Yes, this is about #2. At least the chemical equivalent. So let’s get the jokes out of the way first…
Whenever one stock grows enough to represent an inordinately large percentage of the index it belongs to, you know there is some major dislocation going on. And it is about to be corrected.
Right now that would be Potash (POT), the fertilizer company from Saskatchewan, Canada. Potash is now the 2nd largest company on the Toronto Stock Exchange at $60 billion capitalization. The largest is RIM (RIMM), which along with Potash has been the engine that has propelled the Canadian indexes higher in 2007 and so far in 2008, almost unassailable.
From the bottom of the bear market in early 2003 to recent times, Potash stock has given the lucky few to have ridden it loyally higher, a “20 bagger”:
The problem is that right now it is priced for utter perfection. And if the world is one thing, it is imperfect. For one, there is no reasonable logic to its valuation.We have more than ample reserves yet to be mined. In fact, according to the International Fertilizer Association (who should know), at the current rate of use, we have enough proven reserves to last us another 300 years.
And strangely enough, inflation-adjusted potash prices have continuously and consistently fallen over time. It is only in 2007 that we’ve seen an exception to this with KCl (potassium chloride) prices tripling. This is a response to a similar rise in the price of sulfur and natural gas (raw materials) for potash.
To bring back some perspective to this, consider a research note from Merrill Lynch saying that if we add together the capitalization of the 3 large fertilizer companies: Potash, Mosaic (MOS) and Agrium (AGU) we have a value larger than the sum of the value of all potash ever mined and sold in modern history!
During the tech bubble of 2000 many Canadians remember how the TSX index was pulled higher by Nortel (NT) to levels it wouldn’t have attained by its own accord. But POT’s meteoric rise makes Nortel’s look pathetic in comparison.
If you were lucky enough (or smart enough) to buy Nortel at the 1998 October bottom - around $75/share - and repeat the miracle of perfect timing again to sell at the top, August 2000, at around $830/share, you would only be boasting a 10 to 11 “bagger”:
If you have been fortunate enough to be long Potash, the good times may be over. Time again to look for what most are ignoring.
Wednesday, April 30, 2008
Gold, Oil, Potash and Food: Top Investments This Decade
Last week I wrote a piece forecasting $200 a barrel oil and $2,000 an ounce gold, and I gotta say, I’ve never seen that amount of mail generated by a single article in all my years as a writer. The top concern of the correspondents was, “How do I invest to protect against and capitalize on this eventual reality?”
I haven’t responded yet to all of the email, because it would take me a month to respond individually. So I thought this week I would flesh out the themes in that article a bit in the hopes of providing a path to prosperity over the coming decade.
Of foremost importance is to embrace the idea that the investment climate of the next decade is nothing like the last decade. The landscape and very mechanics of market fluctuations have transferred, as the market itself has become instantaneously reflective of immediate influential factors, from a reactive environment to a predictive one.
What I mean by that is, in the past, the fluctuations in the markets in general more in reaction to economic data and events, whereas now, with the near-instant transfer of information independent of geography or time zones, combined with the massive computing power of linked networks and light-speed chips, the market has become more predictive of data and events yet to transpire.
This is why we are seeing days rife with bad news where the markets are exuberant versus days where the news is benign or even great, and the market plummets. The most capitalized investment institutions are using their formidable human and computing resources to position for what they believe the market will do tomorrow, 5 days from now, 30 days from now, etc. The arcane mathematical models developed, deployed, and then reconfigured again by thousands of Ph.D.’s in the course of a single session, and then revised overnight render us individual investors virtually powerless to accurately predict short term price movements.
This is also why the junior markets are floundering right now.
The volume of available equity units no longer qualifies for the massive position changes demanded by these quantified models, so they’re left to function absent an ever growing number of institutions. The problem compounds itself as performance in the juniors stalls, invoking further abandonment by banking units who need volume and yield.
It’s the same thing that draws the largest investor classes ranked as 1) Traditional Funds, Banks and Insurance Companies 2) Sovereign Wealth Funds, and 3) Hedge Funds away from low volume junior markets and towards large volume (and therefore, larger yield potential) derivative transactions. With the re-bundling and risk insurance opportunities afforded as further derivative of derivative transactions, its no wonder the asset backed securities market turned into such a feeding frenzy before the inevitable melt-down.
Currently, a second feeding frenzy is developing, as these opportunistic groups circle the growing pools of distressed assets now flooding the market, making ready to swoop in and scoop them up when the bottom is perceived.
During the first quarter of 2008, 650,000 U.S. families saw the initiation of foreclosure proceedings on their homes. That’s 1 in every 194 U.S. households!
One in every 54 Nevada households received a foreclosure filing during the first quarter, the highest foreclosure rate among the states and 3.6 times the national average. Foreclosure filings were reported on 19,595 Nevada properties during the quarter, up 3 percent from the previous quarter and up 137 percent from the first quarter of 2007.
Foreclosure filings were reported on 169,831 California properties during the first quarter, the highest total among the states and a rate of one in every 78 households — the nation’s second highest foreclosure rate. Foreclosure activity in California increased 32 percent from the previous quarter and was up nearly 213 percent from the first quarter of 2007.
Can you imagine the re-bundling and derivative parasites of Wall Street now slavering and foaming at the lips to whip up a new carnage for maximum gain?!
So back to the main question – how do we invest – and thereby defend ourselves against these newly skewed and un-equitable markets?
The only way is to invest for long-term value. Forget what’s “hot”. That’s the language of Wall Street teeing you up for the sucker punch.
You’ve probably found your way to this article because you already have developed a healthy mistrust of the Wall Street top tier publications, who obscure the parroted PR messages amid “journalism”.
And down here where the rhetoric goes a little more lights and the language tends toward plain, we embrace the lessons of history, with our gaze firmly set on present reality.
And the reality is: gold is a reliable hedge against floating fiat currencies whose values are literally unquantifiable. Buy physical gold, or ETF’s backed by physical gold, for the conservative portion of your portfolios. Owning the majors who demonstrate continues reserve growth each year is also a good bet for conservative positions.
Finding a few well positioned and well managed gold juniors for the higher risk portion of your portfolio will be an astute investment in time. More and more, quality deposits will be picked up at earlier stages of development, providing shorter-term payouts for the right projects. Look for juniors with near surface, higher grade situations close to infrastructure in politically stable jurisdictions. Look for management teams with connections to larger companies, and track records of success.
Watch our for companies financed too cheaply and/or frequently, with so much paper out, that even if they found Fort Knox the upside for investors would be severely encumbered by the company’s own derivative slicing and dicing.
When it comes to oil, Canada is where its at for the next decade. The costs of production of oil from the sands of northern Alberta and BC presently start at about $80 a barrel, and so with prices below that a relic of the past, and with more oil than Saudi Arabia and Russia combined, you’d be nuts not to have investments here.
Same thing applies – producing majors for conservative positions, premium juniors for the risk tolerant ones. Increasingly, jurisdiction matters. Don’t think that any foreign country is exempt from nationalist inclinations should it be deemed their discovered fields are in the “national interest”. More Ecuadors and Mongolias are our there. Personally, I’d stay right out of China. Any nation who shoots its youthful citizens can’t be trusted in business. There’s a day of reckoning on that horizon yet.
Now where we have new opportunity is in agriculture. Poor farmers are about to become the next minted middle class. Unfortunately, most of the Mom and Pops out there of any size are going to be consolidated into large Agri-Corps.
The process has already started in Canada, where new Capital Pool Companies and other emerging juniors have already begun the process of consolidating farms under centralized management systems to maximize positioning on anticipated future high demand crops.
Its not just rice and wheat that are seeing record highs. It's EVERYTHING!
We could even see agricultural land start to compete with residential real estate in terms of value growth, considering Ag-land is going north while residential is still tanking.
And so, in tandem with concerted farming activity, potash remains a tremendous opportunity, as its price will continue to climb. Already up 227% in a year, this is one commodity that threatens to outpace gold and oil in terms of near term performance.
As with oil and gold, the major producers are conservative bets (well not so conservative with the largest producer, Potash Corporation of Saskatchewan (POT) predicted to increase in price by at least 50% according to bank analysts), while the handful of juniors who are able to lay claim to good potash ground will provide some heart-stopping gains for riskier investments.
There are many other ways to invest in this quad of investment profit – but I don’t have time to write a book on it….yet.
James West
About this author:
Bio & more articles Visit Midas Letter Become a Contributor Submit an Article
This article has 3 comments! Add yours below...
I haven’t responded yet to all of the email, because it would take me a month to respond individually. So I thought this week I would flesh out the themes in that article a bit in the hopes of providing a path to prosperity over the coming decade.
Of foremost importance is to embrace the idea that the investment climate of the next decade is nothing like the last decade. The landscape and very mechanics of market fluctuations have transferred, as the market itself has become instantaneously reflective of immediate influential factors, from a reactive environment to a predictive one.
What I mean by that is, in the past, the fluctuations in the markets in general more in reaction to economic data and events, whereas now, with the near-instant transfer of information independent of geography or time zones, combined with the massive computing power of linked networks and light-speed chips, the market has become more predictive of data and events yet to transpire.
This is why we are seeing days rife with bad news where the markets are exuberant versus days where the news is benign or even great, and the market plummets. The most capitalized investment institutions are using their formidable human and computing resources to position for what they believe the market will do tomorrow, 5 days from now, 30 days from now, etc. The arcane mathematical models developed, deployed, and then reconfigured again by thousands of Ph.D.’s in the course of a single session, and then revised overnight render us individual investors virtually powerless to accurately predict short term price movements.
This is also why the junior markets are floundering right now.
The volume of available equity units no longer qualifies for the massive position changes demanded by these quantified models, so they’re left to function absent an ever growing number of institutions. The problem compounds itself as performance in the juniors stalls, invoking further abandonment by banking units who need volume and yield.
It’s the same thing that draws the largest investor classes ranked as 1) Traditional Funds, Banks and Insurance Companies 2) Sovereign Wealth Funds, and 3) Hedge Funds away from low volume junior markets and towards large volume (and therefore, larger yield potential) derivative transactions. With the re-bundling and risk insurance opportunities afforded as further derivative of derivative transactions, its no wonder the asset backed securities market turned into such a feeding frenzy before the inevitable melt-down.
Currently, a second feeding frenzy is developing, as these opportunistic groups circle the growing pools of distressed assets now flooding the market, making ready to swoop in and scoop them up when the bottom is perceived.
During the first quarter of 2008, 650,000 U.S. families saw the initiation of foreclosure proceedings on their homes. That’s 1 in every 194 U.S. households!
One in every 54 Nevada households received a foreclosure filing during the first quarter, the highest foreclosure rate among the states and 3.6 times the national average. Foreclosure filings were reported on 19,595 Nevada properties during the quarter, up 3 percent from the previous quarter and up 137 percent from the first quarter of 2007.
Foreclosure filings were reported on 169,831 California properties during the first quarter, the highest total among the states and a rate of one in every 78 households — the nation’s second highest foreclosure rate. Foreclosure activity in California increased 32 percent from the previous quarter and was up nearly 213 percent from the first quarter of 2007.
Can you imagine the re-bundling and derivative parasites of Wall Street now slavering and foaming at the lips to whip up a new carnage for maximum gain?!
So back to the main question – how do we invest – and thereby defend ourselves against these newly skewed and un-equitable markets?
The only way is to invest for long-term value. Forget what’s “hot”. That’s the language of Wall Street teeing you up for the sucker punch.
