Seeking Alpha
Long/short equity
Profile| Send Message|
( followers)  

The basic Food Fund closed the week up 6% , from $137.32 to $145.66, versus a .5% loss in the DJIA. The average stock in the fund is now performing at a staggering four times the rate of the DJIA. The Dow has risen just 14% from its November lows, while the average price of a "BFF" component is up 56% from its intraday lows. BFF's relative strength is simply "off the charts".

100% gainers: There are four components of the fund which have more than doubled from their recent lows. They are: SFD, JBLU, CKR and GAP.

Best performer versus the weakest: The star of the group is SFD, up a stunning 116% from its lows, while BRID takes the crown as the "weakest " in the group, improving a feeble 5% from its lows. BRID is also the lowest price component of the fund, at $3.90 per share. The fact that BRID has had relatively no bounce could be a good thing, as it provides an opportunity to still acquire the shares at rock bottom prices. (There is also no chance for a correction due to profit taking, since there are no holders with profits to take.)

Reverse stock splits: Management at both BRID and PBY should consider reverse stock splits to improve their stature. When a stock falls below the $5 mark, it becomes more difficult to buy on margin because its value as collateral diminishes. Many mutual funds are also prohibited from purchasing sub $5 shares, thus demand for the stock decreases as potential buyers are eliminated. In the case of Bridgford, a one for ten reverse split might make sense. In this instance, the share price would multiply ten fold, from $3.90 to $39.00 per share, while simultaneously, the share count would shrink from 9.8 million shares to 980,000 shares. This would be a very good thing.

Bottom Line: BFF's drastic comeback certainly reduces some of its appeal from a price standpoint. It is simply not the raging bargain it once was. The fund's PE multiple has risen substantially , while its dividend yield has contracted. Metrics such as price to sales, and price to book have also seen sizeable downward adjustments. The good news is, although you have to pay more, the trend is now clearly positive, and upside momentum is gaining. The old adage "you get what you pay for" quickly comes to mind in this scenario. My prior one year "BFF" target price of $200, seems to be much feasible at this juncture, as only 38% additional appreciation is needed to achieve it. If you consider the fund has already rallied 56% in the last month alone (annualized return of 672%), a 38% rally over the next eleven month period does not seem too far fetched.

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

Source: Basic Food Fund: Providing a Phenomenal Return