Monday, 17 December 2007

Ramping Up The Equity Portfolio

Just shorted about $12k each of Coca-Cola (KO) and Hormel Foods (HRL). I was reading an article the other day on Minyanville that pointed out how well Consumer Staples stocks had done lately. I was surprised to hear that these were at 52-week highs, as I would have thought food producers would be hit with the double whammy of higher input prices (due to commodity markets being basically at all time highs) and a slowing economy/consumer slowdown which would make it difficult to raise prices without hitting sales. I guess the equity market is not seeing it that way. My bet is that portfolio managers out there are just playing the "obvious" trade of owning consumer staples into a slowing economy, whilst disregarding some of the fundamentals of the trade.

3y Chart of Coca-Cola

3y Chart of Hormel Foods

Stumbled across this article from Forbes from a couple of weeks ago, basically Fitch are saying the food producers could face profitability pressure in 2008 for exactly the reasons I said above.

Sold Coca-Cola at $63.12 in ~$12,800
Sold Hormel at $39.83 in ~$12,000


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