AgFeed Industries (Nasdaq: FEED, $9.72), is a Chinese company that sells premixed food for livestock, especially pigs. As the company points out, it makes pre-mix fodder for all stages of a pig’s life, and there’s no doubt that pigs are important in China.
Pork makes up almost two-thirds of the meat consumed in China, which helps to explain why the country raised over 530 million hogs in 2006, compared with only 100 million in the U.S. In 2006, Agfeed’s output amounted to 20,300 metric tons, with pre-mix sales accounting for about 85% of revenues. Pre-mix is an important product because its use can lower the time-to-market for hog raisers from one or two years to a little as five months. And given the situation in China, the quicker the better.
The situation, as you probably know, is that a condition known as “blue ear” has been killing Chinese pigs by the millions, sending the supply down and the price up. So the Chinese government, always eager to keep its people happy, has declared the hog raising industry to be exempt from the flat corporate tax rate of 25% on earnings.
This should be great news for AgFeed, which has been diversifying into the hog raising business itself. So, in addition to its direct sales to large producers and retail sales to small producers via its over 500 stores, AgFeed will be using its own feed (and expertise) to put more pork on Chinese tables.
So what’s the warning? Mostly it’s that much of this information came to me through a message from a stock-touting service, one of those companies that’s paid to pump up a stock’s price, usually so a large holder can dump a bloc on the market at the elevated price. I’ve actually gone through the report and verified all the information in it. So what I’ve written here today is really true.
But I still can’t recommend the stock. First because anyone who buys now will have to endure a big selling campaign should the stock make any progress. The people who paid for the publicity are counting on it. But second, and maybe more important, FEED, the stock, just hasn’t shown the kind of strength that we look for in the stocks we recommend. Good news is nice and a compelling story is always a good thing. But there’s no substitute for a stock that’s advancing strongly with good volume support. And FEED isn’t doing that.
So the right thing to do with FEED is to write it’s name on a sticky note and put it on your computer monitor somewhere to remind yourself to check in on it occasionally. That’s what I’m doing. And if the stock makes a big run, rising above its old high weekly close just above $13.00 on good volume, I’ll take another look. But for now, the stock is all talk and no action.
