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Tyson Foods Positioned to Fly

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NEW YORK ( TheStreet) -- One of the more fascinating aspects in corporate China is that business relationships are created and reinforced over food and drink. When I frequented there for business, I never missed an opportunity to take advantage of mealtime to strengthen my connections. Besides, eating out in China is a sensational experience, unlike most restaurants in America, in my opinion.

For example, many seafood restaurants (my usual choice when asked) in China have a giant aquarium feel to them. After entering and settling on a table, you usually walk to a large area with dozens and often a hundred or more tanks surrounding tables in the middle, all with various sea creatures on display.

As you transverse the offerings, an order taker writes down your selections, which are in turn caught, cooked and served. It just doesn't get any fresher than straight out of the tank, and it's quite the spectacle the first time. The fish inspection is a mere formality, but demonstrates the importance and concern for food quality. Some restaurants even display ducks, chickens and rabbits in small cages for the same reason.

Live animals don't fit well in the business models of Yum! Brands , McDonald's and Wal-Mart and their need for high-quality, low-cost food sources. As the middle-class grows in size each day, so does the demand for high-quality, safe foods. Yum! Brands KFC recently reported weak sales after concerns of illness drove customers away. In order to achieve the revenue actually received, KFC needed expensive promotional discounts to drive traffic.

TSN Gross Profit (Quarterly) Chart

Enter Tyson Foods with a solution to China's inconsistent and fragmented food-supply chain. Tyson has another solution to achieve food safety and integrity. It's building corporate chicken farms with strict quality-control measures to ensure a consistent quality product. I wrote exact entry, profit target and stop-loss price ideas in Real Money Pro for investors to consider. (You should be a member, as membership costs a lot less than a loss caused by incomplete information.)

Typically, Tyson avoids the risk with operating farms and focuses on processing; however, in China, the competitive advantage comes from owning the entire supply chain and exploiting the brand to achieve higher product revenue and earnings. Large retailers (cooked and unprepared) can't afford to have their names tarnished over reports of poor quality.

This is a perfect example of when quality costs less, and Tyson Foods is positioning itself as the go-to brand in China. Tyson's investments should begin paying off late 2014, but because the market is forward-looking, expect relative improvements in guidance to payoff in the first half of next year.

TSN Operating Income (Annual) Chart

Tyson has a relatively low forward-earnings multiple of 11.6, a 7% quarterly revenue growth year-over-year, and an even more impressive quarterly earnings growth rate (although on a small basis) year over year.