Basic Food Fund Still Outperforming the Market

The "BFF" has shown remarkable relative strength. In the last ten sessions, it has appreciated 4.7 % from $131.14 to $137.32 in comparison with the DJIA, falling 2% from 8829 to 8629 within the same time frame. Its two week rate of appreciation, produced an impressive annualized return of 122% .

Component update:

The Grocery sector performed exceptional:

Great Atlantic & Pacific Tea Co. (GAP) rose 24%, Safeway (SWY) added 10% (with help from a UBS analyst upgrade from a hold to a buy) and Supervalu (SVU) appreciated 22%. The "dud" of the group was Winn-Dixie Stores (WINN), rising a paltry 3%.

Food Processors:

Imperial Sugar Co. (IPSU) dropped 12% from $14 to $ 12.30, due to apprehension regarding its fourth quarter results due out Monday after the close. Bridgford Foods (BRID) was unchanged, as its shares saw absolutely no trading activity during the period. The company is slated to report uninspiring fourth quarter results next month. Sara Lee Corp. (SLE) announced it was cutting 700 jobs, in an outsourcing plan. The company also disclosed selling its Direct Store delivery Coffee operations to Farmer Brother's (FARM) for $45 million. ConAgra Foods (CAG) and Tyson Foods (TSN) shares were relatively flat, while Smithfield Foods (SFD) was the star of the group rising more than 51%, aided by an upgrade by Deutsche Securities from a hold to a buy rating.

Quick service restaurants:

CKE Restaurants (CKR) reported third quarter results in line with expectations of 10 cents per share. If it were not for an interest expense adjustment of $4.9 million, associated with a "mark to market" accounting entry, the company would have handily beat expectations by five cents. CKR's gross margin improved 110 basis points from 36.6% to 37.7%% while its SG&A costs were flat at 9.2% of sales. The company was also able to produce a small increase in its Same Store Sales, prompting a Roth Capital analyst to forecast additional Same Store Sales gains in Fiscal 2010. As a result, the analyst set a $18 one year price target. Wall Street had to be impressed, as it marked up the shares 23% within the period.

Pep Boys - Manny, Moe and Jack (PBY) produced dismal third quarter results, resulting in a devastating 24% collapse in its share price. A $20 million shortfall on revenues and a $7 million loss was more than Wall Street could stomach, as the stock was taken behind the wood shed and beaten beyond recognition. This overreaction should provide another favorable buying opportunity.

Steelcase (SCS): The company warned its third quarter results will be below expectations. SCS indicated, instead of earning 18 cents on revenues of $857 million, it would most likely record a small loss, on revenues of $800 million. The company also announced the closing of one plant, the elimination of 600 production jobs and the reduction of 300 white collar positions. These cutbacks are anticipated to save the company $40 million per annum.

JetBlue Airways (JBLU): Although the price of jet fuel continues to plummet, and the company saw Jesup & Lamont initiate research coverage with a buy rating, the shares were relatively flat for the period. Analyst 2009 earning expectations of 71 cents gives JBLU one of the lowest forward multiples in the airline sector, at only seven times earnings.

Bottom line: The portfolio seems to be gaining traction, and additional buying seems warranted, despite the fund already appreciating more than 27% from last month's lows. The trend is your friend, and this defensive set of equities offers a superior return, even in a very shaky overall market.

Disclosure: Long SVU,GAP, WINN, SWY, IPSU, BRID, SLE, CAG, TSN, SFD, JBLU, SCS, PBY, and CKR.

Comments

[delcape:]

I like your style, and your analysis. I too am long on a few of these issues, sometimes wishing I had waited to pull the trigger on some (PBY NOW). My faith & experience along with your philosophy, encourage me to buy more on the "dips". I do, however have some apprehension as to returning to their previous highs. These are such uncertain times.
Thanks for your columns.
Dan

2008 Dec 15 11:42 AM

[Roger Knights:]

Looking on the bright side, PBY's decline creates a sort of double bottom, doesn't it?

2008 Dec 15 11:57 AM

[Mark Krieger:]

I sure hope so......that would be nice, but frankly my confidence has been shaken! Mark


On Dec 15 11:57 AM Roger Knights wrote:

> Looking on the bright side, PBY's decline creates a sort of double
> bottom, doesn't it?

2008 Dec 15 12:21 PM

[Mark Krieger:]

Thanks for the nice words..I appreciate it. mark


On Dec 15 11:42 AM delcape wrote:

> I like your style, and your analysis. I too am long on a few of these
> issues, sometimes wishing I had waited to pull the trigger on some
> (PBY NOW). My faith & experience along with your philosophy,
> encourage me to buy more on the "dips". I do, however have some apprehension
> as to returning to their previous highs. These are such uncertain
> times.
> Thanks for your columns.
> Dan

2008 Dec 15 12:22 PM