(By Rich Bieglmeier) Following up on our Sector Performance Review, iStock found that food stocks stand out today. Campbell Soup Co. (CPB), Flowers Foods Inc. (FLO), Hormel Foods Corp. (HRL), The Hershey Co. (HSY), J&J Snack Foods Corp. (JJSF) and McCormick & Company Inc. (MKC) could make for a tasty portfolio - each is up nicely in an otherwise lackluster day.
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However, Sanderson Farms Inc. (SAFM) might be best positioned to break out of the cage from a technical analysis standpoint. Sanderson is an integrated poultry processing company that engages in the production, processing, marketing, and distribution of fresh, frozen, and prepared chicken products in the United States.
SAFM is on the verge of escaping from the top side of a bullish, right angle triangle. The only thing holding a free range run is the 200-day moving average of $47.06. If Wall Street continues to take the food sector higher, the consumer goods stock should move beyond 200-day resistance and could challenge $52 in the near-term – a 10.6 percent upside.
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Shares could get a boost from rising relative strength and a rising MACD line. Additionally, bulls could get a two-for-one spark above the 200-day mark as it should signal that the stock will continue to clean up a June gap down from $52 to $45.
The poultry company is scheduled to report earnings on December 17. 2012. Wall Street anticipates earnings of 24 cents per share. If the No. 2 chicken producer's earnings are any indication of what's to come, then SAFM should do well. Pilgrim's Corp. (PPC) reported earnings of 18 cents per share while the street targeted a consensus of 6 cents – a 200 percent upside earnings surprise.
PPC's success was attributed to chicken wings, that's right, chicken wings. It's economic rule 101 – supply and demand. The demand for chicken wings is high as the supply of wings is shrinking as feed costs rise. The price for wings rises, and so do profits.
Pilgrim's Pride management forecast continued demand for the messy, tasty snack in 2013, all while chicken production drops another 2 percent to 3 percent. As a result, prices are expected to continue to rise right as we head into peak chicken wing eating season – the Super Bowl!
The last positive earnings surprise was friendly to Sanderson Farms shareholders. The street was expecting $1.20 and instead SAFM posted $1.25. Shares rose 9.3 percent in the days surrounding the quarterly check-up.
Overall, with chicken wings season coming, a technical breakout pending, a strong sector profile, and the potential for an earnings surprise, short-term investors might consider Sanderson Farms.