Jim (cont'd):

People are trading down to the cheap stuff… there is no question about this… we have proven it time and again.. people would be feeling better about the stock market rally, but as the paper said today, we just lost $11 trillion, 18% of our wealth just vanished… so we don’t feel like buying expensive food at the supermarket or eating out too frequently… this trend has even picked up… well, have even read it in Advertising Age… remember you have got to read the trade publications to come up with worthwhile stock picks… they had an article talking about how the threat of private label to national brands could be bigger than ever… specifically Ad Age was talking about a structural decrease in consumer spending over the next 4 to 10 year… that would be bad… that would allow the cheaper private label foods to take even more market share… as the consumer who is alive, but you know maybe on a ventilator for the next few years chooses to go with the inexpensive options… now you know that I have recommended Ralcorp Holdings Inc. (RAH), that is the private label cereal company… we had Sam Reed on from Treehouse Foods Inc. (THS) the other day, he is terrific at soups, pickles, salad dressings, baby formulas, jams and spreads, and the ever important non-dairy creamer… both of them benefit from the fact that Wal-Mart (WMT*) is making a private label push of its own… as they do a lot of businesses with the king of the trade down retailers.

Okay, so today, I have got another private label trade down play for you… and it is called, it is a mouthful… American Italian Pasta Co. (AIPC)… unfortunately, it was up a dollar today… I tried to nail it yesterday, didn’t get to it… this company is North America’s largest maker of dry pasta…. and the largest private label pasta maker in the country too.. you have probably bought their pasta and not even known it… their brands are Heartland, Golden Grain, the one that you are most familiar, Muellers, among others… now on the private label side where… there is Wal-Mart’s brand… where AIPC is the sole private label supplier… it is called Great Value Pasta… now remember it is the same as this… AIPC gets you coming and going selling branded pasta and the cheaper private label stuff… that is not just noncompetitive, it is darn right anticompetitive… even oligopolistic… I love it… we all know that competition is the enemy of capitalism or at least the enemy of profits...

Pasta is great in a crummy economy… because it a cheaper option for consumers who want to cut back and eat at home… that is why AIPC has managed to from $4 to $30 in the past year… even as the western financial world fell apart… as I said, I wish that I had gotten into it earlier… would I like a pullback, absolutely… but I like the story… and I do believe that people are getting too aggressive about the economic turn… private label sales make up about 50% of AIPC’s total volume… 67% of its retail sales volume… the company can manage between 2/3’s and ¾’s of the retail private label market… so it is the king of cheap pasta… plus AIPC intends to de-emphasize its second tier brands and move its focus to either brands with better market share or the cheaper private label pasta.

This one has got a great Wal-Mart kicker… get this… AIPC is the sole supplier of private label pasta to Wal-Mart that is 22% of a companies total sales… remember 100,000 million people shop at Wal-Mart per week… as Wal-Mart tries to sell more and more private label merchandise.. that is something that they are committed to… they will be selling more and more of AIPC’s merchandise… you can find it at Wal-Mart is about the best thing that you can say about a product in this environment… and AIPC is the only pasta that you can find at Wal-Mart… talk about the spirit of noncompetitive capitalism… in addition to Wal-Mart, AIPC also has a lot of exposure to dollar stores… and off price discounters… which we know are doing well in this environment… remember we had Family Dollar on, that stock has been just screaming… just like all the other companies AIPC is poised to benefit from lower input costs thanks to the commodity collapse… I think that this one is probably the most of the ones that I have covered… durham wheat flour makes up about half of AIPC’s cost of goods sold… I think the others, you would be surprised… the raw materials are not nearly as much of the cost.

Around this time last year durham wheat was prices at $25 a bushel, now it is at $6.75 a bushel… again, maybe that is why the stock has run a lot… but I think there is more… that is going to be huge for AIPC’s margins, its profitability… as every dollar in sales will bring in a higher percentage of profits… now the companies buy their wheat 6 months ahead of time… so costs should really start coming down in the second half… we have heard that from a lot of our food companies… that is okay… I think you want to get ahead of that… AIPC is the kind of stock that has the potential to explode higher… alright, market cap $600m, only 4 analysts cover it… stock gets more attention it is going to fly higher… limit orders… that said, AIPC has already had a huge run… so I would definitely wait for a pullback here before you… this one I am just forbidding you to buy on Monday… if people get too excited they are going to have… I will probably be in the cross hairs of some cable TV show.

The stock is trading at 11 times next years earnings with a 10.5 long term growth rate… not that expensive based on the earnings but with small companies with this one you have to be careful… buy using limit orders… never buy all at once.

Here is the bottom line…