TRADE INSTRUCTIONS

Date: October 17, 2016
Name: Cal-Maine Foods
Symbol: CALM
Type: Close
Limit: Sell at Market 

TRADE RATIONALE

Cal-Maine Foods does one thing, and one thing only: It is the largest wholesale egg producer and marketer in the U.S. So, when egg prices are high it can make a lot of money; but when egg prices drop its profit margins can narrow quickly.

And that’s what happened this year, with wholesale egg prices dropping by more than 50% due to a much higher than anticipated supply of eggs. Similar to what happened with oil prices last year, this is not a demand problem since Americans are still consuming a lot of eggs. But with more than twice as many eggs as last year flooding the market, wholesale prices have dropped accordingly.

So while our Rapid Profits Matrix identified Cal-Maine as a strong company, it was unable to anticipate a macroeconomic event of this magnitude when determining a fair value for the stock. It closed today beneath our $38.00 stop loss price, which is there to protect us from taking too big of a loss in any one holding.

We never like booking a loss, but after thirteen years we’ve learned that it is better to limit downside risk on the trades that don’t work out while letting our winning trades run through their full holding period.