Standard & Poor's invites Spam to join S&P 500 Index

Posted Feb 25th 2009 1:20PM by Elizabeth Harrow
Filed under: Good news, Hormel Foods (HRL), Options, S and P 500

Just last week, Hormel Foods Corporation (NYSE: HRL) surprised investors with stronger-than-expected first-quarter earnings. Sales during the period were boosted by healthy demand for the company's recession-friendly canned ham-like product, Spam. Today, it seems that Standard & Poor's is revealing its own soft spot for potted meat, announcing that HRL will join its storied S&P 500 Index as of the close of trading on March 3.

Hormel will replace American Capital Ltd. (NASDAQ: ACAS) in the closely watched broad-market index. The latter stock has given up nearly 96% of its value during the past year, and it's extending those losses today with a plunge of more than 16%.

Conversely, HRL is up 3% on the strength of its new Street cred. In fact, the shares have been catapulted atop their 32-week moving average, which has acted as resistance since May 2008. If the equity can manage to finish out the week above this critical trendline, it could indicate that Hormel's recent rally has the legs to run higher.

Meanwhile, the lingering pessimistic sentiment toward this breakout stock suggests that there's still some sideline cash to help HRL tackle technical resistance. During the past 10 days, traders on the International Securities Exchange (ISE) have bought to open 2.27 puts for every call, revealing a distinct preference for bearish bets. If these skeptical investors are spooked by HRL's solid price action, the unwinding of these short positions could contribute to continued gains.

Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.

Tags: ACAS, American Capital Ltd., AmericanCapitalLtd., hormel foods, HormelFoods, HRL, inthenews, investor sentiment, InvestorSentiment, options, SP 500 Index, Sp500Index, Spam, SPX, Standard Poors, StandardPoors, technical analysis, TechnicalAnalysis

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Reader Comments (Page 1 of 1)

2-25-2009 @ 1:36PM

ryan said...

This is questionable. Sentiment for HRL looks is pretty bearish (http://www.predictwallstreet.com/forecast.aspx?symbol=HRL ) and looks like it may be that way for awhile. Dont get me wrong, I love my Spam, but can this company really sustain boosted sales?