Stock Recommendation - CALM
(July 12, 2004)
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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
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).