Mmm... protein
In his last letter, which was a bit all over the place, Warren did little to enable me — me, his star pupil. I choose to believe this is his attempt to toughen me up, Kung Fu Panda-style.
Also, you don’t question the master. At least not until Week 7 or so.
Either way, this week I have been on my own. So I went to a happy place: the world of succulent ham.
And… I’ve just put in an order for 51 shares of Smithfield Foods (SFD), “the largest hog producer in the world.” I will tell you why I bought SFD in a bit, as if you need to even ask, but first I have to regale you with tidbits from what is by far the most entertaining 10-K (and 10-Q) you will ever have the bacon-infused pleasure to read.
(Did you notice how I casually threw in “10-Q” up there like it was nothing special?)
So these hog reports are awesome. (I read Hormel’s too.) Here is why you should go read one now:
- First of all, the word “hog” is like in every sentence. “Hog” is a damn funny word, and in the context of an SEC filing it’s doubly so. “Hog production.” “Oversupply of hogs.” “High-quality hogs at market-indexed prices.” “Hog hog hog hog hog.” And there are almost no synonyms used — you rarely see “pig” or “swine” or “porker” or “piglet” — it’s pretty much always straight-up hogs. (263 “hog” instances in the 10-K.)
- Found in the section on Smithfield’s magic genetic intellectual property — which I envision occurs on a Dr. Moreau-like island (the Marlon Brando remake one): “We believe that the hogs produced by these genetic lines are the leanest hogs commercially available and enable us to market highly differentiated pork products.” Highly differentiated. Slightly leaner, but highly differentiated. Would you pay for glow-in-the-dark sausage? No? How about extra lean glow-in-the-dark sausage?
- “We believe that we use the best technologies currently available and economically feasible for the management of swine manure.”
- “The protein industry is highly competitive.” I love it. The protein industry. You don’t see dairy producers embracing the “fat industry,” or General Mills the “carbohydrate industry.” Protein’s day to be vilified may come at some ridiculous point, and then what will they call themselves? Post-Pig Products? Muscle-Based Foodstuffs? The “Remember How Much You Love Bacon?” Industry?
- I particularly enjoyed that in the “Risks” section, where swine flu is discussed exhaustively, the word “pathogen” — used over and over — has “hog” right smack in the middle of it.
- “We retained the services of two internationally recognized experts on animal behavior and animal handling, who verified that our animal welfare program is credible, science-based and auditable.” In a company of more than 50,000 employees, and nearly 20 million hogs, they have “retained the services of” — not necessarily employed — two whole experts. Also note the adjectives used to describe their animal welfare program: “credible,” “science-based,” and “auditable.” The Stanford Prison Experiment meets those. Waterboarding is “auditable.” Growing up my attempts to get my kid sister to bite her own arm met two out of the three. (My successful attempts, mind you. Science, baby.)
- There are numerous others, but really, they had me at hogs. Even in their Inventories section they have a line item for “live hogs.” I have suddenly made it a goal in life to have a business that in some way/shape/form also has a line item for “live hogs.”
Alright, so why did I buy these guys?
Smithfield's restructuring appears to be bearing fruit.
- I determined Hormel was overvalued by comparison, at nearly twice the price, when previous quarter earnings for Hormel and Smithfield are relatively close.
- Smithfield has embarked on a recent restructuring plan, which seems to be doing something. After a tough 2009 they started 2010 off well, with a return to quarterly profitability and a much larger increase in return on assets (i.e., actually having some).
- In particular I wanted to buy into the protein industry — despite not knowing it was called that until moments ago. I believe our nutrition guidelines are in the midst of a slow transition away from “Fat is evil” to “Wait, carbohydrates are, like, ten times as evil as fat,” and that highly-focused players — like Hormel and Smithfield, who produce almost exclusively Muscle-Based Foodstuffs — stand to gain over the long term. The more diversified conglomerates may have a tougher time: you can make low-fat Oreos, but you can’t make low-carb ones without sausage paste.
I’m not a fan of buying into the factory-food industry, but Warren shows no such prejudices — business is business — and I think hogs are good business. Good, delicious business. Also, I’ve already bought Jack-in-the-Box and video game stocks. My saintliness was never in question.
You should also know that I worked SO HARD to avoid using about a hundred pig euphemisms in this post. You’re welcome.
Image courtesy of Flickr user rogersmith.
