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Geoffrey Rocca
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I am a California licensed attorney and have over six years' experience as an analyst and investor. My focus is on value investing opportunities in the equity and high yield fixed income areas.
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Fructivore Investments
  • Two good reasons to buy Chiquita Brands 0 comments
    Jun 20, 2010 6:47 PM | about stocks: CQB
    Chiquita Brands represents a dramatic value opportunity that was underpriced before the economic crisis in Europe and now it is definitely too cheap to ignore.

    The economic problems in Europe, where Chiquita Brands performs 40% of  its operations, would naturally dampen enthusiasm for the share price. However, Chiquita did reiterate its $100-120 million estimate for next year's earnings during their latest conference call, which at current prices translates to a P/E ratio of 5, although to be fair that projection was . Even if the company misses that estimate by a full 50% an investor at these prices would acquire a kosher 10% return on his or her money.

    This decision was echoed in an interview published by The Wall Street Transcript, where Scott Mushkin, a senior research analyst at Jeffries & Company, concluded that, based on current prices, "you are getting the company for the value of the salads business, and so you're getting the banana business for free right now," and that the euro situation has largely been priced into the company.

    Furthermore, Chiquita has been paying down debt at a fairly rapid rate, as total liabilities shrank $160 million in 2009 and $240 million in 2008, which is acting to improve their interest coverage ratio, which improves their credit rating and cost of borrowing and also enhances the safety of equity holders. They are also benefiting from Europe's liberalizing of their banana tariff scheme.

    And, as a second reason to recommend Chiquita Brands, on June 3rd the company's CEO, Fernando Aguirre, announced that he had acquired 40,905 shares of Chiquita Brands, and the transaction code on the announcement was "P". "P" is what you want to see; it stands for "purchase", as opposed to a grant from the company or some other method of acquisition. "P" means that the CEO purchased the stock with his own money. And as Peter Lynch noted:" here are many reasons why insiders sell, but only one reason insiders buy.”

    Disclosure: Author was long CQB at the time this article was written

    Disclosure: Long CQB
    Stocks: CQB
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