Saturday, February 5, 2011

"David Tepper of APPALOOSA MANAGEMENT LP owns a good chunk of DEAN FOODS, should you jump into the fray and join him? "

Dow Jones Industrial Average 12092.15  (UP) Week Ending  02-04-2011

David Tepper who leads the New Jersey based hedge fund Appaloosa Management LP had a very good 2010 in the stock market .Tepper's Appaloosa Management which manages approximately $13 billion, returned an impressive 132% last year, thanks to timely purchases of financial stocks. David was a head trader on the high yield desk at Goldman Sachs, and left to start his hedge fund investment firm Appaloosa in 1993. He is also a minority owner of the Pittsburgh Steelers.

     Appaloosa Management has started a brand new position in Dean Foods (Symbol DF, $10.35) for 2011 per a 13G statement filed with the SEC. The hedge fund has disclosed a 7.35% ownership stake in DF with 13,396,536 shares due to trading on December 28th, 2010.

According to the Dean Foods website
"Dean Foods is one of the leading food and beverage companies in the United States and a European leader in branded soy foods and beverages. The Company's Fresh Dairy Direct-Morningstar segment is the largest U.S. processor and distributor of milk, creamer, and cultured dairy products. These offerings are marketed under more than 50 local and regional dairy brands, as well as through private labels.

The WhiteWave-Alpro segment produces and sells an array of branded dairy, soy and plant-based beverages and foods. WhiteWave brands, including Silk® soy and almond milk, Horizon Organic® milk and dairy products, International Delight® coffee creamers, and LAND O'LAKES® creamers, are category leaders and consumer favorites. Alpro is the pan-European leader in branded soy food products."

The stock has run into major resistance here at the $10.00 level.  I decided to study up to see if I could discern where milk prices are going in 2011. What I can tell you from my research is that "Milk" is a very complicated business affected by a number of dynamic pricing factors. It is used as a "lost leader" to get people to go to the back of the supermarket which keeps the prices low. Contrasting that is worldwide food inflation in pricing. Some analysts are actually saying that the protest in Egypt is actually due to citizens fed up with their food prices going up.

This is what I think: Dean Foods stock price was $46.95 in March, 2007
and had made a steady descent down to $7.31 in December, 2010. The company annual sales are 12 Billion, the same as they were in 2007. That gives you $65.72 in sales revenue for every $10.40 share of stock and a lot of value. They are big enough that a Kraft Foods (46.5 Billion revenue) or a UNILEVER ADR (42.5 Billion revenue) or even Hershey Foods (5.5 Billion in revenue) might have an interest in getting together with them for a merger. The "Silk" category of beverage should have explosive growth this year and is certainly more profitable business than traditional milk sales.

Dean Foods will have its fourth quarter earnings conference call on February 16th. Wait till then to take action. If the stock goes down after that call, buy it and trade it back up to this current  $10+ price. If the call goes well, and the stock price moves up, it will have broken through this resistance level and should move to the $13 - $16 price level , a nice percentage gain, so buy it. If the stock does nothing, you should do nothing.

I send my best wishes out to all the American Dairy farmers in the US. The dairy farm is a beautiful sight when you ride down the road and go by them. I especially cheer the family dairy farms carrying on their long tradition. I appreciate your hard work and long hours and hope that your business is successful.

So try some International Delight with your coffee and buy some Dean Foods if the right conditions occur.


1 comment:

  1. No deal. Unless you picked it up at 9.50 today and rode it up 8%, this is a no trade right now. We will have to wait and see. S&P downgraded DF to a sell. I still think their is a longterm buy story here somewhere based on price to sales.