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The Swine Flu- a couple of facts and how it affects investing

April 27, 2009 – Comments (1) | RELATED TICKERS: HRL , SEB , HOGS

First off let me start by saying that I believe that the virus will dissipate without any major damage being done, thus this will be the assumption when I discuss investing. First, however, a couple of quick facts about the flu itself:
 The death toll in Mexico jumped to 149 a couple of minutes ago (according to the BBC) and the real number is probably a good deal higher.
 The death tolls are rising quite quickly in Mexico; however we would do well to remember that they are 52nd on the HDI, their healthcare is far from first rate, and many of the deaths have come in ultra-crowded Mexico City. So the deaths there are by no means a model for the rest of the world
 There are ~120 suspected cases in the US (most came from the school in queens) and only one person had to be hospitalized. Everyone seems to be recovering just fine.
 This is not like the Avian Flu, in that that a human can’t catch it (bird flu is H1,N5 ; only N1,2,8 can infect humans). Rather with the code of H1,N1 pig flu is quite infectious, as we have seen, there are now cases being confirmed in the UK
 The general makeup of this strain (H1,N1) is the same that was responsible for the 1918 pandemic and the Russian flu (1977), so this certainly is not something to mess around with

Now for the good news:
 As previously stated no one has died from it (or appears to be getting close to dying) in a first world country from the disease, so it looks like with proper hygiene and rest most healthy should be able to beat it out
 If facts change and it looks like we can’t beat it out on our own the government is standing by with a huge arsenal of anti-virus drugs

So, everything considered, it looks like this is something that won’t present too much of a problem but isn’t something to mess around with either.


As far as investing is concerned the flu ought to produce some very attractive valuations on many meat producing companies and should drag down the overpriced Mexican airport stocks to a reasonable level. The reasons they will drop is obvious: people are scared that the industries will be affected by the flu. This is, of course, accurate for the airlines as fewer people will want a ride to Mexico and to some extent true for the meat industry because there will always be those idiots out there who can’t do their own research to figure out that you kill the flu virus by simply cooking it (unless, of course, they like their meat raw :).

So some good values ought to develop in the meat industry. A couple of companies that ought to be good buys near the end of the “crisis” are:
Tyson Foods – one of the largest meat producers out there. Basically a representative of the industry as a whole
Hormel – from what I have heard their management is pretty good. They are selling at a reasonable P/E now (14 or so) and are doing something that many in the industry can’t seem to do: make money. They are probably my favorite choice out there
Seaboard – they too are making a nice tidy profit (about $118 a share) and have a good P/E (8) but they are exceptionally expensive: $1000 per share. I suppose if you don’t mind gambling with $10K then they might be a nice buy.
Henan – they are intriguing because they deal to a large extent in pigs (as their symbol, HOGS, would suggest) but I, for one, am a little nervous about investing in China at the moment and thus won’t green thumb it here or in real life.