Categories: All Business

Should you buy Maple Leaf Foods?

One of the most successful strategies for investing is to buy companies when they’re…

by Duncan Hood on Wednesday, August 27, 2008 3:07pm - 0 Comments

One of the most successful strategies for investing is to buy companies when they’re trading for less than they’re really worth, and wait until the price rises to the company’s “true value” (it’s often called “value investing”). Value investors often wait until a good company gets hit by an unforeseen disaster, which temporarily decimates the share price, then they scoop up a truckload of stock and wait for the disaster to pass.

It looks very much like Maple Leaf Foods could be in just such a situation, thanks to the terrible outbreak of Listeria that’s been traced back to its processing plant in Toronto. The share price has plunged from a high of $11 to a low of $7.60 (as of this morning) in just a week and a half.

Of course this approach doesn’t always work out: Maple Leaf could be hit by more huge lawsuits, or the crisis could keep getting worse for months, or maybe the company was way overvalued at $11. Plus, some say it’s wrong to profit from a disaster that’s killing people.

What do you think? Would you buy Maple Leaf?

Tags: investing, Listeria, Maple Leaf, value investing

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r styles

Will I buy it? Already did. People die from listeriosis and other food poisonings ALL THE TIME. It just happens to be in the news this time. If you limit your stock purchases to things that do no harm, you wouldn’t have very many choices (perhaps no choices).
Dot

Maybe we should ask Garth Turner what to do – afterall wasn’t it him who famously advised people to buy NorTel when it had lost only 50% of its value, before continuing on to lose 99% of its value (and I believe he was reprimanded as he is unqualified to provide financial advice as anyone knowledgeable in these areas would know from reading his blogs or books).

Nevertheless, it strikes me that MapleLeaf is paying the price for an aggressive takeover/consolidation strategy in its early life post Wallace McCain takeover. It seems they now have 200 different products all falling under the Maple Leaf ownership, and as a result, all may get unfairly tainted in the short term until the crisis plays out and we have more info.

Still, with a high market share of meat products(no idea exactly) you’d think the downward trend should at some time start to reverse upward and recover at least a portion of its market cap – we are, by and large, carnivores don’t forget.

But then again, don’t heed what I’m saying – I’m no Garth Turner, afterall.
Dot

I found this passage on a GPC presser on this issue (food inspection) interesting:

Green Party Industry and Business critic Huguette Allen, candidate in Okanagan—Shuswap, has actively campaigned against new meat inspection regulations in British Columbia that harm smaller and family farms.

“Many regions of Canada have excellent local food economies but are hindered because small family farms are expected to adhere to the same safety standards as food that is transported all over the globe. Yet we know from common sense as well as experience, that no matter what standards we impose of global foods, safety issues persist. When outbreaks occur, repercussions are inevitable.”

Interesting, because the GPC and others (hello Dippers) have always argued, without proof, that joining trade agreements such as NAFTA will result in a harmonization with the US/Mexico to a LOWER standard on such matters – yet here we have a case where it appears they are arguing against a HIGHER standard for meat inspection for the local farms, below the international standard that others are required to meet.

Hmmmm.
Mike

Dot:

I think the argument is for fewer or less complex procedures for smaller processors having limited distribution (hence lower risk of widespread disease outbreak)–and more complex procedures for very large processors having wide distribution (and much higher risk of widespread disease outbreak).

Any experts out there to expand on the issue?
Dot

Mike, it seems to me, at a basic level they are saying – we don’t have the economies of scale to allocate the testing costs over a large volume – so we shouldn’t have to test to the higher standard.

Besides, if there is a problem, it’s not like we’re going to poison people across the country – only in our community.
If that is the argument, and I am correctly interpreting the rationale as you have put forward, it makes no sense to me at a basic level. And inconsistent with much of what I thought the Green Party stood for. Shouldn’t everyone be afforded the same safety standard, irrespective of where they live?

But I await a fuller explanation from the “experts”.
madeyoulook

Wow, if the small local folk are trying very hard to avoid the don’t-kill-your-customers standards of safety and quality, they’ve just evicted themselves from my shopping list.
http://www.northbridgeconsultants.com/blog/ sred

Their sales will recover. Remember when everyone was panicking about beef and mad cow disease? Well, consumers are buying beef again.

Consumers will boycott lunchmeat in the short run as a knee-jerk reaction. However, they will return in the long run.

Buy and hold… and wait.
Brian

The damage has been done, the public buying habits will previal despite the lame commmercials. too bad. We should have followed ther Us example. What a shame for an icon Candian Company.
S.Gariepy

I work for the company as a recruiter would I buy shares yes, would I buy the food NO!
jocelyn

Never did, and certainly never will now. Companies should never have the right to sell their garbage again after cutting corners like Maple Leaf did. Other companies take heed, screw up once, get into another line of work.
Mike M

I just came back from grocery shopping. I use to purchase a Maple Leaf product prior to the recall. I noticed that it went up by 31%, so much for the publics buying habits. I for one will never buy Maple Leaf products because now they are trying to recoup their loses on the backs of the consumer. In fact I am going to e-mail Maple Leaf directly and mention this to them.