Produce stocks underperforming - for now

The stock market has been on a nice run, but generally speaking, companies that specialize in fresh produce have been laggards rather than leaders.

For example, the stock for Dole Plc, which made its debut in July 30, is down 5.57% compared with a month ago, and its Dec. 10 price of $13.22 was well below its late July targeted IPO price of $16 per share.

As of Dec. 10, the stock price of $18.44 per share for Mission Produce is off 9.3% off from a month ago, down 18.73% from six months ago, but up 40.33% compared with a year ago.

The Calavo stock price of $40.08 per share on Dec. 10 was 3.65% down from a month ago, 41.4% lower than six months ago and off 46.36% compared with a year ago.

The Fresh Del Monte stock price of $26.09 of Dec. 10 was off 9.97% compared with a month ago, off 25.07% compared with six months ago but up 0.58% compared with a year ago.

The performance of the several produce stocks I mention here compares unfavorably with the S&P Consumer Staples Index, which on Dec. 10 was up 1.28% compared with a month ago, up 4.54% over six months and up 11.27% compared with a year ago.

Why aren't produce stocks showing better results this year? Aren’t fresh fruits and vegetables exactly the right commodity to be selling, on-trend and exactly what health-aware shoppers want? 

Yes, but there is more to consider.

The erratic performance of the past 18 months should raise no alarm in view of the supply chain stresses and increased costs that all produce marketers have seen. 

I recently asked the LinkedIn Fresh Produce Industry Group this question, "Are fresh produce companies listed on stock exchanges a good long-term investment? What are the benefits and drawbacks for publicly traded companies that market fresh produce?"

Here are excerpts from the group:

• No, Wall Street has little understanding on different complexities of agro business from orchard to table .
• I think the biggest challenge to the capital markets, be they public or private, is not the volatility of production or prices, I mean, we've had crop failures since ancient times (swarms of locusts , anyone?) Volatility is known and expected. (that's called due diligence, MBA's know about it) The biggest problem is their failure to understand 'scalability' and how rapid increases in volumes not only sell for less, but sometime completely outstrip demand. Blueberry world is a good example. Fresh guys push excess to the freezer and the freezer oriented wild blueberry crop? I think 2 years ago it was completely abandoned because supply had outstripped demand. But investors were in the bubble are reading press release after press release - people eating more , more , more blueberries. And we blame those darn foreigners and their cheap everything..........Folks looking for a good margin business, 10X it, and exit and run with the money kind of ruin your day.
• Production agriculture is a capital-intensive business with poor cash flow and a volatile income stream, but some investors like to hold appreciating assets, view certain assets as undervalued or benefit from tax treatments some types of agriculture enjoy. Should we look vertical? Some retailers just operate stores but some use the cash flow to accumulate real estate over time. Remember when Albertsons' and Tesco's market cap was worth less than all off the real estate? Should we look at retailers like Marsh, A&P, Brunos and Grand Union and wholesalers like 
• Too many people to please such as board, shareholders, etc. This is a very complex business to understand markets, supply chain factors, and so many aspects. Unfortunately, we aren’t running on speculation.
• The biggest drawback is, Wall Street has a hard time understanding the volatility of marketing fresh produce.

I appreciate the insights of the group. No doubt supply and demand dynamics of particular commodities will tip the earnings of produce companies one way or the other in the coming months. What we can say with certainty is that all of us would do well to go "all-in" on fruits and vegetables when we make our next grocery shop.