One of the ways you can make successful short-term profits in the stock market is by trading events. If there is a shutdown in the Suez Canal and ships have to travel the long way around Africa, they make more money. If there is a revival in nuclear power, uranium miners increase in value. If people have to work from home, sales of desktop computers skyrocket…
The list goes on and on. If you get in early, or the trend continues for a long time, if you know where to invest you can make a lot of money.
Knowing where to invest is key. I can’t tell you how many times I’ve got the theme correct only to see some other investment vehicle make a lot of money while the horse I bet on gets crowded into the rail.
That said, certain stocks react to the news more than others. These are called trading stocks.
For example, Generac (GRNC) used to go up every time a hurricane that had been brewing in the South Atlantic looked like it would hit land. Avino Silver and Gold (ASM) always moved farther than other silver stocks when silver became fashionable. Natural gas prices rise when it is cold at the NYMEX.
Much of this has to do with the amount of shares available to be traded. The smaller the float the higher the volatility.
Egg Shortage
According to the USDA in New York, wholesale eggs cost $6.06 a dozen. The Midwest region saw prices around $5.75 and California as high as $8.97 as of Jan. 3. In some places they are out of stock entirely.
This shortage is due to the bird flu and inflation. There are fewer birds and the cost of doing business is up.
USA Today writes:
“The Agricultural Marketing Service said in a report Jan. 3 that grocery stores have seen record-high prices in retail markets across the nation, driven by “significant outbreaks of highly pathogenic avian influenza (HPAI) in commercial table egg layer flocks through December.”
As of Jan. 6, the virus had hit more than 130 million poultry across 50 U.S. states since January 2022, according to the Centers for Disease Control and Prevention. Because of the massive spread, infected birds are being culled across the U.S., sometimes numbering in the millions at a single location.”
They go on:
“The supply of laying hens is diminishing while demand for eggs remains the same,” Dallas-based economist analyst Amy Nixon told USA TODAY. “Unfortunately, cases of H5N1 have been increasing in recent weeks, which means supply will continue to be throttled and prices will rise more.”
The upshot here is that the egg shortage will remain and prices will continue to be high.
Here is how to profit…
There is one company that has a 17% market share in the egg business, the largest in the sector. It goes by the name of Cal-Maine (CALM).
CALM Chart:
As you can see the stock price has doubled this year and the tri-directional indicator shows a bullish uptrend.
According to Yahoo!Finance:
“Cal-Maine Foods, Inc., together with its subsidiaries, engages in the production, grading, packaging, marketing, and distribution of shell eggs and egg products. The company offers specialty eggs, such as nutritionally enhanced, cage-free, organic, free-range, pasture-raised, and brown eggs, as well as conventional eggs under the Egg-Land’s Best, Land O’ Lakes, Farmhouse Eggs, Sunups, Sunny Meadow, and 4-Grain brand names.”
According to CALM’s latest earnings which came out on January 7, 2025
“…net sales were $954.7 million compared with $523.2 million for the same period last year. The higher sales were primarily driven by an increase in the net average selling price of shell eggs as well as an increase in total dozens sold.
“For the second fiscal quarter, we sold 329.8 million dozens shell eggs compared with 288.2 million dozens for the second quarter of fiscal 2024. Sales of conventional eggs totaled 209.6 million dozens, compared with 192.5 million dozens for the prior-year period, an increase of 8.9%. We saw over 25% quarterly growth in our specialty egg volumes as sales totaled 120.2 million dozens sold for the second quarter of fiscal 2025 compared with 95.7 million dozens sold for the prior-year period.
“Net income attributable to Cal-Maine Foods for the second quarter of fiscal 2025 was $219.1 million, or $4.47 per diluted share, compared with $17.0 million, or $0.35 per diluted share, for the second quarter of fiscal 2024.
“Overall, our second quarter farm production costs per dozen were 8.5% lower compared to the prior-year period, primarily due to more favorable commodity pricing for key feed ingredients.”
In other words, the company had a great quarter. The share price “sold the news” and digested the information before ticking higher.”
So costs were down, volume of sales was up and the price was up. What more could you ask for?
As far as valuation goes the company has a p/e of 8, no debt, and $753 million in cash. The market cap is $5.23 billion. Short positions are almost 12% of the float which could get you a short squeeze if egg prices continue higher. The company also pays a 4.18% dividend.
The downside is that agricultural commodities are a fickle sector. Feed prices could go up and egg prices could go down. Eggs could become so scarce that they sell less of them and people turn to cereal or pop-tarts or something.
But right now the company is firing on all cylinders and just put out great earnings. They are undervalued and pay a nice dividend. Cal-Maine is a medium-term buy under $110. Put your stop loss at $94 and look to sell right before the next earnings announcement or above $145.
All the best,
Christian DeHaemer
Outsider Club
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