Long Seaboard: Growth And Value Beyond Its High Sticker Price

Oct.21.11 | About: Seaboard Corporation (SEB)

When investors see a high sticker price of $2000+ per share, they usually do not tie it to a value stock. However, in the case of Seaboard (NYSEMKT:SEB), its high share price disguises value in the company. Seaboard is an excellent growth and value play that capitalizes on the increase of food demand overseas.

Seaboard is an agricultural conglomerate that owns a variety of food related businesses, but specializes in the production, shipping, and processing of pork. They also have an extensive shipping business outside of farm products. Seaboard is America's largest integrated pork producer. As a result of this, they can exhibit moderate influence the price of the pork bellies market that was recently removed from the COMEX onto the over the counter forward market. Pork is a very popular part of the Chinese diet and demand is growing in Latin America as well. With rising beef prices, consumers in the US and Europe have been switching to more affordable pork. In fact, bacon sales have remained resilient during the global recession and current tough times domestically even though red meat sales have been declining. I think this trend will continue because of pork's relative affordability and the status of bacon as one of America's leading comfort foods.

The Chinese economy is also slowing down, but not to the point where the Chinese people go back to grain based diets. Instead they may substitute beef (which is considered a luxury good) down to pork or duck. In general, trends in global pork consumption and the long term weakening of the US dollar are bode well for the future growth of Seaboard.

Financially, Seaboard is trading at an excellent value. The stock is trading with a P/E ratio of 6.75 and a price to sales ratio at a low 0.49. For a capital intensive shipping company, Seaboard's debt is extremely low at 0.1. Insiders own 74% of the company, so management is well aligned with the interest of shareholders. Seaboard is also operated efficiently with a 20% return of equity and a 17.5% return on investment capital (see 1-year chart to the right).

Overall, I am a long run bull on Seaboard due to its cheap valuation and the growth of pork consumption in emerging economies. Technically, Seaboard looks overbought (along with the market) as a 10% move yesterday has the price hitting a resistance at its 50 day moving average. However, I recommend buying when Seaboard tests it lows below $1800 per share.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.