You’ve probably found your way to this article because you already have developed a healthy mistrust of the Wall Street top tier publications, who obscure the parroted PR messages amid “journalism”.
And down here where the rhetoric goes a little more lights and the language tends toward plain, we embrace the lessons of history, with our gaze firmly set on present reality.
And the reality is: gold is a reliable hedge against floating fiat currencies whose values are literally unquantifiable. Buy physical gold, or ETF’s backed by physical gold, for the conservative portion of your portfolios. Owning the majors who demonstrate continues reserve growth each year is also a good bet for conservative positions.
Finding a few well positioned and well managed gold juniors for the higher risk portion of your portfolio will be an astute investment in time. More and more, quality deposits will be picked up at earlier stages of development, providing shorter-term payouts for the right projects. Look for juniors with near surface, higher grade situations close to infrastructure in politically stable jurisdictions. Look for management teams with connections to larger companies, and track records of success.
Watch our for companies financed too cheaply and/or frequently, with so much paper out, that even if they found Fort Knox the upside for investors would be severely encumbered by the company’s own derivative slicing and dicing.
When it comes to oil, Canada is where its at for the next decade. The costs of production of oil from the sands of northern Alberta and BC presently start at about $80 a barrel, and so with prices below that a relic of the past, and with more oil than Saudi Arabia and Russia combined, you’d be nuts not to have investments here.
Same thing applies – producing majors for conservative positions, premium juniors for the risk tolerant ones. Increasingly, jurisdiction matters. Don’t think that any foreign country is exempt from nationalist inclinations should it be deemed their discovered fields are in the “national interest”. More Ecuadors and Mongolias are our there. Personally, I’d stay right out of China. Any nation who shoots its youthful citizens can’t be trusted in business. There’s a day of reckoning on that horizon yet.
Now where we have new opportunity is in agriculture. Poor farmers are about to become the next minted middle class. Unfortunately, most of the Mom and Pops out there of any size are going to be consolidated into large Agri-Corps.
The process has already started in Canada, where new Capital Pool Companies and other emerging juniors have already begun the process of consolidating farms under centralized management systems to maximize positioning on anticipated future high demand crops.
Its not just rice and wheat that are seeing record highs. It's EVERYTHING!
We could even see agricultural land start to compete with residential real estate in terms of value growth, considering Ag-land is going north while residential is still tanking.
And so, in tandem with concerted farming activity, potash remains a tremendous opportunity, as its price will continue to climb. Already up 227% in a year, this is one commodity that threatens to outpace gold and oil in terms of near term performance.
As with oil and gold, the major producers are conservative bets (well not so conservative with the largest producer, Potash Corporation of Saskatchewan (POT) predicted to increase in price by at least 50% according to bank analysts), while the handful of juniors who are able to lay claim to good potash ground will provide some heart-stopping gains for riskier investments.
There are many other ways to invest in this quad of investment profit – but I don’t have time to write a book on it….yet.
James West
About this author:
Bio & more articles Visit Midas Letter Become a Contributor Submit an Article
This article has 3 comments! Add yours below...
Terra Nitrogen: I Stand Corrected
Yesterday, I wrote a post on how the dividend payout of Terra Nitrogen Co. LP (TNH) will change going forward. To recap, the partnership agreement between Terra Industries (TRA) and Terra Nitrogen gives Terra Industries, as the owner of the general partner, increasing percentages of TNH’s distributable cash when said cash exceeds 71.5¢ per share, maxing out at 50% of distributable cash when the amount per share exceed $1.045.
I did my rough calculations for the recent distribution, giving 50% of the entire distribution to the GP, thus reducing the dividend from the paid $4.20 to a projected $2.10. I received a couple of comments “correcting” my calculation. Jack Sturm stated the new dividend would be $3.07 and an unnamed commentor at Seeking Alpha believes the dividend would be $2.60. After taking another look at my hasty calculation it is apparent the tiers need to be honored, otherwise, as an example, if the distributable cash was $1.10 per share and the GP took 50%, the dividend would be 55¢, below the “minimum” 60.5¢.
Let me give a little detail about the tiered cash split structure. If distributable cash is up to 71.5¢ per share the common shareholders will get 99% of the money. From 71.5¢ to 82.5¢ the common shareholders get 86% of the cash, 82.5¢ to $1.045: 76% and above $1.045 the distributable cash is basically split 50/50 between the common shareholders and the general partner. Here is a copy of the information I extracted from the 2007 10-K. partnership-distributions
Applying the tier percentages to last quarter's $4.20 dividend leaves the common shareholders with $2.57 per share. I stand corrected! However, the bottom line is that unsuspecting, uninformed shareholders are going to get a nasty surprise when the next dividend is declared.
If the dividend change conversation is confusing read my previous article then come back to this one.-- Seeking Alpha
I did my rough calculations for the recent distribution, giving 50% of the entire distribution to the GP, thus reducing the dividend from the paid $4.20 to a projected $2.10. I received a couple of comments “correcting” my calculation. Jack Sturm stated the new dividend would be $3.07 and an unnamed commentor at Seeking Alpha believes the dividend would be $2.60. After taking another look at my hasty calculation it is apparent the tiers need to be honored, otherwise, as an example, if the distributable cash was $1.10 per share and the GP took 50%, the dividend would be 55¢, below the “minimum” 60.5¢.
Let me give a little detail about the tiered cash split structure. If distributable cash is up to 71.5¢ per share the common shareholders will get 99% of the money. From 71.5¢ to 82.5¢ the common shareholders get 86% of the cash, 82.5¢ to $1.045: 76% and above $1.045 the distributable cash is basically split 50/50 between the common shareholders and the general partner. Here is a copy of the information I extracted from the 2007 10-K. partnership-distributions
Applying the tier percentages to last quarter's $4.20 dividend leaves the common shareholders with $2.57 per share. I stand corrected! However, the bottom line is that unsuspecting, uninformed shareholders are going to get a nasty surprise when the next dividend is declared.
If the dividend change conversation is confusing read my previous article then come back to this one.-- Seeking Alpha
Tuesday, April 29, 2008
Farm Machinery, Other Ag Giants Slide On Agco's Full-Year Earnings Warning
Shares of farm machinery stocks went south Tuesday after Agco Corp. (NYSE:AG - News) forecast full-year earnings below analyst views, citing the impact of rising materials costs on margins.
The disappointing outlook marred an otherwise rosy first-quarter report for the No. 2 U.S. farm machinery maker. Earnings more than doubled from the prior year to 63 cents a share. Analysts polled by Thomson Reuters expected 47 cents. Sales rose 34% to $1.79 billion, also above views.
Bitter Harvest
But Agco said full-year results would be hurt by economic weakness, unfavorable exchange rates and spending on plant upgrades and other initiatives. The company forecast 2008 EPS of $3 to $3.15, well below the $3.26 expected.
"Projected operating margin improvement in 2008 ... is expected to be limited by spending on our strategic initiatives as well as the negative impact of currency translation," Agco CEO Martin Richenhagen said in a statement.
The weak dollar has buoyed Agco's sales. But it also is boosting costs of raw materials from Brazil and Europe, analysts said.
Banc of America Securities analyst Seth Weber said in a note to investors that he "doesn't view this guidance as presenting a change to our positive global agricultural thesis/opportunity."
Bad Day For Farm Sector
Wall Street had a more negative take, sending Agco shares down 11% to 60.96. It was the firm's worst one-day loss in at least a year and halted recent gains that saw the stock near its all-time high twice within the past two weeks.
Group mates Deere and Lindsay (NYSE:LNN - News) closed the day down 6% and 7%, respectively, halting both stocks' momentum. Deere hit a record 94.89 on April 18, while Lindsay peaked at 131.14 on April 22.
Meanwhile, Archer Daniels Midland (NYSE:ADM - News) fell 4% Tuesday. The grain processor cruised past first-quarter sales and earnings views, but investors might have been worried about a 31% profit drop in ADM's corn-processing business, which includes ethanol production. ADM blamed high corn prices and rising energy costs.
ADM shares, which set a record high of 48.95 on April 22, also suffered from Monday's Agriculture Department report showing that only 10% of the U.S. corn crop has been planted so far this year. That's down from 23% last year and a five-year average of 35% by this time. Bad weather has been blamed.
U.S. corn futures shot up to a record high on that report.
Concerns also have been raised about the prospect of legislation that would end government subsidies for ethanol, which has faced criticism for the role it plays in global food shortages.
Fewer subsidies would likely curtail farm production -- and hurt sales at equipment suppliers.
"Legislation against ethanol is a potential head wind for all agriculture-related stocks," said Lawrence De Maria, analyst at Sterne Agee. "It's been talked about more and more recently."
Highflying fertilizer stocks continued their recent retreat. Potash Corp. of Saskatchewan (NYSE:POT - News) fell 6% and Mosaic (NYSE:MOS - News) 4.5%. Intrepid Potash (NYSE:IPI - News) slid 5.5% to 45.62, its lowest close since coming public last week. It still is well above its $32 offering price.
Seed giant Monsanto (NYSE:MON - News) tumbled 9% in heavy volume.
Ag-related stocks clearly have benefited from high prices for corn, soy and other commodities amid a rise in biofuel production and increased demand for food grains in foreign markets.
In Agco's case, international revenue helped offset sluggishness in North America, where the ailing U.S. economy has dampened sales at the retail level.
Excluding currency swings, Agco's net sales grew just 10% in North America during the first quarter. That compares with 44% in South America, 28% in Asia/Pacific and 20% in Europe/Africa/Middle East.
"Agco is very nicely distributed around the world," said Charlie Rentschler, vice president at Wall Street Access. "There's not as much exposure to North America as some of the other companies."
South America has been a major driver -- particularly Argentina and Brazil, where first-quarter retail sales of tractors grew 64% and 47%, respectively.
High commodity prices played a big part in the growth there and elsewhere, company officials said.
"Many of the conditions that support commodity prices were present in the first quarter, including the increasing demand for crops used in food, animal feed, fiber and fuels," Richenhagen said. "The elevated commodity prices supported agricultural industry demand across our major market. In Brazil, industry volumes have risen to near prior peak levels."
But not all farm equipment stocks have fared as well. Last week Dutch equipment maker CNH Global (NYSE:CNH - News) posted first-quarter profit below views, citing internal and external bottlenecks.
Its stock fell almost 17% on the news, erasing the previous three months' gains. CNH continued to sell off Tuesday, closing the day down 5.
The disappointing outlook marred an otherwise rosy first-quarter report for the No. 2 U.S. farm machinery maker. Earnings more than doubled from the prior year to 63 cents a share. Analysts polled by Thomson Reuters expected 47 cents. Sales rose 34% to $1.79 billion, also above views.
Bitter Harvest
But Agco said full-year results would be hurt by economic weakness, unfavorable exchange rates and spending on plant upgrades and other initiatives. The company forecast 2008 EPS of $3 to $3.15, well below the $3.26 expected.
"Projected operating margin improvement in 2008 ... is expected to be limited by spending on our strategic initiatives as well as the negative impact of currency translation," Agco CEO Martin Richenhagen said in a statement.
The weak dollar has buoyed Agco's sales. But it also is boosting costs of raw materials from Brazil and Europe, analysts said.
Banc of America Securities analyst Seth Weber said in a note to investors that he "doesn't view this guidance as presenting a change to our positive global agricultural thesis/opportunity."
Bad Day For Farm Sector
Wall Street had a more negative take, sending Agco shares down 11% to 60.96. It was the firm's worst one-day loss in at least a year and halted recent gains that saw the stock near its all-time high twice within the past two weeks.
