Wednesday, April 05, 2006

Time to sell IBA (Industrias Bachoco SA ADR)?

Industrias Bachoco ADRs seemed to be a good buy a few months ago. Its price parameters were within the lower end of their ranges, earnings and demographics looked good, there was a lot of insider ownership, and it paid a large dividend, which should provide some downside protection.

Since then, it has dropped slightly. I've been wondering: a meaningless blip, or something more important? Maybe something more important. Maybe the threat of H5N1 (avian flu). And maybe I was the last to notice.

H5N1 is probably going to hit Mexico within the foreseeable future, just like it is probably going to hit everyplace else. I have seen what will happen from close up, in the case of H5N1, and from my computer screen in the case of other diseases and other animals raised for food. Bird flu may hit Mexico five minutes from now, or it may it a year from now. When it does, there's going to be large-scale culling. What's more, there's going to be an enormous drop in chicken sales, justified or not; the drop will probably be even bigger to the extent that the levels of literacy and education in Mexico are not quite what they should be.

Chicken sales will nosedive, IBA's sales will nosedive, and IBA's stock will nosedive. The question is, when to sell?


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