November 3rd, 2009:
AgFeed Industries, Inc. (FEED)
Current Price: $4.60
www.agfeedinc.com
Our last China agriculture stock suggestion Zhongpin (HOGS) gained 89% from our March 31st profile at $8.88 to a high on October 21st of $16.79.
Our new agriculture stock suggestion is AgFeed Industries, Inc., listed on the NASDAQ Global Market under stock symbol FEED. FEED is the largest commercial hog producer and the largest premix feed company in China. Founded in 1995, they currently have over 1,900 employees and a highly profitable business.
FEED, through its subsidiaries, engages in the research and development, manufacture, marketing, and sale of fodder and blended feed for use in the domestic animal husbandry markets in the People's Republic of China. The company also involves in raising, breeding, and selling hogs for use in China's pork production and hog breeding markets. Its products primarily include additive premix fodder for use in all stages of a pig's life, and blended feeds for the infant stage of a pig's life. In addition, FEED produces three brands of premixed chicken feed. It offers its products primarily to distributors and large scale pig farms.
With over 600 million hogs produced each year, compared to 100 million in the U.S., China represents more than 50% of the world's annual hog production as well as the world's largest and most profitable pork consumer market. FEED has a strategic platform for accessing China's vast feed and hog raising industries.
FEED owns and operates 30 commercial hog farms and 5 premix feed plants. FEED's hog farms and feed plants are strategically located in south China where some of the most profitable feed and hog markets are located. FEED's hog sales for the first six months of 2009 totaled 316,000 hogs, with 183,000 sold in the second quarter. This puts them in line to meet their goal of 650,000 hogs produced for 2009. FEED anticipates producing approximately 2.5 million hogs from now through 2011!
FEED currently benefits from an income tax free environment (hog production), strong synergies between their feed and hog raising segments, a strong balance sheet and capital strength as a public company.
FEED has amazing fundamentals that make it very attractive at the current levels. FEED has grown its total revenues from about $8.6 million in 2006 to about $36.1 million in 2007 to over $143.6 million in 2008 and $167.8 million during the most recent twelve months! FEED has about $30.9 million in cash with only $5.4 million in debt and is profitable with a trailing P/E ratio of 10.
The pre-mix feed market in which FEED operates is an approximately $1.6 billion segment of China's $40 billion per year animal feed market, according to the China Feed Industry Association. China is expected to surpass the U.S. as the world's largest animal feed market reaching $50 billion in annual sales by 2010!
In our opinion, FEED is significantly undervalued with tremendous long-term upside potential.
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