Feature 826

All Protein, all the Time

Our Spotlight Stock, Tyson Foods, began its life in 1935 when Arkansas farmer, John Tyson heard that chickens were commanding better prices up north. He hauled 500 chickens to Chicago, sold out, and repeated the process. From that modest start, Tyson now commands some 20% of the chicken, beef, and pork markets in the United States. And the company is a leading producer of meat in another 125 countries around the globe, including Canada, Central America, China, the European Union, Japan, Mexico, the Middle East, South Korea, and Taiwan.

Over the years, Tyson expanded into other food categories, like frozen bakery products and entrees, but in the last couple of years, the company has decided to turn its focus back on protein only. Consequently, Tyson has begun divesting its non-protein product lines like Sara Lee, Kettle, and Van’s.

And that timing looks prescient. As contributor Crista Huff, Chief Analyst of Cabot Undervalued Stocks Advisor noted, the African Swine Flu has really hurt Asian pig farmers. It has now struck 50 countries, changing the landscape of the meat and feed markets in Vietnam, Cambodia, Laos, Korea, and the Philippines. But China has been particularly devastated; some reports noted that its hog herds were 40% smaller in September than the year before. And some folks think that number is conservative. While a horrible development, that supply shortage is helping Tyson. Also encouraging is that it is estimated that nearly 98% of global protein consumption growth will occur outside the U.S., with 70% of that coming from Asia.

In its efforts to develop additional protein products, Tyson Foods is backing a $150 million fund—New Tyson Ventures—that is investing in entrepreneurial businesses that are involved in food innovation. Their target is “commercializing alternative proteins, addressing food insecurity and food loss through commercial models, and promoting better use of resources, safety, and consumer empowerment in the food chain.”

Additionally, Tyson has been on a buying spree, adding protein-based acquisitions, including Keystone Foods and AdvancePierre Foods. At the end of 2018, Keystone, which supplies chicken, beef, fish and pork to some of the world’s leading quick-service restaurant chains, retail and convenience store channels, was purchased for $2.16 billion cash. More recently, Tyson paid $4.3 billion for AdvancePierre Foods—a manufacturer of ready-to-eat sandwiches, entrees and snacks.

The timing of the new protein focus and acquisitions is great, especially now that the trade war seems to be all but over. As well, meat (beef, pork, and poultry) production in this country hit record levels last year, and are continuing to grow. The USDA projects that commercial beef production will reach 27.5 billion pounds this year, pork should be up to 28.6 billion pounds, and chicken production is forecast to reach 51.006 pounds. It’s hard for me to believe, as I’m not much of a meat eater, but the National Chicken Council predicts that combined poultry and red meat consumption could reach more than 225 pounds per person in 2020. That’s up 5 pounds per person just since 2018. And that is good for Tyson. Its shares have had a good year, beginning 2019 around $55, and trading close to $82 today, but they still appear to be undervalued. This looks like a good time to enter the stock.

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