Turning my attention away from the wreckage on Wall Street, a small headline caught my eye.  Yesterday, the West African nation of Togo confirmed that a deadly virus discovered on a poultry farm with more than 4,500 birds was indeed H5N1, otherwise known as bird flu.

I figured since we are in the fear mongering mode raising the issue of a global pandemic threat seems like a logical thing to do. I mean what would happen to the global economy if millions become ill or worse with bird flu?  We would really panic then right?

A few years back the mere suggestion of bird flu would decimate stocks in the poultry business.  Forget about pandemic, if bird flu spreads an entire industry could be wiped out. One of the names I follow in the group, Sanderson Farms (SAFM), saw its stock drop hard during the first go around with bird flu.  Yesterday there was barely a blip.

Maybe there is nothing to fear after all?  The market, as a forward looking instrument, has done such a great job of valuing businesses as evidenced by what is transpiring in the financial space. I’m sure they are getting it right with respect to the risk of bird flu spreading around the globe (yeah, right!)

Putting bird flu aside, SAFM has been treading water during the current economic malaise.  With restaurant demand slowing and feed prices rising, profit margins are decidedly lower.  Will increase demand from home cooking be enough to stem the tide (see, “Consumers Spending More Time in The Kitchen?“) The jury is still out as we navigate recessionary waters.  The good news is that commodity prices are falling.  SAFM does not hedge its feed prices thus the drop in feed cost will be very positive for the company.  Keep in mind these prices have increased by 52% for soy and 31% for corn. Clearly such a state was an anchor on SAFM’s performance.

SAFM is basically in the same boat as the airline sector.  With airline stocks rebounding as oil prices drop we can expect the same with SAFM.  Or at least that would be the logical thing (see, “Airline Stocks: Cleared for Take-Off“). Of course, SAFM does not have the luxury of charging more for its products with fee surcharges, but a reduction in operating cost will still be beneficial to the company.  They are cutting production and that should help with end user pricing.

The U.S. Department of Agriculture reported earlier this month that egg sets, an indication of future production, have been down between 4 and 5 percent in recent weeks compared to last year. Sanderson is also planning to operate its new Waco, Texas plant at only 90 percent of capacity until market conditions warrant moving to full production.

Without a doubt Sanderson and others in the industry face some pretty strong headwinds, but conditions do seem to be improving.  Any strength in the economy will be a boon for SAFM stock. Shares currently trade for a modest 11.5 times forward earnings and 46% of sales.  That is a modest valuation that could certainly improve if profit margins expand and growth returns.

That being said if bird flu does indeed move from the back pages of the news to the front pages SAFM could be in a world of hurt.

This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com.