BlastInvest
Blast Investor Real-time Plus           by Henry Lu

Trade Alert:  GKIS - yummy chicken meat

02/28/2005

Buy and Sell Alert

Today I sold all existing NTES and purchased 1500 shares of Gold Kist (Symbol GKIS) at $15.68 price for the Blast Investor Model Portfolio.  The Hot List risk/reward rating for GKIS is "extremely favorable". The purpose of selling of NTES is to rotate the money into more promising value stock GKIS.

GKIS is a chicken food stock stock that IPOed at $11 a share last year. Its primary business is  in growing and processing of chickens. Its chicken meat products are sold at grocery stores in USA. Below is the investment rational for GKIS.

GKIS - yummy chicken meat

GKIS - a very cheap stock

The main reason to invest into this stock is due to its low valuation.

Actually its valuation is not easy to get. Yahoo finance quotes its PE at 4.2 while MSN money quotes its PE at 6.6.  They are all cheap but which number should we as investors to believe?

I digged into SEC filings and GKIS earning conference calls. By my calculation, GKIS made about pro forma $3 per share after tax true earning in 2004. GKIS roughly is trading at PE = 5 of 2004 earnings. That is darn cheap value stock!

GKIS's main competitor is Pilgrim's Pride Corp (PPC). Below is valuation comparison between 2 stocks.

Ticker
 PE
 Enterprise Value / Revenue
 Enterprise Value/EBITDA
PPC
 15
 0.51
 6.51
GKIS
 5
 0.37
 3.81

If GKIS trades at PPC's:
PE based comparison is way off, we can ignore that. Averaging EV/EBITDA or EV/Rev,  GKIS is worth about $25 a share compared to PPC.  That is close to 40% discount.

I believe the low valuation of GKIS would give investors protection from the risks. Although GKIS has short history of public financial statement, its competitor PPC has long decades of SEC filings.  By looking back decades of earning history of PPC, chicken business actually has been pretty stable and profitable with positive earnings in most years. Further more, PPC itself is very under-priced stock that can trade higher in the year ahead. The chicken sector low valuation add another cushion for GKIS invesment.

Potentially, GKIS is acqusition candidate for those who might want to expand into Chicken food business.

GKIS - $4 per share EPS estimate in 2005

There are many low PE stocks out there. What is special about GKIS?

Here is the result of my financial modeling on GKIS 2005 earning estimate: $4 EPS a share.  At PE = 8, GKIS can rise to $30 or more in 1-2 years.  Below is my modeling method of this EPS estimate.

GKIS - price spread between chicken price and Soybean + Corn

Chicken meat are sold by pounds. Chicken grocery business is a pretty stable business with slow volume growth year over year.   However, unit price per pound for chicken has not been stable. Chicken price ran up big more than 20% in 2004 and the price is flat in 2005 compared to 2004. While the risk of chicken price drop is there, I believe the chicken price will stay relative high at current price. In the weakening dollar environment, I see little competition from foreign country in chicken business and US chicken meat production is quite reasonable right now. Adding a good export, chicken price can be maintained at current price if not going higher.

Another piece of business is cost. Roughly 35% of GKIS revenue cost is due to soybean and corn feeds. Last year's crop harvest caused big crash in soybean and corn commodities market and GKIS is expected to get EPS boost simply from this soybean and corn feeds savings.

Chicken price is high and cost is decreasing, GKIS is in darn good business enviroment right now with cheap valuation.

RISK: Cyclical Nature of Chicken business? Avian flu?

Potential risk of investment:

Huge Insider Buying

GKIS had huge insider buying over past few months between $11 to $15.20. There were no insider selling. The GKIS business is going well and the stock price is pretty cheap so that it does make sense for insiders to buy GKIS shares with their own money.

Conclusion

Although there is risk in this stock, GKIS is extremely favorable cheap value stock. My plan is to buy GKIS for the long term. Target $25 in 1-2 years.  Maximum target can be much higher to $30 to $40 range if soybean and corn price stay low and  chicken price stay flat or higher.


