When I’m not writing about the stock market, I am usually looking at charts of the stock market. That doesn’t make me the most exciting guest at a cocktail party. But sometimes I think people ought to pay more attention to what I have to say.

For instance, last week Tyson Foods (NYSE: TSN) fell more than 16% after releasing its fiscal 2023 Q2 results. Tyson reported a net loss of 4 cents per share during the quarter compared to a gain of $2.29 last year.

That degree of underperformance will get Wall Street’s immediate attention. That day, trading volume in the stock was more than ten times its daily average.

Institutional shareholders own 85% of Tyson’s common stock. Presumably, at least one of them decided it was time to part ways with the meat producer.

The problem was not top-line revenue, which increased by 1.3%. The culprit was the rapidly declining price of beef.

After peaking near $2.70 per pound a year ago, the global wholesale price of beef fell to $2.22 during the first quarter of this year. That’s its lowest price since the onset of the coronavirus pandemic three years ago.

Last year, global supply chain disruptions pushed many food prices to their all-time highs. By August, the Consumer Price Index for food was growing at an annual rate in excess of 11%.

That is a crisis for consumers with little room to spare in their monthly budgets. More money spent on groceries means less money spent on everything else.

But it is good news for a food producer such as Tyson. Its cost of producing meat is relatively stable, so higher beef prices translate into wider operating margins.

Folly and Fortune

Fourteen months ago, Wall Street drove Tyson’s share price up near $100 in anticipation of the juicy profits higher meat prices would deliver. Last week, it traded below $50 after suffering the consequences of declining beef prices.

Perhaps it is fitting that a quote attributed to Francis Bacon neatly sums up what is happening in the stock market due to meat prices: “The folly of one man is the fortune of another.”

In this case, Tyson’s folly has been the fortune of fast-food restaurant operator McDonald’s (NYSE: MCD). While TSN was falling to its lowest share price in over five years, MCD hit an all-time high near $300.

McDonald’s started rising in the aftermath of the Silicon Valley Bank collapse. Wall Street was running scared and looking for safe stocks to hide out in until the coast was clear and found it under the golden arches.

At the same time lower beef prices were wrecking Tyson’s income statement, McDonald’s was lovin’ it! On April 25, McDonald’s released its 2023 Q1 results that included a 12.6% jump in global comparable store sales.

And thanks to lower food costs, McDonald’s recorded a 66% increase in diluted earnings per share during the quarter compared to last year. Even the Hamburglar couldn’t purloin enough burgers to produce that kind of result.

Rarely do I see the fortunes of two companies reverse as neatly as these two have this year. One makes more money when the price of beef goes up, while the other is more profitable when it goes down.

Sometimes, it really is as simple as that. Despite all the complex algorithms employed by Wall Street analysts to anticipate stock market performance, in this case a single variable outweighed everything else.

Bottom Fishing

The price of Beef won’t go down forever. Demand for protein is rising, especially in Asia. The rapidly expanding middle class populations in China and India have more disposable income to spend on food, and they are adopting American dietary habits.

That raises the question; at what point is Tysons done dropping and likely to rebound? Knowing the answer could be quite lucrative.

From a technical perspective, TSN has fallen below its lower Bollinger Band while its Relative Strength Index has plunged below 20. Those two data points suggest that it has become oversold and likely to soon reverse direction.

Last week while TSN was trading near $47.50, the call option that expires in eight months at that strike price could be bought for 10% of that price (a call option increases in value when the price of the underlying security goes up).

Buying that option could be a profitable trade If TSN rebounds by more than 10% by January. And if TSN makes it back to where it was trading before last week’s big drop, the value of that option would double.

In the investment world, that type of trade is known as “bottom fishing.” Sometimes you can reel in a keeper, if you know when and where to cast your lure.

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