Even though most of my Basic Food Fund's components are food related and thought to be less prone to the effects of a poor economy, this premise hasn’t exactly held water lately. The BFF has slipped almost 9% from $125.08 to $114.50 since its last update, getting roughed up at almost twice the rate of the DJIA’s loss of 5%. Is it time to bottom fish yet, or is there more carnage around the corner? If the index falls below the magic $100 level, I could really “blow a gasket”, as nothing surprises me anymore, when it comes to this market.
Relying on relative strength to determine whether a stock should be purchased is certainly the ticket these days. Buying high relative strength stocks that are outperforming the market is the path to success. Piggybacking on momentum is a great buying strategy. PBY is the only component in the entire BFF with superior relative strength and should be accumulated, while the others should be avoided until they begin to see an increase in relative strength.
Pep Boys (NYSE:PBY): The auto parts retailer is finally starting to gain some momentum. The shares actually are showing some luster of late—short interest has dropped about 29% from 6.8 million to 5.5 million shares and trading volume has begun to taper off . The stock appears to be undergoing a basing formation, with signs of accumulation taking place. Its relative strength has improved greatly since its Jan 22 low of $2.75, as the shares have managed to accomplish the exact opposite of the markets, rising 14% against the back drop of a 14% selloff in the DJIA-a notable beat of 2800 basis points. The company could be in the process of selling the service side of its business, as this segment has harmed gross profit margins by more than 500 basis points. PBY could use the proceeds to buy back its debt at 50 cents on the dollar as well as purchase back its own shares in the open market.
Imperial Sugar (NASDAQ:IPSU): The sugar producer is in free fall mode. It has closed red, six consecutive days, making new all time lows along the way. Surely these shares are oversold and due at least a “dead cat” bounce, as shorts consider covering to book some profits. The stock could also attract some bottom fishing,as bargain hunters go on the prowl. I am dazed and confused regarding the severity of IPSU’s carnage this past month. I assume Wall Street is simply horrified by IPSU’s legal troubles, and is unable to register the fact that the company’s insurance policies are more than adequate to handle even its worst case scenarios. The cheaper the shares get, the more vulnerable they become to an eventual takeover attempt. I am surprised that either Cargill or ADM have not yet expressed an interest .
JetBlue (NASDAQ:JBLU): The airline sector got decimated last week. JBLU is now only 17% higher than last summer’s lows, when crude was more than three times the price. J.P. Morgan’s downgrade of the sector’s debt brought carnage, but. ironically, the firm maintained its “overweight” opinion on its equity outlook, indicating the sector still looks promising. The analyst explained the firm's lower recommendation on airline debt could turn around later this year, when the airline sales environment stabilizes and expected improvement in credit quality becomes more apparent. As far as I am concerned, JBLU is an absolute “steal” south of $4, but at this juncture, I just don’t have the nerves to hit the buy key.
Tyson Foods (NYSE:TSN) : The poultry processor announced it will receive $100 million from the sale of its Canadian Beef operations to XL Foods. The shares got a nice boost from competitor Sanderson Farm’s better than expected earnings release, as well as news that Pilgrim’s Pride was idling three of its 32 plants. The reduction in processing capacity should have a beneficial impact on prices. "Pilgrim's announcement is a positive for the chicken space," said Farha Aslam, analyst at Stephens Inc. "We remain overweight on both Sanderson Farms and Tyson Foods and would be buyers on this news." This stock is headed back to $10 this week.
Sara Lee (SLE): The stock continued to slide despite the fact Moody’s lifted its outlook from negative to stable. The shares made a new 52 week low and are selling at a very low, nine times estimated earnings. Operating cash flow should benefit from moderating commodity price inflation, lower working capital needs and reduced restructuring charges," the ratings agency said in a statement.
Safeway (NYSE:SWY): The shares took a beating when the company reported its fourth quarter results. Its comparable same store sales gain of only .5% (excluding fuel sales) disappointed investors. CEO Steve Burd was upbeat, "I say this is a great time to be in the food business, because, while not insulated from this [bad economy and low consumer confidence] you would be hard-pressed to find people that can report the kind of earnings increases that we generate in our business." Translation: The selloff was overdone and presents a good buying opportunity.
Bridgeford Foods (NASDAQ:BRID): This dog with fleas has been relegated from sleeping on the bed to the backyard, as it has taken out fresh 52 week lows on virtually no trading volume. The 18% spread between its bid and ask makes the stock very difficult to buy or sell, while the ordeal of owning it has been even worse. I am skeptical that next week’s first quarter results will change anything, but I can only hope. The good news is, the company may finally resume buying back its own shares ,as its “blackout” period will lift two days after its results are released.
Bottom line: I feel like throwing in the towel. I am getting tired of the nonstop , ghastly beatings. My bearishness is reaching all time highs. Could this be a sign of a bottom? Probably, my confidence is so low at this juncture, there is little room left for it to fall. I am not alone, as market sentiment is generating extreme negative readings, just what "market contrarians" dream of. You know what they say, “buy when there is blood in the streets”, but when it happens to be your own blood, it makes it that much harder.