Berko: Don’t be a chicken, buy Tyson shares

Dear Mr. Berko: My young broker (I’m 61) of four years is fairly straight with me and has made some good suggestions for my $185,000 individual retirement account. He knows I won’t buy annuities, load mutual funds or the proprietary junk that he and his firm sell to other suckers. He recently recommended that I buy 150 shares of Tyson Foods. A while ago, our pastor told us Tyson is a Muslim-run company. I can’t find any evidence of this, and I don’t want to annoy our pastor by confronting him. I would ask my broker, but that would make me feel silly. My wife says, “What would Berko do?” So please tell us what to do.

— G.L., Detroit

Dear G.L.: Get another pastor, or stop being such a wuss. Most Muslims are good people, and I think a 150-share purchase of Tyson Foods (TSN-$41.49) as a long-term investment might be a swell addition to your $185,000 IRA.

Approximately 250 of the 1,200 employees at TSN’s poultry processing plant in Shelbyville, Tenn., are of Muslim faith. During the summer of 2008, in the name of political correctness, the Retail, Wholesale and Department Store Union, representing the Tyson plant, asked for Eid al-Fitr to be one of the paid holidays, in place of Labor Day. In order to maintain a peaceful settlement, Tyson blinked and agreed. However, this must have caused a ruckus in Shelbyville, because a week later, TSN implored the union to reopen negotiations. It did, and Labor Day was reinstated as a paid holiday. Muslims were given a personal paid day they can take whenever they want. Things are changing out there!

TSN, a $41 billion-revenue company with 124,000 employees, may be the largest processor and marketer of chicken, beef and pork products north of the South Pole. Among TSN’s largest customers are Wal-Mart, our military commissaries, fast-food franchises such as McDonald’s, wholesale clubs and major grocery chains. Most folks don’t know that TSN’s brands include Jimmy Dean, with its great sausage; Ball Park and its extra-juicy hot dogs; Sara Lee, which makes a great cheesecake; Gallo, maker of great salami; and my all-time favorite, Golden Island, whose premium jerky I keep in my office and my car.

I like TSN because it has an impressive portfolio of excellent products that are sold in over 130 countries. Its acquisition of Hillshire Farm early this year has been a surprisingly comfortable fit. I especially like TSN because the Hillshire operating synergies will benefit TSN by at least $400 million next year. Hillshire will be a huge boost to operating margins, which have been stuck in the low single digits for the dozen-plus years I’ve followed the company. Those margins should improve to 8 percent this year and reach the low double digits in 2016. And in the process, this should improve TSN’s low price-earnings ratio by about 54 percent, from 13-to-1 to 20-to-1, in the next few years. So if TSN’s chicken salesmen cross enough roads to sell enough chickens, Wall Street believes that TSN could earn $3.55 a share in 2016. Another reason I like TSN is that conservatively figuring a modestly higher price-earnings ratioof 15.5-to-1, the Street’s consensus is $54 a share next year. And dramatic growth in crop yields will contribute to low commodity inflation, which also will help expand margins. In addition, I’m told by one of the fellows at RBC Capital Markets, whose firm follows the stock, that the 40-cent dividend should be raised to 46 cents.

I’d cross most highways to own this stock, the price of which has remained surprisingly steady in this very volatile market. At the current price, TSN is down just a couple of points from its all-time high, which suggests unusual price stability for conservative investors. Meanwhile, Morningstar, Deutsche Bank and Merrill Lynch also have good things to say about TSN. And Vanguard must be a big fan, because those folks own over 24 million shares.

Malcolm Berko addresses questions about stocks. Reach him at P.O. Box 8303, Largo, FL 33775 or mjberko@yahoo.com.