THANK YOU MR. MARKET

Flowers Foods reported this morning and beat the street by 2 cents. They also reconfirmed 2009 earnings guidance. Perfect. But they also lowered their revenue guidance which was disappointing. They're still growing, quite an accomplishment in this economy, but not getting the bang for their buck out of last year's acquisitions.

The stock market has taken .70 off the price so far this morning. The good news is that it makes my $25 covered calls that expire on Friday a winner. I get to keep the premium and the stock. And I'm still very happy with the company and its prospects. It is still a winner in this downturn and when the economy turns as it continues to grow responsibly and profitably while paying a 3% dividend.

I own quite a few shares so I haven't decided to buy more with this sell off, but I could if it gets more severe. We'll see what the day brings as early morning results are usually driven by day traders and short sellers. The conference call may turn the tide.

Monday I'll sell calls again, reap the premium, and sleep nicely with this outfit.

Flowers Reports on Wednesday

Flowers has been one of my favorite companies for the last several years. The more I learn, the more I become a believer. Management is good and they don't get confused by "high finance" in Thomasville, GA. They consistently grow sale, earnings, and the dividend. A very nice dividend.

On Wednesday they report quarterly earnings. I have no idea if they will exceed analysts' expectations or not, but I'm confident that they won't miss their guidance. Part of my confidence comes from Sara Lee, the bread division, and Tasty. Both reported last week and grew sales and gross profits, benefiting from price increases and ingredient cost decreases. I would expect FLO to benefit from those same trends.

Flowers isn't a home run stock, but it is the kind to own in crummy times. They pay a nice dividend and there is room to move upward in share price, and, the downside, if the market craters, isn't huge. It's a company that allows you to get a return through not only share price appreciation, but a conservative dividend, and a small covered call premium. Now I'm going to eat a donut and contribut to sales revenue.

Enjoy Summer Because The Fall Is Coming

And I do mean the fall. Falling stock prices this Fall. The market, no matter how good it feels, is way ahead of reality. I know Warren Buffett says that markets rebound before economies do, but this economy has a long way to recover before it is healed. We have made only a small dent in deleveraging the years of debt exuberance.

This Summer I've lopped a couple of strokes off my golf handicap, worked down the honey-do list, grilled and floated in the pool with the dog. My remaining stock portfolio has done wonderful and I don't regret any opportunity cost associated with my outsized cash position. Grilling, beer, and a growing portfolio-perfecto!

It took a while but I finally got out of a stupid investment, Southwest Airlines. When I bought it I opined that it was a lousy industry and even Buffett had trouble making money in it. But I thought LUV was the best and the price was attractive. Well I've been in a deep loss for months and the market euphoria has finally pushed it up enough that I've exited with a decent gain. But, the industry stinks and I've learned a lesson. Never buy a great company in a bad industry.

Flowers reports soon and I think all the insider buying bodes well for the results and hopefully it isn't already baked into the price. Aarons and K12 have rebounded nicely and should continue to move upward as their sell-offs were overdone. My remaining stocks like the above names and Waste Management are all defensive and should do relatively well when the market moves South as I expect it to this Fall.

Why do I expect it to decline? Here's why:

Commodity prices don't signal growth, they signal speculation

China's growth will be modest and their commodity binge is troubling

The chicken and the egg question and I think the American consumer will not be enticed by cheap Chinese goods. Saving yes, buying no.

Financials are not healed and will need another round of capital raising, if they can get it.

Obama is finally starting to scare both business and consumers

I could be wrong, but as Charles Barkley says: "I don't think so". It remains better to protect capital than to miss gains.

Insiders Keep Buying Flowers Foods

I already own a good position, for me, in Flowers Foods and am being tempted to buy more because of continued insider activity. This baker is one of the few companies that is continuing to grow sales and hit earnings targets during this recession. It just isn't an exciting company. But it is a performing company.

The latest purchases were from the CEO and a director. Both for reasonable amounts of money. Other directors and officers have been exercising options, paying the taxes, and keeping the stock. You've got to go back well over a year to see insiders disposing of their holdings. These good ole boys like their company. So do I.

As a steady, growing earner with an attractive dividend, FLO stands a good chance of recovering to its old highs of $30ish. I don't think anything terrible is imminent or insiders wouldn't be buying. I'm happy with my position and, as I said, that position my get larger.

