Today’s Alert brings a new low-priced buy and a sell recommendation, both from David Jennett, and a sell alert from Paul Goodwin.
Coffee Holding Company, Inc. (JVA)
from The Investment Letter
As you can see from the chart above, the company’s stock price has taken a well-deserved hit this year. Both second and third quarter profits plunged as the company paid the price for incorrectly hedging the price of coffee beans. The company bet that bean prices would stop falling, but they were wrong. The losses realized from their hedging activities were compounded by lower sales caused by those falling coffee prices. To make matters worse, the company was right in the middle of transitioning its business model from one that relied on high volume/low margin green coffee operations into a lower volume/high margin branded sales approach.
However, with the write-offs completed, and with the likelihood that coffee prices have finally reached bottom — they are once again selling for around $110 (the price they sold at for years, before jumping to more than $300 back in 2011) — the worst seems over. While this is not a particularly sexy industry or company, it has a few things going for it these days. It has seen its stock price decline by close to 35% while the market as a whole has been going up, and it is in an industry that is mostly immune to economic shocks. I believe that the stock could rally back to recent highs just by proving that it can start making money again. Two more points in its favor are that it is debt free and it has a management team that knows how to sell coffee.
I believe it is a defensive stock for uncertain times that might move higher even if stocks as a whole start correcting.
David C. Jennett, The Investment Letter, P.O. Box 6170, Holliston, MA 01746, 800-542-5018, October 1, 2013