Basic Food Fund Skyrockets

by: Mark Krieger

What a difference a week makes in this fickle market. Last week was doomsday while this week neared euphoria. To say the market is schizoid is an understatement. Since Monday, the “BFF” has climbed at a rate 78% higher than the DJIA‘s advance of 8.2%, making it no longer in jeopardy of falling below its all-important psychological $100 mark as it catapulted a notable 14.6% from $103.14 to $118.20.

It has been a busy week, which is not even in the history books yet - we still have Friday’s trading to look forward to, but Friday likely will be a down day, as profit taking hits. These stocks are simply overbought and in need of a correction.

Component Update

BRID: The snack food producer pulled a rabbit out of its hat by reporting blow out earnings (its best in several quarters) and its stock responded in a big way, recording an all time single day gain. The shares closed up a whopping 66% - I repeat 66%! I have never had a stock exhibit a gain that large. I guess I probably deserved it, as this company has caused me more than my fair share of suffering.

JBLU: the bargain airline made an all time low of $2.81 during Monday’s trading, but has since taken off in a rocket ship fashion, rallying almost 50%, due partially to a Merrill Lynch upgrade.

SFD: The pork producer beat third quarter earnings estimates and issued upbeat guidance for fiscal 2010. Wall Street approved, and SFD’s shares erupted for a 33% gain as shorts scurried to avoid the carnage. The company noted it was able to trim its long term debt by $300 million as well as improve its liquidity to $960 million.

IPSU: The sugar company jumped 40% from its all time low of $5.10. Help came from a Fast Money recommendation as well as a large contract gained by its Mexican CSI joint venture. The new order is expected to increase CSI’s total output 40% from 330,000 tons to 460,000 tons.

PBY: The auto parts retailer gave updated sales guidance for its first quarter. Sales trends for the first five weeks are on pace to show a 12% sequential improvement from 4th quarter operations. The company said gains from its service and commercial business were the catalysts for the uptrend. PBY also announced it had purchased three “service only” facilities to complement its "hub and spoke" business plan. It is also reducing its quarterly cash dividend to 3 cents, a move that will allow it to use its resources for more pressing needs such as increased advertising and debt repurchases. This news bodes well for a strong upward move in PBY's shares.

Grocery stores: SWY, GAP, WINN and SVU were all strong. A sympathy move due to solid earnings results from Kroger (NYSE:KR), as well as better than expected retail sales reports, helped bolster shares.

TSN: JP Morgan upgraded the chicken producer on improving fundamentals. Its analyst, Ken Goldman, cited the drop in feed grain prices as well as an increase in breast prices from $1.25 lb to $1.45 lb in just the last two weeks, as reasons for the upgrade. The analyst also noted the company was able to secure a new $1 billion credit line which will minimize its risk of tripping potential debt covenants.

Other components: Packaged food titans CAG and SLE hardly participated in the week's overall market rally, and both are still trading near their 52 week lows. I am surprised they didn’t participate in the rally more, especially SLE, which was a recipient of Fitch upgrade. The ratings company raised its opinion from stable to positive. CKR and SCS round out the roster by both advancing 27% from their respective Monday lows. It was a good week, but don’t get too used to it, as the market can turn on a dime.

Disclosure: BFF index is composed of: BRID, JBLU, SFD, IPSU, PBY, SWY, GAP, WINN, SVU, TSN, SLE, CAG, CKR and SCS - I am Long all of them.