Group mates Deere and Lindsay (NYSE:LNN - News) closed the day down 6% and 7%, respectively, halting both stocks' momentum. Deere hit a record 94.89 on April 18, while Lindsay peaked at 131.14 on April 22.
Meanwhile, Archer Daniels Midland (NYSE:ADM - News) fell 4% Tuesday. The grain processor cruised past first-quarter sales and earnings views, but investors might have been worried about a 31% profit drop in ADM's corn-processing business, which includes ethanol production. ADM blamed high corn prices and rising energy costs.
ADM shares, which set a record high of 48.95 on April 22, also suffered from Monday's Agriculture Department report showing that only 10% of the U.S. corn crop has been planted so far this year. That's down from 23% last year and a five-year average of 35% by this time. Bad weather has been blamed.
U.S. corn futures shot up to a record high on that report.
Concerns also have been raised about the prospect of legislation that would end government subsidies for ethanol, which has faced criticism for the role it plays in global food shortages.
Fewer subsidies would likely curtail farm production -- and hurt sales at equipment suppliers.
"Legislation against ethanol is a potential head wind for all agriculture-related stocks," said Lawrence De Maria, analyst at Sterne Agee. "It's been talked about more and more recently."
Highflying fertilizer stocks continued their recent retreat. Potash Corp. of Saskatchewan (NYSE:POT - News) fell 6% and Mosaic (NYSE:MOS - News) 4.5%. Intrepid Potash (NYSE:IPI - News) slid 5.5% to 45.62, its lowest close since coming public last week. It still is well above its $32 offering price.
Seed giant Monsanto (NYSE:MON - News) tumbled 9% in heavy volume.
Ag-related stocks clearly have benefited from high prices for corn, soy and other commodities amid a rise in biofuel production and increased demand for food grains in foreign markets.
In Agco's case, international revenue helped offset sluggishness in North America, where the ailing U.S. economy has dampened sales at the retail level.
Excluding currency swings, Agco's net sales grew just 10% in North America during the first quarter. That compares with 44% in South America, 28% in Asia/Pacific and 20% in Europe/Africa/Middle East.
"Agco is very nicely distributed around the world," said Charlie Rentschler, vice president at Wall Street Access. "There's not as much exposure to North America as some of the other companies."
South America has been a major driver -- particularly Argentina and Brazil, where first-quarter retail sales of tractors grew 64% and 47%, respectively.
High commodity prices played a big part in the growth there and elsewhere, company officials said.
"Many of the conditions that support commodity prices were present in the first quarter, including the increasing demand for crops used in food, animal feed, fiber and fuels," Richenhagen said. "The elevated commodity prices supported agricultural industry demand across our major market. In Brazil, industry volumes have risen to near prior peak levels."
But not all farm equipment stocks have fared as well. Last week Dutch equipment maker CNH Global (NYSE:CNH - News) posted first-quarter profit below views, citing internal and external bottlenecks.
Its stock fell almost 17% on the news, erasing the previous three months' gains. CNH continued to sell off Tuesday, closing the day down 5.
AGCO, Deere Down On Farm, Gildan Not Gold-an
CROP PACE CRUSHES FARM EQUIPMENT
AGCO (AG) dropped an earnings bomb on a market that was already mad at everything about the farm economy, up to and including the weather. And it’s paying a hefty price in Tuesday’s trading. After flirting with its best levels of the year, the maker of Massey Ferguson tractors, and the second-largest farm-equipment maker in the U.S., wrenched its forecasts for the year lower. The company said that sales would prove a lot more robust than Wall Street had been forecasting - revenues could be six or seven percent ahead of estimates for the year - but that the top line wouldn’t fall to the bottom line, as it planned to make some investments in strategic initiatives. Wrong day to say something disappointing. Investors came into the session with a head of steam against the farm-equipment names, after a report from the Department of Agriculture said that the pace of crop plantings has been well off the norm. Due to rainy weather at the start of the planting season, fewer than 10% of the corn crop is in the ground as of this weekend, a point on the calendar when, in the average year, about a third of the crop would have been planted. Given that the pace of crop plantings is expected to approach - though not eclipse - the record realized last year, there is little margin for error. Shares of some of the other farm-equipment stocks have had a tough session, as well. CNH Global (CNH), which lost 18% in a single session last week after posting a second-quarter profit disappointment, has declined again, while Deere (DE) is looking anything but doe-eyed. Kind of a bummer for Titan International (TWI), which makes wheels and tires for tractors. The company posted quarterly results that showed it swung to a profit as its fiscal second-quarter sales surged 28%. Nevertheless, the stock is trading lower in sympathy with the sector.
GILD-ING THE DISAPPOINTMENT
Gildan Activewear (GIL) had a pretty good little story to tell. Dominant position in its market, which is making t-shirts. A North American market that was actually growing in demand. An international pipeline. A relatively cheap source of labor, which controlled costs. Plus a gnarly chance to see the logo of the Eagles reunion tour splashed across one of its products. It’s a story that our Barrons Online colleague Alex Eule told readers about two weeks ago. However, what the company didn’t know, or hadn’t disclosed, was some problems in its textile production coming out of a Dominican production facility. Gildan admitted on Tuesday that the textile shortfall would prevent it from capitalizing on strong demand trends in the back half of the year. It forecast full-year earnings coming in at $1.45 to $1.50, versus the $1.90 that the company and the Street had been forecasting. Gildan will post its formal quarterly profit statement May 7.
AGCO (AG) dropped an earnings bomb on a market that was already mad at everything about the farm economy, up to and including the weather. And it’s paying a hefty price in Tuesday’s trading. After flirting with its best levels of the year, the maker of Massey Ferguson tractors, and the second-largest farm-equipment maker in the U.S., wrenched its forecasts for the year lower. The company said that sales would prove a lot more robust than Wall Street had been forecasting - revenues could be six or seven percent ahead of estimates for the year - but that the top line wouldn’t fall to the bottom line, as it planned to make some investments in strategic initiatives. Wrong day to say something disappointing. Investors came into the session with a head of steam against the farm-equipment names, after a report from the Department of Agriculture said that the pace of crop plantings has been well off the norm. Due to rainy weather at the start of the planting season, fewer than 10% of the corn crop is in the ground as of this weekend, a point on the calendar when, in the average year, about a third of the crop would have been planted. Given that the pace of crop plantings is expected to approach - though not eclipse - the record realized last year, there is little margin for error. Shares of some of the other farm-equipment stocks have had a tough session, as well. CNH Global (CNH), which lost 18% in a single session last week after posting a second-quarter profit disappointment, has declined again, while Deere (DE) is looking anything but doe-eyed. Kind of a bummer for Titan International (TWI), which makes wheels and tires for tractors. The company posted quarterly results that showed it swung to a profit as its fiscal second-quarter sales surged 28%. Nevertheless, the stock is trading lower in sympathy with the sector.
GILD-ING THE DISAPPOINTMENT
Gildan Activewear (GIL) had a pretty good little story to tell. Dominant position in its market, which is making t-shirts. A North American market that was actually growing in demand. An international pipeline. A relatively cheap source of labor, which controlled costs. Plus a gnarly chance to see the logo of the Eagles reunion tour splashed across one of its products. It’s a story that our Barrons Online colleague Alex Eule told readers about two weeks ago. However, what the company didn’t know, or hadn’t disclosed, was some problems in its textile production coming out of a Dominican production facility. Gildan admitted on Tuesday that the textile shortfall would prevent it from capitalizing on strong demand trends in the back half of the year. It forecast full-year earnings coming in at $1.45 to $1.50, versus the $1.90 that the company and the Street had been forecasting. Gildan will post its formal quarterly profit statement May 7.
Terra Nitrogen Vs. Terra Industries
With the recent payout of the first quarter distribution, there will be a big change for Terra Nitrogen Co. LP (TNH) shareholders. Although Terra Industries (TRA) has made no secret of the fact, TRA, as general partner and major shareholder of Terra Nitrogen, is now due to take a much larger portion of the quarterly distribution.
A little background. Terra Nitrogen LP is a limited partnership of a single nitrogen fertilizer plant. Terra Industries controls/owns the general partner and owns a bit over 75% of the partnership units. The partnership agreement includes a clause where the general partner receives a higher percentage of the distributable cash as the per share distribution exceed 60.5¢ in a quarter. The other part of the clause states the cumulative distributions must exceed 60.5¢ per quarter, so anytime the distribution is below that amount the GP must fore go its higher percentage until the shortfall is made up. After a string of low payout quarters the general partnership had built up quite a deficit to the minimum payout rule. Then the fertilizer gravy train arrived and TNH was able to make distributions that started to reduce the deficit. At the end of 2007 the deficit was at $6.70 per unit. With the last two quarter’s distributions totaling $8.65 the deficit has been wiped out and the original distribution sharing arrangement is back in effect.
Now for the interesting part. The distributable cash share arangement gives the GP higher percentages in tiers as the cash per unit exceeds 60.5¢. The top tier is hit at only $1.045, and above that level the general partner is entitled to 50% of the distributable cash. Put it the other way, the cash available for the limited partners (what we think of as shareholders) is reduced by half, or the dividend will be 50% less.
Let us see how the numbers would have worked out for the distribution announced last week. The distribution per share was $4.20 times the 18.5 million outstanding shares for a total of $77.7 million. Terra Industries holds 75% of the shares, so they collected about $58.4 million. With the back dividend deficit eliminated the GP (Terra Industries) would have taken about $39 million right off the top, reducing the distribution to $2.10 per share. Since Terra Industries owns the majority of the shares, their per share distribution would be down also, but their total share of the distributable cash would have been about $68 million vs. the $58.4 million they will receive from this latest dividend.
Terra Industries had net earnings of $100.2 million for the first quarter (see transcript), so the now in place sharing arrangement could boost their bottom line by about 10%.
As I said earlier, Terra Industries has not kept this a secret; it has been mentioned in the last two quarterly earnings conference calls and in the 10-K. Since they already own 75% of TNH, they stand to make even more. I think individual shareholders have gotten excited about a company that was paying $2 to $3 /share/year now paying over $4 per quarter and have driven the price from $20 to $150 in about 20 months. I think many individual shareholders are in for a rude surprise when the next quarterly distribution is announced.
The second quarter should be an excellent one for Terra Nitrogen, but I do not think they will have $8+ per share in distributable cash to keep the dividend at current levels. At this point investors who own and like the business of Terra Nitrogen should sell their shares and invest in Terra Industries. If my analysis is correct, the parent is going to reap significantly higher rewards from TNH than individual shareholders will.
My analysis of this situation is from information I have gathered through Terra Industries’ recent conference calls and both company’s 10-K reports. If I have made a mistake here, I would really like to hear about it.
A little background. Terra Nitrogen LP is a limited partnership of a single nitrogen fertilizer plant. Terra Industries controls/owns the general partner and owns a bit over 75% of the partnership units. The partnership agreement includes a clause where the general partner receives a higher percentage of the distributable cash as the per share distribution exceed 60.5¢ in a quarter. The other part of the clause states the cumulative distributions must exceed 60.5¢ per quarter, so anytime the distribution is below that amount the GP must fore go its higher percentage until the shortfall is made up. After a string of low payout quarters the general partnership had built up quite a deficit to the minimum payout rule. Then the fertilizer gravy train arrived and TNH was able to make distributions that started to reduce the deficit. At the end of 2007 the deficit was at $6.70 per unit. With the last two quarter’s distributions totaling $8.65 the deficit has been wiped out and the original distribution sharing arrangement is back in effect.
