Keep an Eye on AgFeed
Industries (FEED)
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By: Paul Goodwin
Editor, Cabot China & Emerging
Markets Report
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Published:
Feb 6, 2008
AgFeed
Industries (Nasdaq: FEED, $9.72),
is a Chinese company that sells
premixed food for livestock,
especially pigs. As the company
points out, it makes pre-mix fodder
for all stages of a pig's life, and
there's no doubt that pigs are
important in China.
Pork makes up almost two-thirds of
the meat consumed in China, which
helps to explain why the country
raised over 530 million hogs in
2006, compared with only 100 million
in the U.S. In 2006, Agfeed's output
amounted to 20,300 metric tons, with
pre-mix sales accounting for about
85% of revenues. Pre-mix is an
important product because its use
can lower the time-to-market for hog
raisers from one or two years to a
little as five months. And given the
situation in China, the quicker the
better.
The situation, as you probably know,
is that a condition known as "blue
ear" has been killing Chinese pigs
by the millions, sending the supply
down and the price up. So the
Chinese government, always eager to
keep its people happy, has declared
the hog raising industry to be
exempt from the flat corporate tax
rate of 25% on earnings.
This should be great news for AgFeed,
which has been diversifying into the
hog raising business itself. So, in
addition to its direct sales to
large producers and retail sales to
small producers via its over 500
stores, AgFeed will be using its own
feed (and expertise) to put more
pork on Chinese tables.
So what's the warning? Mostly it's
that much of this information came
to me through a message from a
stock-touting service, one of those
companies that's paid to pump up a
stock's price, usually so a large
holder can dump a bloc on the market
at the elevated price. I've actually
gone through the report and verified
all the information in it. So what
I've written here today is really
true.
But I still can't recommend the
stock. First because anyone who buys
now will have to endure a big
selling campaign should the stock
make any progress. The people who
paid for the publicity are counting
on it. But second, and maybe more
important, FEED, the stock, just
hasn't shown the kind of strength
that we look for in the stocks we
recommend. Good news is nice and a
compelling story is always a good
thing. But there's no substitute for
a stock that's advancing strongly
with good volume support. And FEED
isn't doing that.
So the right thing to do with FEED
is to write it's name on a sticky
note and put it on your computer
monitor somewhere to remind yourself
to check in on it occasionally.
That's what I'm doing. And if the
stock makes a big run, rising above
its old high weekly close just above
$13.00 on good volume, I'll take
another look. But for now, the stock
is all talk and no action.
Paul Goodwin
Editor
Cabot China & Emerging Markets Report
About Paul Goodwin
Paul Goodwin is the Cabot International Investment Specialist and editor of
Cabot China & Emerging Markets Report. A researcher and writer for over
30 years, Paul brings a lifetime of inquiry to the task of figuring out whether
stocks and markets are likely to go up or down.
Prior to joining Cabot, Paul was a senior financial writer for Putnam
Investments, writer and information designer for a consulting design firm,
writer/editor of Trivial Pursuit games for Parker Brothers, professor at the
University of New Hampshire, and a Chinese linguist for the U.S. Army Security
Agency.
He has spoken on emerging markets equities on Bloomberg TV and at the World
Money Show. He holds a B.A. in speech and drama from the University of Arkansas
and M.A. in speech communication from University of Illinois.
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