GNC can be a volatile stock given its exposure to commodity markets, however, this cuts both ways and right now momentum is clearly behind this agribusiness. Importantly, GNC also provides some excellent protection in today’s inflationary environment i.e. higher canola oil/meal and livestock feed is bullish for this producer. The companies enjoyed some nice tailwinds to profitability from rising demand post the invasion of Ukraine, extreme climatic conditions plus of course rising inflation but the question is obviously what now.
They have already upgraded twice this year due to the reasons mentioned above and with its dominant almost monopolistic position across the grain storage and supply chain, we like the insulation that should be afforded by the business if we do see a recession. Remember longer-term MM believes we could have commenced a commodities super-cycle which would be a huge tailwind for GNC as is our bullish outlook for agricultural commodities.
Buying after such a significant rally can be psychologically difficult, however, history/statistics tell us that buying these sorts of companies with earnings & price momentum more often than not adds value. Hence with a stock like GNC which we like it’s all about where to buy after its stellar advance I.e. a couple of broker reports have crossed our desk over recent weeks have said it’s time to take profit, we are more inclined to buy weakness but in a patient manner – we like both the value and risk/reward in the $9-9.50 area.
MM likes GNC under $9.50
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