Now for the interesting part. The distributable cash share arangement gives the GP higher percentages in tiers as the cash per unit exceeds 60.5¢. The top tier is hit at only $1.045, and above that level the general partner is entitled to 50% of the distributable cash. Put it the other way, the cash available for the limited partners (what we think of as shareholders) is reduced by half, or the dividend will be 50% less.
Let us see how the numbers would have worked out for the distribution announced last week. The distribution per share was $4.20 times the 18.5 million outstanding shares for a total of $77.7 million. Terra Industries holds 75% of the shares, so they collected about $58.4 million. With the back dividend deficit eliminated the GP (Terra Industries) would have taken about $39 million right off the top, reducing the distribution to $2.10 per share. Since Terra Industries owns the majority of the shares, their per share distribution would be down also, but their total share of the distributable cash would have been about $68 million vs. the $58.4 million they will receive from this latest dividend.
Terra Industries had net earnings of $100.2 million for the first quarter (see transcript), so the now in place sharing arrangement could boost their bottom line by about 10%.
As I said earlier, Terra Industries has not kept this a secret; it has been mentioned in the last two quarterly earnings conference calls and in the 10-K. Since they already own 75% of TNH, they stand to make even more. I think individual shareholders have gotten excited about a company that was paying $2 to $3 /share/year now paying over $4 per quarter and have driven the price from $20 to $150 in about 20 months. I think many individual shareholders are in for a rude surprise when the next quarterly distribution is announced.
The second quarter should be an excellent one for Terra Nitrogen, but I do not think they will have $8+ per share in distributable cash to keep the dividend at current levels. At this point investors who own and like the business of Terra Nitrogen should sell their shares and invest in Terra Industries. If my analysis is correct, the parent is going to reap significantly higher rewards from TNH than individual shareholders will.
My analysis of this situation is from information I have gathered through Terra Industries’ recent conference calls and both company’s 10-K reports. If I have made a mistake here, I would really like to hear about it.
Monday, April 28, 2008
Fitz Bits: Mosaic Shows the Wisdom of Scaling In
Each day, I'm featuring several reader requests for the current technical take on a stock. I can't assure you that I'll get to yours, but I will certainly make every attempt to do so, as long as the stock meets the following criteria.
1. The average daily trading volume needs to exceed 250,000 shares. If a stock trades too thinly, chart analysis doesn't help much, because there just are not that many traders involved. One big buy or sell order can move the stock in ways that chart analysis just cannot predict. So let's stay above 250,000 daily shares.
2. The stock really needs to be trading above $5. Sub-$5 stocks don't get the same treatment by institutions and portfolio managers. Also, many traders set their trading screens to ignore stocks below $5 just to cut down on their trading candidates. While I'm sure your favorite penny stock is the next undiscovered gem, I'm not in the business of breaking news stories ... so once your gem is discovered, let me know, and I'll take a look at the chart.
3. Make sure you check my recent "3 Stocks" videos. I don't want to be too redundant, so if I've recently covered a stock in video format, I won't repeat it here.
3 Stocks I Saw on TV
Hopefully, you've noticed that I alternate between daily and weekly bars in the charts. It's important to understand the underlying rationale for choosing one time frame over another. I differentiate between these time frames in pretty simple terms.
The longer time frame -- the weekly bar chart -- is my "decision" time frame. I want to remain in phase with the trend, and I use the weekly bar chart to identify the trend. So I'll feature a weekly chart when I want to emphasize a certain aspect of the prevailing trend -- not a specific buy or sell point. This weekly chart is the timeframe in which I make my decision: Do I want to buy or sell the stock?
The daily chart is my "action" time frame. Once a decision is made on the basis of the weekly time frame, then we zoom in on the daily chart to choose that level at which action is taken. The daily time frame is my preferred frame of reference for actually implementing the decisions I've made on the weekly chart.
In your own analysis, make sure you are using different timeframes for different things, otherwise your actions will largely be a function of your emotions.
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Last Thursday, Mosaic pulled back to test the early-April breakout level of $120. On Friday, the bulls took the stock back above $130. Volume was just average. But with the stock generally bouncing off the 50-day moving average on pullbacks, I'd give this stock some room on any pullback. A stop around $110 would be prudent ... but here's the problem. There has been so much volume all the way up the line, from $80 on up to around $110, that any pullback could catch support at any of those levels. This makes placing a stop problematic, because you are always at risk of selling just when buyers start pushing the stock higher. Hence, you need to buy at different levels -- that way, you rarely get nervous when the stock pulls back. When you get nervous, you tend to do things you shouldn't do.
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The iShares FTSE/Xinhua China Index ETF had been wallowing for months, just dropping lower and lower and dragging the 50-day moving average down with it. But that began to change in March. With the breakout and successful test of the 50-day moving average, FXI is now back above the February high. If you're long, try giving this a bit of room to compensate for the volatility. But the trend is up, so I'd maintain a bullish bias.
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Agrium broke out a couple of weeks ago when it blasted above the late-February high. The stock has been consolidating in a fairly tight range, with short-term support at around $85. Volume was unimpressive on Friday, so I'd really like to see any further advance be accompanied by higher volume. If you're a short term trader, try keeping a fairly tight stop on this stock -- after all, a pullback from $90 down to $75 isn't going to make you any money. But if you've got a longer time horizon, I think any kind of pullback should be bought. This stock should see $100 soon enough.
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Terra Nitrogen is another volatile agrichemical stock. As with AGU, TNH moved higher on light volume on Friday. I'd watch for resistance up at $160. I'd also be a buyer on any move above that level.
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Zoltek trades less than a million shares each day, and this latest rally is moving on extremely light volume. That makes it suspect in my book. Rather than buy any breakout, I'd rather wait for a pullback to test the 50-day moving average. Then I'd buy, and I'd put a stop just below $22.50.
Be careful out there.
1. The average daily trading volume needs to exceed 250,000 shares. If a stock trades too thinly, chart analysis doesn't help much, because there just are not that many traders involved. One big buy or sell order can move the stock in ways that chart analysis just cannot predict. So let's stay above 250,000 daily shares.
2. The stock really needs to be trading above $5. Sub-$5 stocks don't get the same treatment by institutions and portfolio managers. Also, many traders set their trading screens to ignore stocks below $5 just to cut down on their trading candidates. While I'm sure your favorite penny stock is the next undiscovered gem, I'm not in the business of breaking news stories ... so once your gem is discovered, let me know, and I'll take a look at the chart.
3. Make sure you check my recent "3 Stocks" videos. I don't want to be too redundant, so if I've recently covered a stock in video format, I won't repeat it here.
3 Stocks I Saw on TV
Hopefully, you've noticed that I alternate between daily and weekly bars in the charts. It's important to understand the underlying rationale for choosing one time frame over another. I differentiate between these time frames in pretty simple terms.
The longer time frame -- the weekly bar chart -- is my "decision" time frame. I want to remain in phase with the trend, and I use the weekly bar chart to identify the trend. So I'll feature a weekly chart when I want to emphasize a certain aspect of the prevailing trend -- not a specific buy or sell point. This weekly chart is the timeframe in which I make my decision: Do I want to buy or sell the stock?
The daily chart is my "action" time frame. Once a decision is made on the basis of the weekly time frame, then we zoom in on the daily chart to choose that level at which action is taken. The daily time frame is my preferred frame of reference for actually implementing the decisions I've made on the weekly chart.
In your own analysis, make sure you are using different timeframes for different things, otherwise your actions will largely be a function of your emotions.
--------------------------------------------------------------------------------
Last Thursday, Mosaic pulled back to test the early-April breakout level of $120. On Friday, the bulls took the stock back above $130. Volume was just average. But with the stock generally bouncing off the 50-day moving average on pullbacks, I'd give this stock some room on any pullback. A stop around $110 would be prudent ... but here's the problem. There has been so much volume all the way up the line, from $80 on up to around $110, that any pullback could catch support at any of those levels. This makes placing a stop problematic, because you are always at risk of selling just when buyers start pushing the stock higher. Hence, you need to buy at different levels -- that way, you rarely get nervous when the stock pulls back. When you get nervous, you tend to do things you shouldn't do.
--------------------------------------------------------------------------------
The iShares FTSE/Xinhua China Index ETF had been wallowing for months, just dropping lower and lower and dragging the 50-day moving average down with it. But that began to change in March. With the breakout and successful test of the 50-day moving average, FXI is now back above the February high. If you're long, try giving this a bit of room to compensate for the volatility. But the trend is up, so I'd maintain a bullish bias.
--------------------------------------------------------------------------------
Agrium broke out a couple of weeks ago when it blasted above the late-February high. The stock has been consolidating in a fairly tight range, with short-term support at around $85. Volume was unimpressive on Friday, so I'd really like to see any further advance be accompanied by higher volume. If you're a short term trader, try keeping a fairly tight stop on this stock -- after all, a pullback from $90 down to $75 isn't going to make you any money. But if you've got a longer time horizon, I think any kind of pullback should be bought. This stock should see $100 soon enough.
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Terra Nitrogen is another volatile agrichemical stock. As with AGU, TNH moved higher on light volume on Friday. I'd watch for resistance up at $160. I'd also be a buyer on any move above that level.
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Zoltek trades less than a million shares each day, and this latest rally is moving on extremely light volume. That makes it suspect in my book. Rather than buy any breakout, I'd rather wait for a pullback to test the 50-day moving average. Then I'd buy, and I'd put a stop just below $22.50.
Be careful out there.
Potash, Mosaic Are Looking Fertile
Potash (POT) reported a blow-out quarter last week, beating estimates by a mile. Earnings tripled over last year and they also raised guidance. The stock has pulled back from a recent high of around $215 to $195 simply because it had run up over 100% since Jan 22nd of this year. The company upped their guidance and it doesn't look like demand is waning. I believe this weakness is a good reason to buy some Potash, although I wouldn't be surprised if the stock pulls down to the $175 mark, where you should consider buying more.
Similarly, Mosaic (MOS) has seen tremendous growth in their business and the stock, which was at $60 in November of last year, is down from a recent high of around $140 and trading today in the low $120's. This 11% decline is a great opportunity to open a position and buy if it dips down to the $110-$115 mark.
Both of these companies are in the agriculture/fertilizer business and with biodiesel becoming increasingly popular, they are not only a play on farming, agriculture and food, but also on energy. Both stocks trade at around 12 times future earnings and look like they have some ways to run. But if you are nervous about them and would rather buy an ETF instead, (MOO) is the one that has exposure to both Potash and Mosaic.
-- Faisal Laljee
Full Disclosure: I own POT but my cost basis is significantly lower. I am looking to buy MOS but have not put in my order yet. My opinions and positions on these stocks can change anytime without notice.
Similarly, Mosaic (MOS) has seen tremendous growth in their business and the stock, which was at $60 in November of last year, is down from a recent high of around $140 and trading today in the low $120's. This 11% decline is a great opportunity to open a position and buy if it dips down to the $110-$115 mark.
Both of these companies are in the agriculture/fertilizer business and with biodiesel becoming increasingly popular, they are not only a play on farming, agriculture and food, but also on energy. Both stocks trade at around 12 times future earnings and look like they have some ways to run. But if you are nervous about them and would rather buy an ETF instead, (MOO) is the one that has exposure to both Potash and Mosaic.
-- Faisal Laljee
Full Disclosure: I own POT but my cost basis is significantly lower. I am looking to buy MOS but have not put in my order yet. My opinions and positions on these stocks can change anytime without notice.
