High Returns from Low Carbs
01/16/2004 12:00 am EST
The increasing popularity of low-carb/high-protein diets—Atkins, South Beach, and the Zone— is leading to widespread changes in eating habits. Four leading advisors, Jon Markman, Jamie Dlugosch, Jim Collins, and Ian Wyatt offer investment ideas to play this trend. (For more information about these advisors, please click on their photos.)
Jon Markman, in his Stock Tactics Advisor, says, "Micro-cap, MGP Ingredients (MGPI NASDAQ) is an innovative developer of grain-based ingredients to the processed food industry. MGP recently developed two product lines that play into the low-carb theme: W·One is a line of textured wheat proteins for vegetarian and 'meat-analog' products that reportedly offer advantages over rival soy-based products, such as a more neutral flavor and more chewiness. Another is FiberStar 70, a modified wheat starch that acts as a 'fiber enhancer' to help bakeries churn out low-carbohydrate breads. If you decide to add MGP to your investment diet, be very careful as the small float and extremely thin trading volume could make it hard to digest anything more than a small piece at a time." Note: Although the stock has aleady reached Markhman's initial 'swing trade' target, he feels it has the potential to trade up toward $50 later in the year. He suggests using weakness as a entry point.
"Our recommendation for Sanderson Farms (SAFM NASDAQ) has been based on the premise of buying growth at a value price," says Jamie Dlugosch, editor ofThe Rational Investor . "Sanderson is a leading producer, processor, and marketer of fresh and frozen chicken and other food items. Specifically, the attention being paid to high protein diets, organic foods, and safety provide the potential for growth at SAFM. As for valuation, the company is comfortable with analyst expectations of $3.50 in fiscal 2004. That gives the company a valuation of just over 11 times forward earnings. We are comfortable buying up to a price of $45 and our target is $90. News of mad cow disease led to a spike in the price of the stock and this move is indicative of the potential in the poultry market. Indeed, SAFM is the type of stock that can gather momentum in a fairly short amount of time depending on circumstances in the market. We would like to be along for the ride if and when that should happen."
"Cal-Maine Foods (CALM NASDAQ) is engaged in the sale of shell eggs, sold to national and regional supermarket changes," says Jim Collins, editor ofOTC Insight. "They use modern facilities that mechanically gather, clean, grade, and package the eggs. This has generated significant cost savings as well as producing a higher percentage of grade A eggs, which sell at higher prices. Their specialty eggs include Eggoland’s Best, which are patented eggs that are believed to cause no increase in serum cholesterol when eaten as part of a low-fat diet. Their other special egg brand, Farmhouse, are produced by hens that are not caged and are provided with a diet of natural grains. Shell-egg prices are a near record high prices and in the latest quarter the firm reported record earnings of $1.45 on a 58% increase in revenues. Results benefited from increased demand for eggs in high-protein diets made popular by Atkins, and positive publicity about the health benefits of eggs."
"eDiets.com (EDET OTC BB) is a leading provider of on-line diet programs," says Ian Wyatt, editor of Growth Report. "The company charges a flat subscription fee of $5 per week. At the end of the second quarter, the company had 210,000 subscribers paying for its services. The company currently offers its proprietary eDiets Plan, Atkins, and The Zone. The firm has exclusive licensing agreements with Atkins Nutritionals and ZonePerfect Nutrition. These well-known plans are attracting new subscribers to eDiets, due to the strong brand-name recognition associated with these two plans. Sales for the third quarter reached $11.1 million, a 46% increase over the year ago quarter. We believe eDiets.com will deliver a small profit in the fourth quarter, and is well positioned on the forefront of the on-line dieting market. With the company profitable and trading at roughly 2-times sales, we find the stock to be very attractive at current levels. We rate the stock a buy with a target of $8."