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Get ready to love the other white meat, Cramer said on Wednesday’s Mad Money.
The pork business has become very attractive as hog prices fall, beef prices soar and people “trade down” for pork. Those are some pretty good signs for pork producers Hormel [HRL
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] and Smithfield Foods [SFD
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], Cramer said.
The hog glut, as he called it, is a simple product of the U.S. producing many more hogs than was expected, driving prices lower. We have a lot more hogs on our hands thanks to imports from Canada and a lack of significant exports to China. Even rising grain prices can’t slow down our hog glut, Cramer said.
Grain prices are, however, the reason why beef has become so expensive. A lot of grain translates to not that much steak and people are feeling the pain in the grocery aisles.
So what do they do? They switch to pork. Cramer thinks Hormel is the bigger winner on the hog glut/beef trade-down trends because it buys almost all of its hogs, while Smithfield only buys half. Smithfield is actually the better company, Cramer said, but it has the entire production side of the hog business that isn’t needed when prices are so low.
Hormel’s fundamentals look sound, too. It has significantly less debt than Smithfield and a pristine balance sheet. If hog prices stay so low, Cramer thinks Hormel could go to $48. If prices do rise, he sees only $3 of downside.
Watch the video for details on the hog glut (and see the special guest who visited Cramer on set).
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