Thursday, May 29, 2014

Hillshire Farms

What's up with the sausage-fest?

Hillshire farms now has two rival bidders for the company.  The stock is now trading at at over $52 a share, which is pretty nice, as I bought it last week for $35.11

Yes, I know, buying trendy stocks is just gambling.  But I didn't intend to buy this stock as a buy-and-dump deal, it just worked out that way.

I bought the stock for three reasons.

First, I had a couple thousand sitting in my trading accounts, earning no interest.  I wanted to buy something that would make a little money and pay a little dividend.  Non-interest bearing accounts do neither.   Time to take a risk with the money.

Second, food companies are doing well, and I think with the so-called "food shortage" they will continue to do well (I bought Kraft before the spin-off and everyone said it would tank.  It hasn't, nor has the spin-off Mondelez Foods, which I now also own stock in, as a result of the spin-off).  I wanted to invest in another food company, one that had a reasonable dividend yield (which was about 2.8% when I bought the stock).  The P/E ratio seemed pretty reasonable (around 20, last week when I bought).  It's at 28 today, due to the rapid rise of the stock.

Third, when researching the company, I had read a small article that there were rumors of a takeover bid for the company.   This was before the huge gains of the last week, when suddenly Hillshire Farms was the talk of the media.  Funny how that works - once a stock price has already gone up, people hype it in the media.  Before then, it is barely mentioned.

The third reason was the least reason to buy it, however.   I would have been happy with a stable stock price and quarterly dividends, thank you.   But in researching these food companies, a tiny article surfaced about the possible merger.  Clearly, someone thought the company was undervalued.  Somebody likely smarter than me.

And just now, I sold my Hillshire Farms stock.  Why?  Because Tyson's foods just offered $50 a share for the company.   That's two dollars less than the current share price.  Selling now nets me a nice $927.28 in capital gains within one week of holding the stock.

Could I make more?  Perhaps a few percentage points.   Right now, I am looking at a 50% gain in just a week or so.   Take the money and run!

Will there be a bidding war for the company?  Perhaps.   Perhaps not.  It may turn out that both suitors decide to back away.  But I doubt they are going to bid this up another 50% anytime soon.

And there is the risk that the entire thing could unwind, as Hillshire is bidding to buy Birdseye, and that may fall through if the Pilgrim's pride or Tyson deal goes through.   All three companies could end up worse off than before.

In any event, buying the stock now, after the huge gains have already occurred is just silly.  But some folks are apparently doing that, even, bidding the stock up to over the purchase price offered by the highest bidder.

They pay you $50 a share.  You paid $52.74   How do you make money this way?

The answer is, of course, than you can't.   But the plebes, hearing the analysts on CNN hype this takeover, think, "Gee, I should get in on this good deal before it's too late!"

So they buy a stock they know nothing about, and don't even look at the price.  And they wonder why they lose money.

In the Winn-Dixie buyout, no one was foolish enough to bid the share price over the asking price of the stock, at least.     They bought for about $12 a share, and the share price never went over that in the weeks before the buying.   Some common sense, at least.

Even if the bidding war continues, those who paid $52.74 a share would be hard pressed to see more than $55 a share in this deal.

We'll see.  The share price could collapse tomorrow.  It certainly looks like it needs a correction to me.

Sad that the media hypes these deals.

I got lucky on this investment, which I thought would be a long-term, slow payoff, and instead shot up dramatically the next week.   And that is why I am selling it.    When you can make a profit like that, take it.   Don't assume that something going up in value will continue to do so, indefinitely.

And never confuse getting lucky with being brilliant.


  1. People are still buying this stock, pushing the price today over $53. Do I regret selling and not making that extra buck a share? Hell, no. I bought at $35.

    I am not sure why someone would pay $53 a share for a stock that has floated along at $35 a share for nearly a year. I am not sure why they would pay over $3 more a share than Tyson's foods is offering.

    It makes no sense. But I am happy to cash out and make money off of fools, motley or otherwise.

    Just like with AVIS, I only wish I bought more stock!

    But you can't go back in time, so don't even think that way!

  2. Well, Tysons "won" the bidding at $63 a share. Did I cash out too soon? HELL NO! Here's why:

    "But it’s not certain that Tyson’s deal will close. Tyson’s offer for Hillshire expires Dec. 12. And it is contingent on Hillshire dropping earlier-announced plans to buy Birds Eye frozen vegetable seller Pinnacle Foods Inc. in a $6.6 billion deal, including debt.

    On Monday, Hillshire said it had not approved the Tyson offer and had not changed its recommendation that shareholders vote for the Pinnacle deal."


    In other words, the board approved the buyout, and also approved the birdseye purchase that would nix the buyout! The deal might not close until December, and it could tank anytime before then.

    Better to take 50% in a week than wait for a possible incremental increase months from now...

    Take profits first. When something shoots up in value, sell, make a profit, and have no regrets and don't look back!


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