New Stock Recommendation: FEED

By: ispeculatornew
Date posted: 05.31.2008 (6:57 pm) | Write a Comment  (4 Comments)

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FEED – AgFeed Industries (NASDAQ) – (Closing Price on Friday 5/30/08 – $15.37)

AgFeed Industries is a company that has experienced strong growth over the past year and the company is forecasting even stronger growth in the coming year. The company has given tremendous guidance for 2008 and if the company can meet its numbers the stock price should continue its rapid ascent.

AgFeed operates two integrated business lines in China: premix animal feed and hog production. The company is currently the largest premix feed company in China in terms of revenues and the company distributes its feed through over 700 independently owned chain stores. AgFeed expects to have a total of 1,000 independently owned chain stores by the end of 2008. The company also distributes feed directly to over 600 large commercial hog farms across China.

In addition to its feed business AgFeed has been rapidly expanding its hog production business. The company has acquired quite a few hog farms in the past year and the company raised money through a couple of stock sales in April to acquire even more. AgFeed currently owns controlling interest in 24 commercial hog farms throughout China with annual hog production capacity of 550,000 hogs.

Hog prices are currently trading at multi year highs in China due to lack of supply and rising consumer incomes. AgFeed’s chairman said he anticipates that hog prices will continue to rise throughout the year. This bodes well for AgFeed’s rapidly increasing hog business and its feed business.

AgFeed has given guidance for huge growth in 2008. In February the company said it expects to have revenue of 135 million and EPS between $0.96 and $1.10 in 2008. To put that in perspective the company reported revenue of 36.2 million and diluted EPS of $0.25 in 2007. If the company can make its guidance that means that revenue will increase 272% and EPS will increase at least 284% in 2008. That is ridiculous growth.

The stock price of AgFeed has pulled back after the company reported lackluster Q1 results and a negative Barron’s article was released. However, the stock price is starting to trend back up again and I think now would be a good time to take a position.

I expect AgFeed to post considerably better numbers in Q2 because Q2 will contain the results of 16 additional hog farms that were acquired in April. Also, AgFeed held back sales from five of its hog farms in Q1 in anticipation of rising hog prices in the second quarter.

I expect AgFeed to at least double in price if the company can make its 2008 numbers and I am going to give a buy recommendation at Friday’s closing price.

Disclaimer: I have no position in FEED.

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4 Comments

  1. Comment by Johnny — June 1, 2008 @ 8:05 pm

    Excellent Pick on FEED! Good Timing too! $15 shareprice is excellent entry time. Chart looks good!

    One other item concerning pork prices in China. With all the recent earthquakes going on, many hogs have been killed…(millions), which will further add to the upside in pork prices in the provinces of China.

    FEED will FEED us all imo!

    John

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  3. Comment by Eve — June 4, 2008 @ 11:00 am

    Can’t agree more.

    I have been paying attention to FEED since April. It’s definitely a good company with substantial income.

    I also like other Chinese stocks like GA, ACH,etc.

  4. Comment by joe — June 10, 2008 @ 9:43 pm

    I agree on buying FEED too… here is my take on it
    – the coming Olympics will for sure increase the demand for pork/pig
    – mention before.. the earthquakes have kills lots of pig/pork.. low supplies.
    – LOW Supplies and High Demand.. its obvious..FEED going to make money.
    – my opinion is FEED will have a good earning guidance for next two quarter.
    – as for what price to buy FEED at… NO COMMENT…

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