The great investment wisdom, "buy quality stocks, when it's...

The great investment wisdom, "buy quality stocks, when it's marked down, due to big but solvable temporary issues" stood the test of time, yet the majority of investors do exactly the opposite "sell low and buy high".

First of all, MGC problems: MSSP, downturn in dairy commodity price and lower milk intake. Yes, these problems hit earning quite hard, but MSSP and low milk intake is linked to downturn in dairy price. When the dairy price recovers, MSSP and low milk intake will no longer be a issue. I would say MGC problems are solvable and got a lot to do with global dairy commodity price.

Secondly, I am not betting on dairy price to recover really soon or really late. But, the fact that Devondale brand and other MG consumer brands are gaining traction in market and growing at healthy margin, says something about MC moves to insulate its earning from volatility in dairy commodity. Eventually, when MG becoming less dependent on its ingredient business( commodity) which consumes around 60% of its milk intake and operate at loss this year, while moving to its brand products, MG will be a better company.

Third, a bad company does not realize its problem, let alone finding a solution. I believe the media around dairy price and suffered farmers definitely hit MG hard both in terms of profitability and corporate image, making it to realize its problem and work hard out of the crisis. This has resulted in review of MSSP, implementation of SAP and cost reduction initiatives.

2016 earning sits at $40.6 millions
Given its 2017 milk intake will likely be 20% lower, its real impact on overall profit will be much less than 20% (potentially only 5-10%) because MG would start reducing the volume of its unprofitable ingredient business.

The last point, I believe is the most critical piece of information that is ignored by the market:cost optimization.
$10-15 millions in 2017 and 50-60 millions by 2018. These reductions are permanent through headcount reductions and corporate restructure.

My analysis: 2017 FY earning will be in the range of $41 to 43 millions and in 2018 earning between $80 to 85 millions.

"buy a marked-down quality company" will do well over time.