Zacks.com releases the latest Zacks Industry Rank. Stocks featured in this week’s analysis include Dean Foods (NYSE: DF), Potash Corporation of Saskatchewan (NYSE: POT), Sanderson Farms (Nasdaq: SAFM), Smithfield Foods (NYSE: SFD) and Tyson Foods (NYSE: TSN). To see the Zacks Industry Rank and the trend in earnings estimates revisions for more than 200 industry groups, visit http://at.zacks.com/?id=3154.
Zacks Industry Rank Analysis is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.
The continued rise in bond yields on Tuesday was caused in part by concerns about the pace of inflation of China. Prices rose 3.4% last month, driven by an 8.3% increase in food prices. The cost of pork, a staple of Chinese diets, was a primary driver of the inflationary prices.
So what does the price of pork in China (sorry, I did not see any data on the price of tea) have to do with the Zacks Industry Rank? It reflects broader trends within the agricultural sector.
Last week, pork, and beef, producer Smithfield Foods (NYSE: SFD) topped lowered fiscal fourth-quarter profit expectations by two cents with earnings of 35 cents per share. Revenue and earnings growth were held back by hog production results. Although prices per hundredweight were 15% higher, circovirus and higher feed costs had an adverse affect. A shortage of pigs and higher feed costs were also the culprit behind the higher pork prices in China. SFD is a Zacks #3 Rank (“hold”) stock and is classified in Food-Meat Products.
The higher feed prices are not only impacting pig farmers, however. The higher costs are also making it more expensive to operate dairy farms. Dean Foods (NYSE: DF) warned yesterday that “raw milk prices will reach all-time highs by the third quarter”. Making matters worse for the company, DF also is facing an oversupply of organic milk. As such, DF cut its full-year forecast for adjusted earnings to a range of $1.52 to $1.58 per share. The revised guidance comes about a month after CEO Gregg Engles predicted profits would be at the low end of the company’s previous EPS guidance of $1.72 to $1.78 per share. Four brokerage analysts slashed their projections in response to the latest update, causing the full-year consensus estimate to drop 16 cents this week to $1.55 per share. DF is a Zacks #5 Rank (“strong sell”) stock and is classified in Food-Dairy Products.
The upside of higher costs for livestock feed is that it helps to create more demand for fertilizer. During the past 30 days, three analysts have raised their forecasts on Potash Corporation of Saskatchewan (NYSE: POT). The current full-year profit projection of $2.95 per share is seven cents higher than the average forecast of a month ago and 22 cents above the consensus estimate of two months ago. One brokerage analyst did recently trim his forecast, but his revised prediction of $2.99 per share is still four cents above the consensus estimate. POT is a Zacks #1 Rank (“strong buy”) stock and is classified in Fertilizers.
Investors should note that not all meat producers are succumbing to higher feedstock prices. Tyson Foods (NYSE: TSN) has been able to charge more for beef and both TSN and Sanderson Farms (Nasdaq: SAFM) have realized higher poultry prices. Therefore, the issue of higher feedstock costs is directly related to a company’s ability to charge more for their products. Obviously, higher food costs result in inflationary pressures, as is occurring in China.
The interactive Zacks Industry Rank List allows you to see all of the companies, and their Zacks Rank, within more than 200 industries. See the list at http://at.zacks.com/?id=3208.
About Zacks Industry Rank and the Zacks Rank
Zacks Industry Rank is calculated by averaging the Zacks Rank for all covered companies within a given industry. The Zacks Rank is assigned to approximately 4400 stocks and ranges from #1 (“Strong Buy”) to #5 (“Strong Sell”). Both the Zacks Industry Rank and the Zacks Rank are quantitative indicators designed to cover periods of 1-3 months.
Since 1988, the Zacks Rank has proven that "Earnings estimate revisions are the most powerful force impacting stock prices." Since inception in 1988, #1 Rank stocks have generated an average annual return of +31.9%. During the 2000-2002 bear market, Zacks #1 Rank stocks gained +43.8%, while the S&P 500 tumbled -37.6%. Also note that the Zacks Rank system has just as many Strong Sell recommendations (Rank #5) as Strong Buy recommendations (Rank #1). Since 1988, Zacks Rank #5 stocks have underperformed the S&P 500 by 132% annually (+5.1% vs. +11.9%). Thus, the Zacks Rank system allows investors to truly manage portfolio trading effectively.
Zacks "Profit from the Pros" e-mail newsletter offers continuous coverage of the industries and the stocks poised to outperform the market. Subscribe to this free newsletter today by visiting http://at.zacks.com/?id=2564.
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3:1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros by going to http://at.zacks.com/?id=2565.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks Rank performance is the total return (price changes + dividends) of equal weighted portfolios, consisting of those stocks with the indicated Zacks Rank, assuming zero transaction costs. These returns are not the result of a backtest; these are actual returns since 1988. The stocks in the Zacks Rank portfolios were available to Zacks clients before the beginning of each month (monthly rebalancing). Performance results from 1988 through September 2006 are based on a subset of all Zacks Rank stocks that excludes stocks covered by only one analyst and ADR’s.
The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor's. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index.
Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.
