Stock Watch - CALM
(August 1, 2004)
We covered Cal-Maine Foods in our last stock watch commentary,
and I would like to cover the company again – mainly because of the lopsided
supply/demand situation that we are now witnessing in the company’s shares. Just a little back of background first, though: The company announced very good earnings
on the morning of July 12th – immediately after our commentary
was published. The stock proceeded to gap up nearly two dollars, making
a high of $16.44 before closing at $15.62. My readers did not get a chance
to buy CALM before the report but in retrospect, it was a blessing because the
next few days of action was dismal – after that one-day wonder, CALM declined
for five consecutive trading days – closing at $11.77 on July 19th
before managing a small bounce.
A couple of reasons here: first of all, I was bearish on the general market
at the time, and in retrospect, I should not have recommended any long positions
in any individual stock. Second of all, it is not obvious – but
it seems like traders and speculators alike are discounting the end of the low-carb
craze – which may or may not be the correct perception. That being
said, the author is now bullish (on the stock and on the overall stock market).
Technically, the stock is now oversold and the daily chart shows looks promising:
What did I mean when I mentioned “the lopsided supply/demand situation
that we are now witnessing in the company’s shares”? Readers
asking that question may find the following table of interest:
The short interest as a percentage of the total number of floating shares is
a staggering 130% -- something which the author has not witnessed before.
The historically high amount of short interest represents a great deal of artificial
supply – supply which should be covered at some point (unless the company
goes bankrupt – which I do not believe will happen). Given this
scenario and the improving technicals and my general bullishness of the U.S.
stock market, I believe CALM presents a very compelling story and most probably
now has considerable upside.