Agricultural Commodities: Playing an Acknowledged Theme
"It's tough to make predictions, especially about the future." - Yogi Berra
Just like a trying to see a lighthouse on a foggy day, trying to clearly envision the future can be tough. However, making out the likely shape and dimensions of those things you are trying to avoid, or aim towards, will likely speed you safely on your journey.
It's like that in investing too. Picking out the broad trends to aim for, or avoid, can help elevate your portfolio returns.
Agricultural commodities are one big, broad, theme going forward. The popular press has recently jumped all over this, pointing to food unrest around the world. While the "contra the herd" crowd would suggest that any trend reaching the front cover of your favorite pop magazine or newspaper is, most likely, nearly played out, they would probably be not so certain that this trend has.
Examination of the underlying factors suggest that this trend is likely to continue for awhile. Here are the factors, as I see them:
Continued global population growth - check, this is still ongoing and unlikely to stop for several decades.
Continued use of food stocks for bio-fuels - check, this is still ongoing. In the US, about 30% of the corn crop is going towards bio-fuel, compared to around 10% in the early 1990's. Given the presidential candidates' positions to date, and the strength of the lobbying industry in the US, this appears unlikely to diminish any time soon.
Diet - a meat-centric diet is a huge consumer of grains for animal feed (it takes anywhere from 5lbs to 18lbs of grain to produce 1lb of meat (depends primarily on meat type)). With a rising middle class in China and India turning away from a formerly mostly vegetarian diet, this will continue to pressure grains. Check, this factor remains in play.
Arable land is decreasing - decades of industrialization, and of water course management, have reduced the amount of quality arable land available. Growing desertification is also a factor too. Check, this factor remains in play.
Climate change - long known by scientists to be likely to reduce yield in several ways. Humanity continues to pump out voluminous greenhouse gases, suggesting this factor will only intensify in the future. Check, this remains a factor.
Of course, against those trends, you have to consider the possibility of opposing trends occurring. I see those potentially as:
Potential reduction in bio-fuel use - a possibility, but with the opposition of vested interests, unlikely within a 10 year window.
Change in diet - again a possibility, the increasing cost of a meat-centric diet may reduce the volume of meat consumed in some areas. Yet, with this burgeoning middle class in so much of the world, it feels unlikely to occur without some support from government and the people's own conscience. Overall, it is unlikely to happen within a five year window.
Finally, the potential for increased production of foods, due to farmers using more fertilizers and bringing all available land into production. This, I consider very likely. However, this may very well be offset by the declining yields associated with climate change.
On balance, I'd say that the current trend isn't anywhere near played out, and that agriculture remains a major investment theme going forward. If you agree, then you may very well want to stuff your portfolio with agricultural-related investment products, something I believe will fuel investment returns for a very long period of time.
Just like a trying to see a lighthouse on a foggy day, trying to clearly envision the future can be tough. However, making out the likely shape and dimensions of those things you are trying to avoid, or aim towards, will likely speed you safely on your journey.
It's like that in investing too. Picking out the broad trends to aim for, or avoid, can help elevate your portfolio returns.
Agricultural commodities are one big, broad, theme going forward. The popular press has recently jumped all over this, pointing to food unrest around the world. While the "contra the herd" crowd would suggest that any trend reaching the front cover of your favorite pop magazine or newspaper is, most likely, nearly played out, they would probably be not so certain that this trend has.
Examination of the underlying factors suggest that this trend is likely to continue for awhile. Here are the factors, as I see them:
Continued global population growth - check, this is still ongoing and unlikely to stop for several decades.
Continued use of food stocks for bio-fuels - check, this is still ongoing. In the US, about 30% of the corn crop is going towards bio-fuel, compared to around 10% in the early 1990's. Given the presidential candidates' positions to date, and the strength of the lobbying industry in the US, this appears unlikely to diminish any time soon.
Diet - a meat-centric diet is a huge consumer of grains for animal feed (it takes anywhere from 5lbs to 18lbs of grain to produce 1lb of meat (depends primarily on meat type)). With a rising middle class in China and India turning away from a formerly mostly vegetarian diet, this will continue to pressure grains. Check, this factor remains in play.
Arable land is decreasing - decades of industrialization, and of water course management, have reduced the amount of quality arable land available. Growing desertification is also a factor too. Check, this factor remains in play.
Climate change - long known by scientists to be likely to reduce yield in several ways. Humanity continues to pump out voluminous greenhouse gases, suggesting this factor will only intensify in the future. Check, this remains a factor.
Of course, against those trends, you have to consider the possibility of opposing trends occurring. I see those potentially as:
Potential reduction in bio-fuel use - a possibility, but with the opposition of vested interests, unlikely within a 10 year window.
Change in diet - again a possibility, the increasing cost of a meat-centric diet may reduce the volume of meat consumed in some areas. Yet, with this burgeoning middle class in so much of the world, it feels unlikely to occur without some support from government and the people's own conscience. Overall, it is unlikely to happen within a five year window.
Finally, the potential for increased production of foods, due to farmers using more fertilizers and bringing all available land into production. This, I consider very likely. However, this may very well be offset by the declining yields associated with climate change.
On balance, I'd say that the current trend isn't anywhere near played out, and that agriculture remains a major investment theme going forward. If you agree, then you may very well want to stuff your portfolio with agricultural-related investment products, something I believe will fuel investment returns for a very long period of time.
Monsanto to the Rescue - Cramer's Stop Trading!
Monsanto (MON), Agrium (AGU), Potash (POT): Mon's genetically-modified, high-yield seeds could hold the key to ending the food crisis; "We are not going to grow our way out of this without Monsanto," said Cramer and added AGU and POT will continue to provide needed fertilizer; "There is no hope otherwise," said Cramer, "The granaries are empty."
Five Oversold Commodity Screamers
If you've been paying any attention at all to the commodity markets, then you know that opportunities abound in what the gold, oil and other commodity geeks like to call "stuff."
But unless you know exactly how to best take advantage of these opportunities, there is a pretty good chance that you might end up losing, instead of making money on a bull market that few think is anywhere near ending.
How many times have you looked at a market--in commodities or stocks--and wished that you had gotten in when prices were lower? Five percent lower, 10% lower ... it never really mattered. Just anywhere below where prices are "now."
While it may not appear that way when we are trying to convince ourselves not to chase stocks higher, the fact of the matter is that even the strongest bull markets provide opportunities from time to time for traders to climb in while prices have stopped, well, climbing.
In the business world, this type of opportunity is called a "sale." In the trading world, we simply refer to them as pullbacks. And we believe that pullbacks represent the best opportunity for traders to be able to take advantage of strongly trending markets. While other traders panic, believing that every pullback is a harbinger of The End, we know that in strong markets--or at least in strong stocks--there will be far more pullbacks to buy than "Ends" to be avoided.
It may sound like an obvious point. But notice the next time a market that has been moving higher as strongly as the energy and commodity stocks have in recent days and weeks begins to correct. The first sellers--the silent ones--are often those who got in to position very early and are simply profit-taking. But as each successive wave of sellers comes to the market, they do so with less and less profit to take.
Soon, we are dealing exclusively with those who chased the stocks higher, bought in relatively late, and are now staring at moderate to potentially massive losses in their positions. Often, it is the selling of this group that helps deepen the pullback, drive the stock down into oversold territory and provide opportunities for traders who like to buy stocks when they are low.
A great many energy and commodity stocks, sectors that have performed exceptionally well over the past several weeks and even months, are starting to slip into these patterns. Having been in strong uptrends, their current pullbacks have come as a bit of a shock to some observers. Our concern, however, is simply that these stocks continue to pull back, the lower the better. Why? Because our research into short-term stock behavior tells us that these stocks often make for excellent trades to the upside once their pullbacks have run their courses.
All five stocks in today's report not only have Short Term PowerRatings of 8 or 9, but also have significant exposure to the commodity or agricultural markets. This, in essence, is the theme that both groups them, as well as explains why all five stocks have performed so well of late. A number of these stocks moved higher on Friday, making them somewhat less attractive as short- term trading candidates. However, these are the kinds of stocks that traders should certainly keep an eye on. Should their Friday strength be succeeded by weakness early next week, then it is likely that a number of these names may become excellent trades in the short term.
The two numbers listed under 2-period RSI refer to the RSI on Thursday and the change in the RSI as of the close on Friday. The increases in RSI reflect the bounce that all five stocks experienced in Friday's trading.
Peabody Energy (nyse: BTU - news - people ). Short Term PowerRating 9. RSI(2): 42.65 from 8.92
U.S. Steel (nyse: X - news - people ). Short Term PowerRating 9. RSI(2): 61.75 from 9.02
Monsanto (nyse: MON - news - people ). Short Term PowerRating 8. RSI(2): 61.21 from 3.28
Transocean (nyse: RIG - news - people ). Short Term PowerRating 8. RSI(2): 51.83 from 8.84
Apache Corporation (nyse: APA - news - people ). Short Term PowerRating 8. RSI(2): 56.61 from 5.82
But unless you know exactly how to best take advantage of these opportunities, there is a pretty good chance that you might end up losing, instead of making money on a bull market that few think is anywhere near ending.
How many times have you looked at a market--in commodities or stocks--and wished that you had gotten in when prices were lower? Five percent lower, 10% lower ... it never really mattered. Just anywhere below where prices are "now."
While it may not appear that way when we are trying to convince ourselves not to chase stocks higher, the fact of the matter is that even the strongest bull markets provide opportunities from time to time for traders to climb in while prices have stopped, well, climbing.
In the business world, this type of opportunity is called a "sale." In the trading world, we simply refer to them as pullbacks. And we believe that pullbacks represent the best opportunity for traders to be able to take advantage of strongly trending markets. While other traders panic, believing that every pullback is a harbinger of The End, we know that in strong markets--or at least in strong stocks--there will be far more pullbacks to buy than "Ends" to be avoided.
It may sound like an obvious point. But notice the next time a market that has been moving higher as strongly as the energy and commodity stocks have in recent days and weeks begins to correct. The first sellers--the silent ones--are often those who got in to position very early and are simply profit-taking. But as each successive wave of sellers comes to the market, they do so with less and less profit to take.
Soon, we are dealing exclusively with those who chased the stocks higher, bought in relatively late, and are now staring at moderate to potentially massive losses in their positions. Often, it is the selling of this group that helps deepen the pullback, drive the stock down into oversold territory and provide opportunities for traders who like to buy stocks when they are low.
A great many energy and commodity stocks, sectors that have performed exceptionally well over the past several weeks and even months, are starting to slip into these patterns. Having been in strong uptrends, their current pullbacks have come as a bit of a shock to some observers. Our concern, however, is simply that these stocks continue to pull back, the lower the better. Why? Because our research into short-term stock behavior tells us that these stocks often make for excellent trades to the upside once their pullbacks have run their courses.
All five stocks in today's report not only have Short Term PowerRatings of 8 or 9, but also have significant exposure to the commodity or agricultural markets. This, in essence, is the theme that both groups them, as well as explains why all five stocks have performed so well of late. A number of these stocks moved higher on Friday, making them somewhat less attractive as short- term trading candidates. However, these are the kinds of stocks that traders should certainly keep an eye on. Should their Friday strength be succeeded by weakness early next week, then it is likely that a number of these names may become excellent trades in the short term.
The two numbers listed under 2-period RSI refer to the RSI on Thursday and the change in the RSI as of the close on Friday. The increases in RSI reflect the bounce that all five stocks experienced in Friday's trading.
