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International trade trends growing in influence, analysts say

Overall, Mississippi public companies should continue to outpace the S&P 500 in price appreciation, but international trade trends will have a greater impact on the state economy, say financial analysts and industry experts.

“Because the business environment today is not just national, but global, we do not track the Mississippi economy in isolation,” said George H. Borg, CFA, a principal with Smith Shellnut Wilson, a Ridgeland-based investment firm. “Things that happen in seemingly isolated parts of the world are having a greater and greater impact on our economy. The two biggest obstacles to economic growth in 2005 are rising interest rates and higher energy prices, specifically oil. These factors will slow the U.S. economy, as well as the Mississippi economy. These factors will have an impact on the companies doing business in this state.”

Borg pointed out that banks perform best when the yield curve is steep, or when short-term rates are much lower than long-term rates.

“The yield curve has flattened since the Fed began raising rates last June 30, which will make it harder for banks to grow earnings,” he said.

Julie Schumacher Hoggatt, senior analyst of medical technology for Hibernia Southcoast Capital, said the outlook for Microtek Medical Holdings (NASDAQ: MTMD) for the remainder of the year “looks good because they’ve increased the number of brand new products they offer — expanded branded products means higher margins — and they’ve expanded on their GPO (group purchasing organization) contracts.

“On the OEM (manufacturing) side, Microtek should continue to do well. I think last quarter was one of the first times the company has beat our estimated gross margins. Their acquisition integration of Plasco and IMP (International Medical Products) is fully implemented. They’re working on increasing the margins. And we see that as something that could also help drive growth in 2005.”

Bill Herndon, a professor of agricultural economics at Mississippi State University, expects prices for most commodities to be very low, especially for feed grains, corn and soybeans, because of recent worldwide bumper crops.

“Rice is doing a bit better while corn and soybeans are probably a lot lower than they were this time last year,” he said.

Herndon doesn’t anticipate any concerns related to the legal action entangling Delta & Pine Land (NYSE: DLP), the nation’s top cottonseed producer, and St. Louis, Mo.-based Monsanto (NYSE: MON), a seed and herbicide supplier and partner.

“They’re still in litigation, but they have a working relationship and there shouldn’t be any problem with planters this spring,” he said. “Their licensing agreement is in place and they’re moving forward. Whatever happens in litigation is another issue altogether.”

Ashby Foote III, president of Vector Money Management in Jackson, pointed out that the Commodity Research Bureau index hit an all-time high this year, “but most of that rise has been in industrial commodities, such as metal, copper and gold, which have hit close to record highs.”

“Agricultural commodities have not done as well,” he said. “But I think the outlook for agricultural businesses is very bright because of the rise of commodities in general. I’d think it would benefit Delta & Pine Land.”

Sanderson Farms (NASDAQ: SAFM) of Laurel and Cal-Maine Foods (NASDAQ: CALM) of Jackson should continue to thrive, said Foote.

“I don’t want to forecast the price of eggs or chicken, but both stocks are trading at very reasonable earnings multiples,” he said. “In fact, Cal-Maine is only trading at 5.3 times earnings, so obviously the market doesn’t believe those robust earnings they’ve enjoyed are necessarily going to continue. We’ll see what happens. Sanderson Farms is trading at 10 times earnings. Both are reasonably valued relative to earnings. Sanderson Farms has some expansion going on, including some new facilities being built in Georgia, which should work out well for them if they continue to execute as well as they have for the past several years.”

For the last 10 to 15 years, the real estate investment trust industry has been successful because of the low interest rate environment, and EastGroup Properties (NYSE: EGP) and Parkway Properties (NYSE: PKY), both of Jackson, have made tremendous strides, said Foote.

“I see that continuing, though I’m starting to get a little concerned about real estate prices getting on the high side,” he said.

Morgan Keegan analyst John R. Lawrence said the investment community is closely watching Jane F. Aggers, the new president and CEO of Tupelo-based Hancock Fabrics (NYSE: HFK), who recently replaced long-time company chief Larry Kirk.

“Obviously, when new leadership comes in, there will be a thorough review of the business,” he said. “She’s starting that process now. We expect to see implementation of her strategy in the next several months. A lot of this relates to merchandising, where improvements can be made. She comes from a competitor with solid industry knowledge.”

Lawrence said that the previous management team at Hancock Fabrics had done a solid job of repositioning themselves in the marketplace by adding to the home décor business.

“The new CEO will probably fine-tune that strategy, making sure, for example, that the merchandise issues are totally correct,” he said. “If she’s successful, and shareholders are patient, they’ll be well rewarded.”

Contact MBJ contributing writer Lynne W. Jeter at lwjeter@yahoo.com.

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