Something calming about a high dividend, heavily shorted stock of a company that is growing fast. Here’s my take on Cal-Maine Foods (CALM) (October 10, 2015)
I want to look at Cal-Maine Foods ( NASDAQ:CALM ) here for a couple different reasons. First of all they’ve already reported earnings so that’s out of the way, you don’t have to worry about any weird catalysts. Second: a 6.8 percent yield. That’s pretty good, but it’s not good at all if a stock is trending lower. Nothing feels worse than buying a high yielding stock that gets you 9 percent and then watching it fall 20 percent, that’s a pretty lonely place to be. But here with Cal-Maine ( NASDAQ:CALM ) that’s not happening at all. The next earnings report is due in December. The stock’s back at a good buy point as opposed to a good sell point rather than a “hello” point (I don’t even know what that means). It’s back at a good buy point after three days of selling.
Volume was pretty substantial, then Friday the stock bounced. This is a higher low than this, which is a higher low than this. So you get these higher highs, higher lows, within a very prolonged consolidation period that goes back months. This is what I would view as a high base, meaning it’s a base, the stock’s building a base but it’s not building a base down here in the “penalty box”, it’s not building a base here. It’s building a base up here in the “winner’s circle”, unlike this back here. So the point is, and this can go both ways, you could say, “Oh, it’s building a base”; that didn’t work out too well.
All I’m saying is, the path of least resistance on this stock right now is higher just because that’s the way the overall trend is. But aside from the path of least resistance being higher it’s pulled back to give you a good low-risk entry. You put your stop a couple bucks below where it is now. If it turns out that the stock continues to fall you get stopped out with a small loss. Too bad, so sad, that’s trading. But you’re in a good position to be taking a stock that’s attractive to big money managers. It’s almost a 7 percent yield, good growth prospects, it’s a growing company, that’s what people that manage money look for. By the way, not insignificantly, really high short interest. So you look at all of these things, I think Cal-Maine ( NASDAQ:CALM ) is a stock that you want to be into, as opposed to chow-mein, which you don’t.
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