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Stock Recommendation - CALM

(July 12, 2004)

Please read our terms and conditions before reading the following information.  Be sure to utilize a hard stop in each trade that you make!

CALM
Cal-Maine Foods is a fully integrated and the nation’s biggest producer of fresh shell eggs – eggs which are sold directly to national and regional supermarket chains primarily in the southwestern, southeastern, mid-western and mid-Atlantic regions.  In addition, the company also produces specialty, patented eggs which are designed to contain no serum cholesterol.  These specialty eggs accounted for approximately 6.1% of sales in the fiscal 2003 year.

This stock has enjoyed a tremendous run during the last 12 months, primarily because of the latest popularity of the Atkins, low carb diet – resulting in the tremendous increase in revenues and net income over the last four quarters.  Even though the author does not believe in the merits of the Atkins diet, it has gained popularity nonetheless, and it continues to do so.  The stock has settled down somewhat in the last few months.  But more importantly, the stock currently has a short interest representing over 100% of the float (and has been over the last six weeks).  My guess is that at some point, there will be a short squeeze on the stock.

Please note that the stock has broken out and maintained above its 50 DMA (not shown) for the last four weeks.  The stock has also been getting support at the 40-week simple moving average.  Relative strength (against the S&P 500) has also been increasing.  My guess is that the stock will try to test its all-time highs at some point in the next few months.  Adventurous traders could buy here and put a stop at around $13 (which is slightly below both the 50 DMA and the 40 WMA).

Relative strength of CALM in the midst of breaking out

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