Peabody Energy (nyse: BTU - news - people ). Short Term PowerRating 9. RSI(2): 42.65 from 8.92
U.S. Steel (nyse: X - news - people ). Short Term PowerRating 9. RSI(2): 61.75 from 9.02
Monsanto (nyse: MON - news - people ). Short Term PowerRating 8. RSI(2): 61.21 from 3.28
Transocean (nyse: RIG - news - people ). Short Term PowerRating 8. RSI(2): 51.83 from 8.84
Apache Corporation (nyse: APA - news - people ). Short Term PowerRating 8. RSI(2): 56.61 from 5.82
Increasing Ethanol Demand and the Likely Price Implications for Corn
According to the March 31st prospective plantings report released by USDA, farmers in the U.S. intend to plant 86 million acres of corn in 2008. When compared to last year, this year’s acreage is estimated to decrease by approximately 8%.
High input costs associated with corn and relative soybean prices are encouraging farmers to reduce corn acreage and favor soybeans. The present estimated 86 million acres are still considered to be at high levels when compared to historical crop acreages. Also at the same time, the demand for corn is increasing at a faster rate than supply, creating an upward pressure on prices.
With an estimated yield of 150 bushels/acre (the average yield for the last five years), and adding the previous crop carryover, 2008 corn crop will likely produce at least 13 billion bushels of corn.
If we look at corn consumption, the largest component for domestic use is for feed purposes. Higher corn prices in general and problems in the hog industry profitability may lower the demand in this area to around 5.5 billion bushels.
The demand for corn for ethanol is increasing rapidly for the last six years as evident from the graph. Corn for ethanol use may increase anywhere between 15 to 20%, when compared to last year resulting in an estimated use of 3.7 billion bushels of corn for this year.
If we expect at least 2 billion bushels in exports, the total domestic use is around 12.5 billion bushels. So we will have very tight ending stocks of 0.5 billion bushels or approximately 4% of total use.
Assuming these numbers held up well during the growing season, what are the price implications for the average investor? The 2008 December corn futures may reach an estimated high of $6.60 before expiration of the contract.
As of this writing, December corn is trading at $6.06 which implies that the current price is relatively undervalued.
Also keep in mind the other important factors which have the potential to influence corn prices. Any indication of short crop due to bad weather will put further pressure on prices and any positive deviation in corn acreage along with a bumper crop put a downward pressure on prices.
The first crop report for 2008/09 released by USDA on May 9th may reveal some important clues for the future direction of corn prices.
High input costs associated with corn and relative soybean prices are encouraging farmers to reduce corn acreage and favor soybeans. The present estimated 86 million acres are still considered to be at high levels when compared to historical crop acreages. Also at the same time, the demand for corn is increasing at a faster rate than supply, creating an upward pressure on prices.
With an estimated yield of 150 bushels/acre (the average yield for the last five years), and adding the previous crop carryover, 2008 corn crop will likely produce at least 13 billion bushels of corn.
If we look at corn consumption, the largest component for domestic use is for feed purposes. Higher corn prices in general and problems in the hog industry profitability may lower the demand in this area to around 5.5 billion bushels.
The demand for corn for ethanol is increasing rapidly for the last six years as evident from the graph. Corn for ethanol use may increase anywhere between 15 to 20%, when compared to last year resulting in an estimated use of 3.7 billion bushels of corn for this year.
If we expect at least 2 billion bushels in exports, the total domestic use is around 12.5 billion bushels. So we will have very tight ending stocks of 0.5 billion bushels or approximately 4% of total use.
Assuming these numbers held up well during the growing season, what are the price implications for the average investor? The 2008 December corn futures may reach an estimated high of $6.60 before expiration of the contract.
As of this writing, December corn is trading at $6.06 which implies that the current price is relatively undervalued.
Also keep in mind the other important factors which have the potential to influence corn prices. Any indication of short crop due to bad weather will put further pressure on prices and any positive deviation in corn acreage along with a bumper crop put a downward pressure on prices.
The first crop report for 2008/09 released by USDA on May 9th may reveal some important clues for the future direction of corn prices.
Saturday, April 26, 2008
Delayed Reward For Fertilizer Stocks
Fertilizer and agribusiness stocks were growing strong on Friday, overcoming what looked like a bout of profit taking the day before.
Shares of companies in the sector hit the dirt Thursday despite the fruitful first-quarter earnings that cropped up across the sector. Analysts suspected that some investors used the sector's earnings strength to pocket profits. Ultimately, good earnings prevail -- especially as analysts supported the robust results.
Potash (nyse: POT - news - people ) shares made up for Thursday's weakness gaining $13.18, or 6.8%, after losing $10.22 in the previous trading session. The stock closed $207.08 on Friday.
On Thursday, the fertilizer-and-feed-products company said first-quarter earnings nearly tripled. Potash raised its full-year earnings guidance by $150.0 million and said it would invest $4.5 billion in production improvements, enabling the company to better meet increased demand for fertilizer and animal feed (See: " Bountiful Times For Fertilizer Sector").
Credit Suisse analyst Mark Connelly suspected that rising raw material costs, compounded by Potash's meek pricing strategy compared with those of its main competitor, rattled investors.
"Hold what you own through this rough patch," Connelly advised Thursday. "While Potash may arguably be not moving as aggressively on pricing …the direction of prices is clear, the prices are moving up sharply. Global concern over food has finally become front-page news, which may end up speeding up farm commercialization in several regions of the world -- that process will lead to demand for even more fertilizer."
Connelly maintained his neutral rating on Potash and raised his target price to $210 from $157.
CF Industries (nyse: CF - news - people ) also reported nearly-tripled earnings after Thursday's closing bell. On Friday, the stock closed ahead by $6.52, or 4.7%, at $144.13, after falling $10.48 a day earlier.
Connelly said investors may have been nervous about the company's 11.0% decline in nitrogen volume and the United States Department of Agriculture's projection that 2008 will have 7.6 million fewer acres of corn crops than 2007.
But with almost 2.5 times more forward sales locked in for the rest of 2008 than a year ago, Connelly projects CF will remain profitable through the volatility.
Credit Suisse Analyst Robert Moskow sees "more positive earnings surprises to come" for Bunge (nyse: BG - news - people ), as a result of high soybean demand.
The soybean processor company's stock added $2.72, or 2.3%, on Friday, closing at $123.28.
Shares of companies in the sector hit the dirt Thursday despite the fruitful first-quarter earnings that cropped up across the sector. Analysts suspected that some investors used the sector's earnings strength to pocket profits. Ultimately, good earnings prevail -- especially as analysts supported the robust results.
Potash (nyse: POT - news - people ) shares made up for Thursday's weakness gaining $13.18, or 6.8%, after losing $10.22 in the previous trading session. The stock closed $207.08 on Friday.
On Thursday, the fertilizer-and-feed-products company said first-quarter earnings nearly tripled. Potash raised its full-year earnings guidance by $150.0 million and said it would invest $4.5 billion in production improvements, enabling the company to better meet increased demand for fertilizer and animal feed (See: " Bountiful Times For Fertilizer Sector").
Credit Suisse analyst Mark Connelly suspected that rising raw material costs, compounded by Potash's meek pricing strategy compared with those of its main competitor, rattled investors.
"Hold what you own through this rough patch," Connelly advised Thursday. "While Potash may arguably be not moving as aggressively on pricing …the direction of prices is clear, the prices are moving up sharply. Global concern over food has finally become front-page news, which may end up speeding up farm commercialization in several regions of the world -- that process will lead to demand for even more fertilizer."
Connelly maintained his neutral rating on Potash and raised his target price to $210 from $157.
CF Industries (nyse: CF - news - people ) also reported nearly-tripled earnings after Thursday's closing bell. On Friday, the stock closed ahead by $6.52, or 4.7%, at $144.13, after falling $10.48 a day earlier.
Connelly said investors may have been nervous about the company's 11.0% decline in nitrogen volume and the United States Department of Agriculture's projection that 2008 will have 7.6 million fewer acres of corn crops than 2007.
But with almost 2.5 times more forward sales locked in for the rest of 2008 than a year ago, Connelly projects CF will remain profitable through the volatility.
Credit Suisse Analyst Robert Moskow sees "more positive earnings surprises to come" for Bunge (nyse: BG - news - people ), as a result of high soybean demand.
The soybean processor company's stock added $2.72, or 2.3%, on Friday, closing at $123.28.
Potash Corp. Enhancing Growth
Potash Corp. (NYSE: POT - News) is the world's leading producer of potash and the world's largest fertilizer producer. The company has leverage to higher fertilizer application rates, higher crop plantings, increasing demand for biofuels and rising crop prices. The company is located in low cost areas and financials are solid. Hence, we rate the stock a Buy.
The company enjoys significant cost advantage with regard to raw materials. All potash produced by the company in Saskatchewan is in the area, where extensive potash deposits are found. Moreover, the company has lower cost nitrogen operations in Trinidad due to the long-term, lower-cost gas contracts with Natural Gas Company of Trinidad and Tobago Limited as well as proximity to the U.S. market.
In response to the rising prices of potash products, the company has engaged in expansion and development of projects that will raise annual operational capacity to capture a significant share of the growth in global demand.
On April 24, 2008, Potash Corporation of Saskatchewan announced first-quarter earnings of $1.72 per share, an increase over the $0.62 per share earned in the same period last year. Potash realized prices contributed to this result, improving by $130/ton versus last year. Higher global natural gas costs and strong world demand for agricultural and industrial nitrogen drove up realized ammonia prices by 56 percent from last year's first quarter. The impact was also evident in urea prices, which rose 32 percent from the first quarter of 2007.
The company enjoys significant cost advantage with regard to raw materials. All potash produced by the company in Saskatchewan is in the area, where extensive potash deposits are found. Moreover, the company has lower cost nitrogen operations in Trinidad due to the long-term, lower-cost gas contracts with Natural Gas Company of Trinidad and Tobago Limited as well as proximity to the U.S. market.
In response to the rising prices of potash products, the company has engaged in expansion and development of projects that will raise annual operational capacity to capture a significant share of the growth in global demand.
On April 24, 2008, Potash Corporation of Saskatchewan announced first-quarter earnings of $1.72 per share, an increase over the $0.62 per share earned in the same period last year. Potash realized prices contributed to this result, improving by $130/ton versus last year. Higher global natural gas costs and strong world demand for agricultural and industrial nitrogen drove up realized ammonia prices by 56 percent from last year's first quarter. The impact was also evident in urea prices, which rose 32 percent from the first quarter of 2007.
Pricing Boosts CF Industries
CF Industries Holdings (NYSE: CF - News) has leading market shares in many key fertilizers. Strong domestic and international grain markets have produced an exceptionally high global demand for fertilizer, translating into substantially higher selling prices for all the products.
As a result, we rate the shares a Buy with a target of $160. On April 24, 2008, CF Industries reported net earnings of $2.77 per diluted share for the first quarter of 2008 versus $1.02 per share for the same quarter a year ago.
Net sales totaled $677 million, up 41% from the year-earlier quarter. Net sales for nitrogen totaled $438 million, up 25% from the first quarter 2007. Segment sales volumes for the quarter were down 11% from the first quarter 2007. Volume was 470,000 tons, up modestly from 461,000 in the year-earlier quarter, reflecting increased phosphate exports.
