Shares of Cal-Maine Foods (NASDAQ: CALM), America’s biggest producer of chicken eggs, closed down 2.5% on Wednesday, a day in which there seemed no obvious news to serve as a catalyst for the decline.
To find the catalyst, you may have to flip back a few days on your calendar.
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Bad news is good news for Cal-Maine
Specifically, flip back to June 6, when the August Egg Company announced a voluntary recall of its brown cage-free and organic brown eggs on worries of salmonella contamination. That recall affected multiple brands of eggs wholesaled by August to retailers, across nine states — and removed 20.4 million eggs from the market, sparking worries of rising egg prices.
With August out of the market, companies not recalling their eggs — companies like Cal-Maine Foods — actually stood to benefit from the salmonella scare. From recall day through yesterday, Cal-Maine’s stock price had risen nearly 4%. As worries over a supply deficit recede, however, Cal-Maine may have begun giving back its gains.
Is Cal-Maine stock a buy?
Current shareholders may not be thrilled with today’s price decline, but new investors should be — because it makes the stock even cheaper than it already was.
Valued on trailing-12-month profits, Cal-Maine stock costs a lowly 5 times earnings. And granted, last year’s expensive eggs may become cheaper in the future, hurting profits. But based on analyst forecasts for more than $8 a share in earnings next year, Cal-Maine stock remains attractively priced at 12 times forward earnings.
Scramble in a generous 6.6% dividend yield, and Cal-Maine stock looks even more attractive. Unless and until you see eggs at your supermarket getting significantly cheaper, now could be a good time to buy Cal-Maine stock.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cal-Maine Foods. The Motley Fool has a disclosure policy.
