Remember the Alfred Hitchcock thriller “The Birds”? It would scare just about anyone. To Champagne Osterman, the chicken is even more frightening.

She wrote in a recent e-mail: “Dear Dan, my husband and I bought Pilgrim’s Pride (the country’s second largest poultry producer) between $38 and $39 and we’re getting killed.” (The stock closed Friday at $26.13.) “Our broker, who originally told us to buy it, is urging us to buy more shares and average down our average purchase price. Does this sound like a good idea to you? Please respond as soon as you can since we have about 12% of our life’s savings tied up in this stock and we badly need guidance.”

Actually, Champagne, having that much of your savings in a single stock, especially one that’s high-risk, is dangerous. I would diversify your stock holdings and change your broker.

As for Pilgrim’s Pride, the investment community is flashing mixed messages on poultry producer stocks. As I’m sure you know, bird flu worries have led them to slump even as the market has risen this year. Poultry producing kingpin Tyson Foods ($14.60) and Pilgrim’s Pride have nose-dived from their 52-week highs and are trading just modestly above their past year’s lows.

While Credit Suisse and others argue that much of the bad news is already reflected in the stocks, one industry tracker, analyst Greggory Warren of Morningstar, disagrees. Based on his extremely negative assessment of both companies, he essentially suggests the chicken stock bashing may be far from over.

What’s more, a number of health experts say it’s only a matter of time before the virus – which has spread to the Middle East, Europe, and Africa from Asia – reaches American shores. It’s generally felt that such an outcome would drive these stocks considerably lower.

All told, there are 15 types of bird flu. Currently causing concern is the deadly strain H5N1, which can prove fatal to humans.As of April 27, according to the World Health Organization, 204 cases had been reported worldwide, leading to 113 deaths. The first case was seen in Hong Kong in 1997.

Another reason Mr. Warren takes such a cautious stance on meat processors is the stark increase in chicken supplies over the past six months, and the likelihood that beef and pork supplies could head upward as well.

Characterizing poultry processing as ultimately a low-margin business in which very few companies generate above-average returns, the analyst notes that Pilgrim’s Pride has struggled to earn returns on invested capital in excess of his estimate of its cost of capital. While this is the norm for the industry, the situation is made worse for investors, he argues, by the company’s “poor corporate governance.”

Raising serious questions about its management, Mr. Warren views Pilgrim’s Pride as “a poster child for poor corporate governance.” Through a network of family trusts and limited partnerships, the current chairman and co-founder, Lonnie “Bo” Pilgrim, controls 60% of the company’s outstanding shares. As the dominant shareholder, “He has shown a propensity for running the corporation like a family business, rather than acting in the best interest of its shareholders,” Mr. Warren says.

While the company holds annual elections for its directors, the results, the analyst says, are generally dictated by the family. The chairman and his son, Lonnie Ken Pilgrim, sit on the company’s compensation committee, and several additional members of the Pilgrim family are also employees. Beyond several related-party transactions with the chairman, the company also has chicken-grower contracts with several other officers and directors.

In the case of Tyson – which has considerable representation in beef, chicken, and pork processing – Mr. Warren says the firm’s attempt to boost sales and margins by branding fresh-cut and packaged meats has come under pressure, as other meat processors have adopted similar strategies. This is bad news for Tyson, which has struggled to generate operating margins in excess of 3% a year over the past five years and has posted returns on invested capital in just the 6% to 7% range during the same time frame, Mr. Warren notes.

If this isn’t enough to keep investors away from this low-return business, Tyson – which recently reported it would have a second quarter loss – also has had a long history of poor corporate governance, Mr. Warren says. Included here are questions about company activities involving labor issues, environmental concerns, patent infringements, and accusations of bribery and collusion.

Mr. Warren never said it in so many words, but his bottom line seems clear: Don’t horse around with stocks that can’t fly.

dandordan@aol.com