Currently, CF Industries Holdings is valued at 12.6x our 2008 estimate of $11.76. The company has leading market shares in many key fertilizers. Strong domestic and international grain markets have produced exceptionally high global demand for fertilizer translating into substantially higher selling prices for all the products. As a result, we rate the shares a Buy with a target of $160. This is 13.6x our 2008 estimate.
As a result, we rate the shares a Buy with a target of $160. On April 24, 2008, CF Industries reported net earnings of $2.77 per diluted share for the first quarter of 2008 versus $1.02 per share for the same quarter a year ago.
Net sales totaled $677 million, up 41% from the year-earlier quarter. Net sales for nitrogen totaled $438 million, up 25% from the first quarter 2007. Segment sales volumes for the quarter were down 11% from the first quarter 2007. Volume was 470,000 tons, up modestly from 461,000 in the year-earlier quarter, reflecting increased phosphate exports.
Currently, CF Industries Holdings is valued at 12.6x our 2008 estimate of $11.76. The company has leading market shares in many key fertilizers. Strong domestic and international grain markets have produced exceptionally high global demand for fertilizer translating into substantially higher selling prices for all the products. As a result, we rate the shares a Buy with a target of $160. This is 13.6x our 2008 estimate.
Friday, April 25, 2008
Ag Stocks Could Have Steep Pullbacks
The fundamental story behind agriculture is powerful, no doubt, and I agree with what our firm's own Michael Pento had to say just the other day in response to the notion that there is somehow a bubble in agriculture.
That said, this pullback could be pretty darned steep.
Beginning yesterday, of course, the leading agriculture names (Monsanto (MON), Potash (POT), Mosaic (MOS) and others) started pulling back. Now would be a good time for investors to check themselves, step back and just look at the reality of just one of these charts, which is representative of many names in this group at the moment:
While it's true that within a bull market there will be corrections along the way, these stocks are due for one that could be nasty enough to call the entire agriculture bull market into question.
Fundamentally, there are few holes to shoot in the long-term agriculture story, but in the short run technically, things could get messy for a bit.
What would be best, in fact, would be a sharp, frightening pullback; if in a few days or weeks the headlines have changed from food riots to stories about how the ag bubble has burst, that would likely be the time to think of piling back in.
In the meantime, those with big gains in these stocks can look to take a few chips off the table, even in the face of today's pullback. Those looking to get into this space should either be waiting for more downside or nibbling slowly.
The story is intact, the stocks are just stretched.
That said, this pullback could be pretty darned steep.
Beginning yesterday, of course, the leading agriculture names (Monsanto (MON), Potash (POT), Mosaic (MOS) and others) started pulling back. Now would be a good time for investors to check themselves, step back and just look at the reality of just one of these charts, which is representative of many names in this group at the moment:
While it's true that within a bull market there will be corrections along the way, these stocks are due for one that could be nasty enough to call the entire agriculture bull market into question.
Fundamentally, there are few holes to shoot in the long-term agriculture story, but in the short run technically, things could get messy for a bit.
What would be best, in fact, would be a sharp, frightening pullback; if in a few days or weeks the headlines have changed from food riots to stories about how the ag bubble has burst, that would likely be the time to think of piling back in.
In the meantime, those with big gains in these stocks can look to take a few chips off the table, even in the face of today's pullback. Those looking to get into this space should either be waiting for more downside or nibbling slowly.
The story is intact, the stocks are just stretched.
Now that potash prices have broken the C$1000 per tonne barrier, it's easy to imagine them staying this high for the foreseeable future, says Citigrou
JPMorgan is out with a major earnings change on Potash (POT) this morning raising its 2009 EPS estimate to $18.50 from $11.75 a share (vs. consensus $12.70).
Firm's 2008 earnings estimate goes to $10.50 from $8.95 a share.
Notablecalls: Wow, this is probably one the largest EPS estimate raises I've seen in a long time. POT has gotten whacked over the past two days on an apparent "sell-the-news" reaction to their fantastic results.
I suspect POT will be re-testing the $200 level today following JPM's call.
PS: Currently, RBC Capital has the Street high $300 target on POT. This target is based on their 2009 EPS of $15.02, which is over $3 lower than JPM's new EPS estimate, for what it's worth.
Firm's 2008 earnings estimate goes to $10.50 from $8.95 a share.
Notablecalls: Wow, this is probably one the largest EPS estimate raises I've seen in a long time. POT has gotten whacked over the past two days on an apparent "sell-the-news" reaction to their fantastic results.
I suspect POT will be re-testing the $200 level today following JPM's call.
PS: Currently, RBC Capital has the Street high $300 target on POT. This target is based on their 2009 EPS of $15.02, which is over $3 lower than JPM's new EPS estimate, for what it's worth.
Three Potash Producers Benefitting from Rising Prices
Now that potash prices have broken the C$1000 per tonne barrier, it's easy to imagine them staying this high for the foreseeable future, says Citigroup Global markets analyst Daniel Mon.
Mr. Mon was commenting in a note on Uralkali OAO's announcement Wednesday saying its export trader, Belarusian Potash Co., has raised prices of potash in Southeast Asia and Brazil to C$1000/tonne as of July 1. "To put his in perspective, prices have now doubled in just four months," Mr. Mon said in a note. Potash began 2007 at C$210.
The analyst points out that these lofty prices are afforded in the West by robust grain prices and drastically improved farmer profitability. In the developing world, government subsidies and intervention are facilitating the increases. Mr. Mon said:
We expect both to continue in the near future given that food inflation concerns have made yield improvement critical.
The upshot is that Mr. Mon has buy recommendations across the potash space, and has raised his valuations on his fiscal 2009 estimates to reflect the higher prices. These include:
PotashCorp. (POT), with a 9.3x price-earnings multiple and a 5.8x Enterprise Value/EBITDA multiple
Agrium Inc. (AGU), with corresponding multiples of 7.8x and 4.4x
The Mosaic Co. (MOS), with corresponding multiples of 7.4 and 4.9.
Meanwhile, RBC Capital Markets analyst Fai Lee wrote in a note to clients that his $300 a share target price reflects a EV/EBITDA multiple of 16x pluse $55 per share of value for future expansion.
Mr. Mon was commenting in a note on Uralkali OAO's announcement Wednesday saying its export trader, Belarusian Potash Co., has raised prices of potash in Southeast Asia and Brazil to C$1000/tonne as of July 1. "To put his in perspective, prices have now doubled in just four months," Mr. Mon said in a note. Potash began 2007 at C$210.
The analyst points out that these lofty prices are afforded in the West by robust grain prices and drastically improved farmer profitability. In the developing world, government subsidies and intervention are facilitating the increases. Mr. Mon said:
We expect both to continue in the near future given that food inflation concerns have made yield improvement critical.
The upshot is that Mr. Mon has buy recommendations across the potash space, and has raised his valuations on his fiscal 2009 estimates to reflect the higher prices. These include:
PotashCorp. (POT), with a 9.3x price-earnings multiple and a 5.8x Enterprise Value/EBITDA multiple
Agrium Inc. (AGU), with corresponding multiples of 7.8x and 4.4x
The Mosaic Co. (MOS), with corresponding multiples of 7.4 and 4.9.
Meanwhile, RBC Capital Markets analyst Fai Lee wrote in a note to clients that his $300 a share target price reflects a EV/EBITDA multiple of 16x pluse $55 per share of value for future expansion.
Thursday, April 24, 2008
Top 5 Stocks Sought by Shorts This Week
Intrepid Potash, the hot new fertilizer IPO, is among the stocks most sought by short sellers this week, says John Tabacco of Locatestock.com.
Intrepid came to market as agriculture stocks raced higher. It was priced at $32 and hit a high $53.50. It is trading lower today, with the rest of the group.
Tabacco says financial stocks continue to dominate the list, and Lehman was the most popular stock sought by shorts for the 27th day.
The top five stocks sought by shorts from Locatestock.com this week are:
Lehman Lehman Brothers Holdings Inc LEH
MBIA MBIA Inc MBI
Ambac AMBAC Financial Group Inc ABK
Intrepid Potash Intrepid Potash Inc IPI
DryShips DryShips Inc DRYS
Tabacco said another stock that short sellers have been requesting this week is Potash Potash Corp of Saskatchewan IncPOT, which released earnings today and raised its forecast for the year. The stock is selling off in a broader selloff of commodities and commodities-related stocks, but it's been on a tear, moving above $200 late last week.
He said Potash appears to be sought as a short-term momentum play by shorts. "The fertilizer fundamentals are a long term trend and it looks like there's no end in sight for it going up," he said.
"It's not like a sustainable short. They see an opportunity that's a short-term thing," he said
Tabacco said in terms of volume, his firm is seeing a 20 percent decline this month in stocks being sought by shorts, versus the volume in February and March. The average daily volume in April has been 265 million shares a day, compared to 325 million in February and about the same in March. That would indicate there is less shorting going on.
"I'm not sure if the short sellers are taking a spring break, but there's been a decline in volume," Tabacco said.
Intrepid came to market as agriculture stocks raced higher. It was priced at $32 and hit a high $53.50. It is trading lower today, with the rest of the group.
Tabacco says financial stocks continue to dominate the list, and Lehman was the most popular stock sought by shorts for the 27th day.
The top five stocks sought by shorts from Locatestock.com this week are:
Lehman Lehman Brothers Holdings Inc LEH
MBIA MBIA Inc MBI
Ambac AMBAC Financial Group Inc ABK
Intrepid Potash Intrepid Potash Inc IPI
DryShips DryShips Inc DRYS
Tabacco said another stock that short sellers have been requesting this week is Potash Potash Corp of Saskatchewan IncPOT, which released earnings today and raised its forecast for the year. The stock is selling off in a broader selloff of commodities and commodities-related stocks, but it's been on a tear, moving above $200 late last week.
He said Potash appears to be sought as a short-term momentum play by shorts. "The fertilizer fundamentals are a long term trend and it looks like there's no end in sight for it going up," he said.
"It's not like a sustainable short. They see an opportunity that's a short-term thing," he said
Tabacco said in terms of volume, his firm is seeing a 20 percent decline this month in stocks being sought by shorts, versus the volume in February and March. The average daily volume in April has been 265 million shares a day, compared to 325 million in February and about the same in March. That would indicate there is less shorting going on.
"I'm not sure if the short sellers are taking a spring break, but there's been a decline in volume," Tabacco said.
Bountiful Times For Fertilizer Sector
Skyrocketing prices have incited rice riots and hoarding, but fertilizer companies aren't complaining. The scarcity has farmers scrambling to increase their crop yield, making for fruitful times for fertilizer producers.
Fertilizer companies like Potash (nyse: POT - news - people ), Bunge (nyse: BG - news - people ),Terra Nitrogen (nyse: TNH - news - people ) and CF Industries (nyse: CF - news - people ), which posted skyrocketing first-quarter results Thursday, are reaping the benefits, raising prices and production.
Potash's first-quarter net earnings nearly tripled to $566.0 million, or $1.74 a share, plowing through analysts' estimates for earnings of $1.52 a share. Sales rose 58.3% to $1.9 billion from $1.2 billion, surpassing the $1.7 billion in sales expected by analysts polled by Thomson Financial.
The fertilizer and feed products company raised its second-quarter earnings forecast to between $2.20 and $2.50 a share, compared with analysts' estimate for earnings of $2.30 a share. For 2008, Potash now projects earnings between $9.50 and $10.50 a share from prior guidance of between $6.25 and $7.25 a share. Analysts had predicted full-year earnings of $8.80 a share.
