Buy Alert: Cal-Maine Foods (CALM)
TRADE INSTRUCTIONS
Date: September 7, 2016
Name: Cal-Maine Foods
Symbol: CALM
Type: Open
Limit: Buy below $45
TRADE TARGETS
Holding Period: 6 months
Average Return: 11.1%
Annualized Return: 22.3%
Stop Loss Level: $38.00
TRADE RATIONALE
Cal-Maine Foods is the largest egg producer and marketer in the U.S with sales of $1.6 billion in 2015. It sells its eggs to grocery store chains and food distributors including major brands such as Egg-Lands Best, Land O Lakes and Farmhouse. Its largest customer is Wal-Mart, which accounts for 25% of its total revenue.
This alert was triggered by Cal-Maine’s exceptionally strong balance sheet combined with consistent growth in earnings that have increased by more than 200% over the last ten years on a per share basis. Trading at only 12 times forward earnings, the stock appears undervalued compared to its ability to consistently grow earnings over time.
The commercial egg market is rebounding from the Avian flu crisis of 2015, which resulted in over 10% of the domestic poultry population being exterminated to prevent the spread of the virus. That drove egg prices up at the same time demand for eggs was on the rise due to McDonald’s very popular “breakfast all day” promotion, which has been duplicated by many of its competitors. Cal-Maine is ideally positioned to profit from growing demand for egg consumption in the United States.
Stock Talk
R
Is CALM still a buy, or did it get cancelled because it dipped briefly below your stop loss of $38?
Jim Pearce
I’m going to close out that trade if CALM closes below $38, so please hold off on doing anything with it until we see how it ends the day. Thank you.
Janis Bell
For new subscribers, now that it is so low, is it still a good buy, e.g. likely to go up over the next 5 months?
I haven’t seen a sell alert yet.
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Sheila Schaefer
Would you recommend new subscribers still buy this or not, given how close it is to the stop loss price?
Jim Pearce
No, I suspect CALM will close below its stop loss price on the next big down day in the market, at which time I will close it out if it does. I am expecting our Rapid Profits Matrix to generate a new buy alert either late this week or early next based on how close some of the stocks we are following to triggering a buy signal, so I’d prefer you wait for that rather than buy CALM. Thank you.
Janis Bell
IJim, ‘m new to this and don’t understand yet why you would have people sell this stock only a few weeks after recommending it as a 6 month hold.
I joined yesterday and have been looking at the back buy alerts to see what is still below the strike price. After the response above, it seems that you plan to abandon this stock as a non performer?
Jim Pearce
Historically, about 60% of our trades end up having positive results. Of those, very few have rallied from more than a 15% decline to go on to post a positive result. So, the stop loss level is there to limit damage to the overall portfolio from the 40% that will most likely post negative results. Of course, you are free to ignore our sell alerts triggered by the stop loss level at your own peril. However, this type of systematic approach to trading stocks relies heavily on managing probability, so cutting our losses is just as important as letting our winners run.
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Guest User
HELLO JIM
CALM looks like it might be heading back up from todays performance. Would you consider this price a discount for a rally?
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Abhijit D
is CALM still a buy? It has broken Stop Loss.
Jim Pearce
No. We sold it last week after it closed beneath its stop loss level: http://www.investingdaily.com/systematic-wealth/alerts/29150/sell-alert-cal-maine-foods-calm/.
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