Specialty Food Producers Have Been Tasty So Far In 2009

January hasn't been kind to the buy and hold investor. Short selling, put buying, call writing, and, maybe, some savvy trading would have goosed performance.

Besides the For Profit Education stocks that I've written about before and believe to be overvalued, there is another small industry subset that has done well. Specialty Food has done nicely so far this year. I'm not talking the likes of Kellogg, ConAgra, or Pepsi, but their smaller, niche brethren.

Flowers Foods, Diamond Foods, and Smart Balance all have staked out corners of the food industry and dominate their niche. FLO reported today and beat by 3 cents and had a promising outlook. DMND had a similar report about a week ago. SMBL hasn't reported earnings yet, but they haven't pre-announced either. I own all three and wish I owned more at my entry basis. Adding to a position in this market is always dangerous since many brilliant ideas turn into falling knives. If I add more it will probably be FLO as they have the most conservative balance sheet.

It will be interesting to see how these companies perform in a bear market rally. they've done well by me since January and I remain hopeful that they will continue to

be tasty. 

LAST WEEK I WAS A SUPER BOWL STAR. THE PRIOR WEEK I WAS THE GROUNDHOG AND ENGULFED IN MY SHADOW

My missives from this past week were worthy of wearing a Steelers uniform. Flowers Foods was up $.50 today for a nice percentage gain. My Vulcan puts and shorts gained value as that stock continued its slide. Best of all, I followed my own advise and did not short any of the for profit education companies such as ESI. ESI charged upward today as it always does when the market in general is having a down day as investors seek the perceived safety of this sector. Finally PSD edged closer to it's February 6th merger closing date and its price rose a few pennies.

The prior week I thought the pounding of the nation's best airline was overdone and opined that it was a buying opportunity. Southwest [LUV] stutter stepped for a few days and has gone down ever since. That brilliant decision, so far, was worthy of  Punxsutawney Phil  being engulfed in his shadow. It's a gloomy feeling. 

Todays results were approximately a push financially since I put more money into LUV. I'm hoping that the Steeler in me makes a continued comeback tommorrow and I can lift that cloud as making money sure feels good.

Flowers Foods: A Holsum Buy

On February 5th Flowers Foods [FLO] will announce their latest quarterly results. I expect the results to be good as the company updated 2008 guidance as recent as early December and the company has a good record of managing Wall Street's expectations. In our current environment of lower results and cloudier forecasts, I expect Flowers to be relatively upbeat about their 2009 results.

In the interest of full disclosure, and humility, I first became interested in FLO last Spring during the rampant increases in commodity prices. Food costs were skyrocketing along with diesel prices and Flowers' competitors were reporting terrible results as input costs were far exceeding the ability to raise prices. Flowers was still selling at an all time high and hadn't seen any impact of the stock market pull back. I expected that increased costs would affect their earnings as they had their competitors and net income would drop below expectations. I bet against Flowers. The company announced record sales, earnings, and raised the quarterly dividend. I lost money. But I was impressed by a management that could outperform an entire industry. I decided to keep watching and waiting for an opportunity to buy FLO and recoup some of my losses.

Several quarters have elapsed and the results have been the same. Management has continued to deliver the results in an economy that has grown more difficult. Forbes Magazine recognized the same and named Flowers the best food company of 2008. 

The company is forecasting net income, for 2008, of between $1.22 and $1.26 and 2009 net of between $1.33 and $1.45. Earnings will grow at an estimated 12% rate and the company's forward P/E is only 15. FLO's ROE is 16%, debt-to-equity isn't excessive at .43, and they pay a dividend that yields 2.5%.

Best of all, Flowers can be purchased now for $21.50. It sold not too many weeks ago around $30. Yes, most stocks are not selling for anywhere near all time highs, but, also, most companies are not increasing earnings and forecasting continued growth. Flowers' management has proved, through performance in tough times, that they are a company worth investing in. The recent stock price decline has given investors an opportunity. FLO isn't cheap, nor is it expensive. It remains a growth stock that is now selling for a very reasonable price. It, the price, could decrease from its present level, but people will continue to eat bread and this management knows how to bake it into profits.