Blast Investor Model Portfolio Update

(as of 02/28/2005)

Model Portfolio - Performance


Portfolio inception date
 12/31/2003
Portfolio inception value
 $89,000
Portfolio 12/31/04 value
 $141,981.00
2004 Portfolio Performance
 59.53%
2004 S&P500 Performance
 8.78%
2005 Portfolio YTD Performance
 6.21%
2005 SP&500 YTD Performance
 -0.19%


Model Portfolio - Open Positions
Symbol Last Shrs Value Paid Gain
ADGO.OB 1.50 9,000 $13,500.00 0.78 $6,470.00 +92.03%
CEI 16.50 1,500 $24,750.00 16.63 -$215.00 -0.86%
CHK 22.10 1,100 $24,310.00 13.90 $9,010.00 +58.89%
EXX-A 1.97 6,500 $12,805.00 1.638462 $2,135.00 +20.01%
GKIS 15.72 1,500 $23,580.00 15.68 $50.00 +0.21%
LIBHA.PK 4.55 1,200 $5,460.00 5.10 -$670.00 -10.93%
NRG 38.95 335 $13,048.25 23.05 $5,316.50 +68.76%
SOHU 17.08 700 $11,956.00 24.882857 -$5,482.00 -31.44%
USG 32.43 950 $30,808.50 18.425789 $13,284.00 +75.80%
WLL 42.73 600 $25,638.00 22.683333 $12,008.00 +88.10%
$$CASH -35,056.3 -$35,056.30 - - -
11 symbols Total(USD):
$150,799.45




Model Portfolio Transactions
Date  Type Symbol Shares Price Comm Amount Notes
Feb 28, 2005 Buy GKIS 1,500 15.68 10.00 23,530.00
-
Feb 28, 2005 Sell NTES 150 41.88 10.00 6,272.00 +14.22%
Feb 25, 2005 Buy CEI 500 16.39 10.00 8,205.00
-
Feb 25, 2005 Sell NRG 335 38.42 10.00 12,860.70 +66.57%
Jan 31, 2005 Buy CEI 1,000 16.75 10.00 16,760.00
-
Nov 24, 2004 Sell HRB 350 47.35 10.00 16,562.50 - 12.31%
Nov 4, 2004 Sell NTES 100 46.50 10.00 4,640.00 + 27.05%
Oct 19, 2004 Buy EXX-A 1,500 1.60 10.00 2,410.00
-
Oct 6, 2004 Buy EXX-A 5,000 1.65 10.00 8,260.00
-
Oct 6, 2004 Sell NEN 100 80.00 10.00 7,990.00 + 48.15%
Oct 5, 2004 Buy USG 250 18.75 10.00 4,697.50
-
Oct 5, 2004 Sell NTES 100 39.12 10.00 3,902.00 + 6.9%
Sep 30, 2004 Buy USG 700 18.31 10.00 12,827.00
-
Sep 29, 2004 Sell NEN 100 79.65 10.00 7,955.00 + 47.5%
Aug 5, 2004 Buy WLL 250 23.50 10.00 5,885.00
-
Aug 2, 2004 Sell NEN 100 69.95 10.00 6,985.00 + 29.5%
Jun 17, 2004 Sell HCA 250 40.30 10.00 10,065.00 - 4%
Jun 17, 2004 Buy NRG 670 23.05 10.00 15,453.50
-
May 24, 2004 Sell ADGO.OB 13,000 1.55 10.00 20,140.00 + 98.7%
May 10, 2004 Sell HCA 250 39.97 10.00 9,982.50 - 4.8%

Date  Type Symbol Shares Price Comm Amount Notes
May 10, 2004 Buy SOHU 200 15.59 10.00 3,128.00
-
Mar 5, 2004 Buy WLL 350 22.10 10.00 7,745.00
-
Jan 26, 2004 Sell WRP 700 17.40 10.00 12,170.00 - 5%
Dec 31, 2003 Buy CHK 1,100 13.90 10.00 15,300.00
-
Dec 31, 2003 Buy NEN 300 54.00 10.00 16,210.00
-
Dec 31, 2003 Buy HRB 350 54.00 10.00 18,910.00
-
Dec 31, 2003 Buy NTES 350 36.60 10.00 12,820.00
-
Dec 31, 2003 Buy SOHU 500 28.60 10.00 14,310.00
-
Dec 31, 2003 Buy LIBHA.PK 1,200 5.10 10.00 6,130.00
-
Dec 31, 2003 Buy ADGO.OB 22,000 0.78 10.00 17,170.00
-
Dec 31, 2003 Buy HCA 500 42.00 10.00 21,010.00
-
Dec 31, 2003 Buy WRP 700 18.30 10.00 12,820.00
-
Dec 31, 2003 Cash In -
-
-
-
 89,000.00 Inception