Contrarian Value Ideas

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Cal-Maine Foods - >>> Small-cap fund manager tunes out market ‘noise’ in bid to find quality companies


By Philip van Doorn

Feb 18, 2017


http://www.marketwatch.com/story/small-cap-fund-manager-tunes-out-market-noise-in-bid-to-find-quality-companies-2017-02-16?siteid=yhoof2


Cal-Maine Foods, the largest U.S. producer of eggs, is one of three stocks recommended by Aberdeen Asset Management’s Ralph Bassett.

Bassett, who helps manage the $1.7 billion Aberdeen U.S. Small Cap Equity Fund from Philadelphia, shared three of his favorite stocks held by the fund in an interview Feb. 14:

Cal-Maine Foods

Cal-Maine Foods Inc. CALM, is based in Jackson Miss., and has a market value of $1.7 billion. The company calls itself “the largest producer and marketer of shell eggs in the United States.”

Bassett said a drop in egg prices, following the spike brought about by the avian-flu scare in 2015, was hard on the company. Analysts polled by FactSet estimate the company will post a net loss of 56 cents for fiscal 2017, which ends in May. EPS are expected to rise to $2.21 in fiscal 2018 and $2.37 in fiscal 2019.

Bassett likes Cal-Maine’s stock as a long-term investment, because of the difficult barriers for companies wishing to compete in the egg industry. An advantage is that “roughly half their revenue comes from specialty eggs, including liquid eggs, organic eggs, brown eggs, anything that is not a traditional white-shelled egg.” He expects the shift to this product mix to continue.

“So you see tailwinds in place,” he said. “Not only is this consumer-driven, but you see a lot of use by fast-food restaurants.” The rising awareness of consumers of the dangers of too much sugar and carbohydrates and the importance of dietary protein will also help the company, he said.

Shares of Cal-Maine closed at $39.05 on Feb. 14 and traded for 17.7 times the consensus fiscal 2018 EPS estimate of $2.21.

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