Who Buys Ice In Winter? Reddy Ice Knows

01/19/09 09:12:33 AM

by Koos van der Merwe

One of the few stocks moving against the Dow Jones Industrial Average's recent down correction is Reddy Ice Holdings. So why has ice become so important, especially in winter?

Security: FRZ
Position: Buy

Why ice has become so important depends whether you live in Canada or in Texas. Ice is hot stuff, especially when you own the Ice Factory. Reddy Ice's proprietary technology allows grocery and convenience stores to make and package their own ice automatically. Reddy Ice is also the largest US maker and distributor of packaged ice products with the capacity to make about 15,000 tons of ice per day. In addition to its Ice Factory machines, the company sells ice in a variety of shapes and sizes (ranging from seven-pound bags to 300-pound blocks) to retail, commercial, and industrial customers throughout the southern US and the District of Columbia. So yes, ice can be a profitable venture.

FIGURE 1: FRZ, WEEKLY. The market may be down, but investors may be drowning their sorrows and adding ice to their drinks.

Graphic provided by: AdvancedGET.

Figure 1, a weekly chart, shows how the price has fallen from a high of $32.31 on July 6, 2007, to a low of $0.35 by November 21, 2008, a drop in stock price that suggests holding ice is a melting operation. However, from that date the price has risen to $1.42, a possible sign that too many hurt by a collapsing stock market are drowning their sorrows and using ice to cool their drinks.

FIGURE 2: FRZ, DAILY. Reddy Ice shows the development of a possible inverse head & shoulders pattern

Graphic provided by: AdvancedGET.

The first thing that strikes you when you look at a daily chart (Figure 2) is the inverse head & shoulders pattern that seems to be developing. The target, should the price break above the neckline at $2.51, is $5.11 (2.73 - 0.35 = 2.38 + 2.73 = 5.11). In addition, note that the relative strength index (RSI) gave a divergent buy signal on November 21, 2008.

A stock to watch, even though my mother taught me, "You never buy ice in winter."

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.