Pilgrim America Bank and Thrift fund has easily outpaced the S&P 500 index over the past five years, highlighted by a 64 percent return in 1997. Over the past five years, the fund has averaged about 28 percent return, versus approximately 20 pecent for the S&P 500, according to Morningstar.
The results are a bit less stellar at the PBHG Growth Fund, managed by well-known stockpicker Gary Pilgrim. PBHG Growth, which invests primarily in small-company stocks, has trailed the market over the last three years, following a stunning 50 percent return in 1995. Over a five-year period, the fund’s average return was a mere 6.5 percent, Morningstar reports.
Mayflower Cooperative Bank (Nasdaq, MFLR) represents another opportunity for Thanksgiving-style investors, particularly if the Middleboro, Mass., bank gets gobbled up in the near future. Like most small and midsize banks today, Mayflower seems to be a prime acquisition target. In fact, the company received an unsolicited proposal in mid-October to merge with a Rhode Island bank holding company, First Financial Corp. Stay tuned. If they hurry, they can get the deal done in time for the holidays.
Another financial services company that might merit a look is Central Reserve Life Corp., which is a favorite of the Turkey Vulture Fund XIII. Fund manager Rick Osborne tapped the peculiar name for his private, seven-year-old fund as a reminder of his passion as an outdoorsman.
“Sometimes the name hurts you, but nobody forgets it,” he says. Central Reserve (Nasdaq, CRLC) a provider of accident, life and health insurance for small to midsize companies, has seen a recent influx of new management with a solid track record and strong industry experience. Osborne feels the stock is poised for further growth, even beyond the nearly 50 percent runup it has experienced since the start of the year.