"The pressure to increase global food production continued to drive demand for potash, phosphate and nitrogen and pushed prices for all three nutrients to new heights. As a result, each segment contributed record gross margin and raised total gross margin for the quarter to $856.0 million, up from $369.7 million in the last year's first quarter," the company said.
Potash said it invested $4.5 billion in projects at its Saskatchewan and New Brunswick facilities to raise operational capacity to a total of 15.7 million tons by the end of 2012.
Bunge's sales increased 70% and net income shot up to $289.0 million in the quarter from $14.0 million a year ago, more than twice as much as Wall Street had been expecting. The food and fertilizer company increased its 2008 earnings guidance by $150.0 million to between $7.10 and $7.40 a share. Analysts had been expecting earnings of $6.85 a share.
Terra Nitrogen's first-quarter net earnings more than doubled to $81.6 million and sales rose 36.1% to $174.5 million on strong U.S. demand for nitrogen.
Reporting after Thursday's closing bell, CF Industries said net earnings nearly tripled, driven by higher prices for nitrogen and phosphate. Profit rose to $158.8 million, or $2.77 a share, from $57.2 million, or $1.02 a share. Sales increased 41.3% to $667.3 million.
"The U.S. entered the spring season with low grain inventories and strong demand for corn, soybeans and wheat. That is expected to keep prices for crops at record or near-record levels throughout the season," said Chairman Stephen Wilson, who expects continued demand to drive second-quarter results as well.
Despite the strong results, Bunge was the only one of the four to close up Thursday, gaining 87 cents, or 0.7%, to $120.56. Potash shares lost $10.22, or 5.0%, closing at $193.90, Terra Nitrogen shed $2.68, or 1.8% to $145.52 and CF Industries' shares were down $10.48, or 7.1%, closing at $137.61.
Analysts suggested that investors may have overbought fertilizer shares and are now looking to bail.
The rising global demand for food is largely a result of increased wealth in developing countries. Populations are growing, and more can now afford to consume a greater quantity and quality of food--namely, meat, which has increased the demand for cereal-based animal feed. Increased biofuel production has also pressured commodity prices.
So far, the voracious demand for fertilizer has allowed companies to raise prices to offset higher raw material costs but, according to Bunge Chairman Alberto Weisser, a high-price environment isn't without its challenges.
"It creates demands on working capital and leads to inflationary pressures that can influence national policy decisions. And though farmers are generally benefiting from higher crop prices, their profitability depends on the relationship between these prices and those of agricultural inputs, such as fertilizer, which are rising," he said.
Fertilizer companies like Potash (nyse: POT - news - people ), Bunge (nyse: BG - news - people ),Terra Nitrogen (nyse: TNH - news - people ) and CF Industries (nyse: CF - news - people ), which posted skyrocketing first-quarter results Thursday, are reaping the benefits, raising prices and production.
Potash's first-quarter net earnings nearly tripled to $566.0 million, or $1.74 a share, plowing through analysts' estimates for earnings of $1.52 a share. Sales rose 58.3% to $1.9 billion from $1.2 billion, surpassing the $1.7 billion in sales expected by analysts polled by Thomson Financial.
The fertilizer and feed products company raised its second-quarter earnings forecast to between $2.20 and $2.50 a share, compared with analysts' estimate for earnings of $2.30 a share. For 2008, Potash now projects earnings between $9.50 and $10.50 a share from prior guidance of between $6.25 and $7.25 a share. Analysts had predicted full-year earnings of $8.80 a share.
"The pressure to increase global food production continued to drive demand for potash, phosphate and nitrogen and pushed prices for all three nutrients to new heights. As a result, each segment contributed record gross margin and raised total gross margin for the quarter to $856.0 million, up from $369.7 million in the last year's first quarter," the company said.
Potash said it invested $4.5 billion in projects at its Saskatchewan and New Brunswick facilities to raise operational capacity to a total of 15.7 million tons by the end of 2012.
Bunge's sales increased 70% and net income shot up to $289.0 million in the quarter from $14.0 million a year ago, more than twice as much as Wall Street had been expecting. The food and fertilizer company increased its 2008 earnings guidance by $150.0 million to between $7.10 and $7.40 a share. Analysts had been expecting earnings of $6.85 a share.
Terra Nitrogen's first-quarter net earnings more than doubled to $81.6 million and sales rose 36.1% to $174.5 million on strong U.S. demand for nitrogen.
Reporting after Thursday's closing bell, CF Industries said net earnings nearly tripled, driven by higher prices for nitrogen and phosphate. Profit rose to $158.8 million, or $2.77 a share, from $57.2 million, or $1.02 a share. Sales increased 41.3% to $667.3 million.
"The U.S. entered the spring season with low grain inventories and strong demand for corn, soybeans and wheat. That is expected to keep prices for crops at record or near-record levels throughout the season," said Chairman Stephen Wilson, who expects continued demand to drive second-quarter results as well.
Despite the strong results, Bunge was the only one of the four to close up Thursday, gaining 87 cents, or 0.7%, to $120.56. Potash shares lost $10.22, or 5.0%, closing at $193.90, Terra Nitrogen shed $2.68, or 1.8% to $145.52 and CF Industries' shares were down $10.48, or 7.1%, closing at $137.61.
Analysts suggested that investors may have overbought fertilizer shares and are now looking to bail.
The rising global demand for food is largely a result of increased wealth in developing countries. Populations are growing, and more can now afford to consume a greater quantity and quality of food--namely, meat, which has increased the demand for cereal-based animal feed. Increased biofuel production has also pressured commodity prices.
So far, the voracious demand for fertilizer has allowed companies to raise prices to offset higher raw material costs but, according to Bunge Chairman Alberto Weisser, a high-price environment isn't without its challenges.
"It creates demands on working capital and leads to inflationary pressures that can influence national policy decisions. And though farmers are generally benefiting from higher crop prices, their profitability depends on the relationship between these prices and those of agricultural inputs, such as fertilizer, which are rising," he said.
Potash Corp. Beats Views, Ups Outlook On Fertilizer Boom
Potash Corp. of Saskatchewan (NYSE:POT - News) hit a grand slam Thursday, smashing first-quarter views amid soaring demand for its fertilizers. But its shares sold off 5% as the booming agricultural sector took a breather.
The fertilizer dynamo earned $1.74 a share, up 181% vs. a year earlier and 22 cents above Wall Street forecasts. Revenue surged 64% to $1.89 billion. Potash also raised its 2008 earnings guidance.
The world's largest fertilizer company by capacity, Potash Corp. produces the three primary plant nutrients. It is No. 1 in potash capacity, No. 2 in nitrogen and No. 3 in phosphate.
"The key driver for the quarter was really offshore demand for potash, which was up 23%," CEO Bill Doyle told IBD. "And we had record gross margins in all our products due to the very strong demand for fertilizer around the world in response to the food shortage."
'Tremendous Growth' Ahead
Potash Corp. has been on a long winning streak, a trend that Doyle expects will continue.
"We think there's tremendous growth in front of us," he said. "We think we're at the beginning of an earnings explosion. We are the only company in our business that can bring on idle capacity, because we have it and no one else does."
Potash is the company's biggest earnings contributor. The product generated close to half of the company's 2007 gross margin.
"We have a case where world demand is close to, if not outstripping, the supply of potash," said Tom Stundza, executive editor of Purchasing magazine. "Worldwide demand for food and other agricultural commodities has created this boom market for fertilizers and the chemicals that make fertilizer. The buying community is pretty much trying to keep up with what's needed out there."
Separately, Brazilian oilseed processor and fertilizer producer Bunge on Thursday also beat first-quarter views, buoyed by the same tail winds of record demand and prices for agricultural products. Bunge shares, down early, rallied late to close 1% higher.
Shares of CNH Global tumbled 17% after missing first-quarter earnings forecasts. Analysts said woes at the world's No. 2 farm equipment maker were company-specific, but they helped trigger a sectorwide bout of profit-taking.
"These shares have been up for a long time, and there's a point 14 time when some investors want to take some of their money off the table," said analyst Bill Selesky of Argus Research. "But the long-term prospects for the commodities companies look good."
Priceless Potash
The main growth driver for Potash is rising prices of all three of its products, said analyst Brian Yu of Citigroup. In the first quarter, the spot price of potash averaged 92% higher than in first-quarter 2007, phosphate prices were up 143%, and nitrogen prices rose 54%, Yu said.
Like many of its peers in agriculture-related sectors, Potash is getting a big boost from high crop prices. Prices of many key crops -- corn, wheat and soy -- are near or at all-time highs.
As a result, farmers have the incentive and the means to buy more fertilizer to grow more crops, said Yu.
That's pushing up prices of fertilizers, which have a finite source of supply, Selesky said.
He expects the strong demand for fertilizer to continue.
"It goes with the ups and downs of the crop cycle and global food demand," he said. "I don't see any of those trends slowing. With respect to crop prices, we think there's a secular change that will last for years."
CEO Doyle also sees the global agricultural boom continuing.
He notes that hundreds of millions of people in places like India and China are moving from starch-based diets to protein-based diets, including meat. It takes far more grain to produce meat to feed a family than it does for a family that simply eats grains.
Farmers will need fertilizer to grow those extra crops, Doyle said.
The fertilizer dynamo earned $1.74 a share, up 181% vs. a year earlier and 22 cents above Wall Street forecasts. Revenue surged 64% to $1.89 billion. Potash also raised its 2008 earnings guidance.
The world's largest fertilizer company by capacity, Potash Corp. produces the three primary plant nutrients. It is No. 1 in potash capacity, No. 2 in nitrogen and No. 3 in phosphate.
"The key driver for the quarter was really offshore demand for potash, which was up 23%," CEO Bill Doyle told IBD. "And we had record gross margins in all our products due to the very strong demand for fertilizer around the world in response to the food shortage."
'Tremendous Growth' Ahead
Potash Corp. has been on a long winning streak, a trend that Doyle expects will continue.
"We think there's tremendous growth in front of us," he said. "We think we're at the beginning of an earnings explosion. We are the only company in our business that can bring on idle capacity, because we have it and no one else does."
Potash is the company's biggest earnings contributor. The product generated close to half of the company's 2007 gross margin.
"We have a case where world demand is close to, if not outstripping, the supply of potash," said Tom Stundza, executive editor of Purchasing magazine. "Worldwide demand for food and other agricultural commodities has created this boom market for fertilizers and the chemicals that make fertilizer. The buying community is pretty much trying to keep up with what's needed out there."
Separately, Brazilian oilseed processor and fertilizer producer Bunge on Thursday also beat first-quarter views, buoyed by the same tail winds of record demand and prices for agricultural products. Bunge shares, down early, rallied late to close 1% higher.
Shares of CNH Global tumbled 17% after missing first-quarter earnings forecasts. Analysts said woes at the world's No. 2 farm equipment maker were company-specific, but they helped trigger a sectorwide bout of profit-taking.
"These shares have been up for a long time, and there's a point 14 time when some investors want to take some of their money off the table," said analyst Bill Selesky of Argus Research. "But the long-term prospects for the commodities companies look good."
Priceless Potash
The main growth driver for Potash is rising prices of all three of its products, said analyst Brian Yu of Citigroup. In the first quarter, the spot price of potash averaged 92% higher than in first-quarter 2007, phosphate prices were up 143%, and nitrogen prices rose 54%, Yu said.
Like many of its peers in agriculture-related sectors, Potash is getting a big boost from high crop prices. Prices of many key crops -- corn, wheat and soy -- are near or at all-time highs.
As a result, farmers have the incentive and the means to buy more fertilizer to grow more crops, said Yu.
That's pushing up prices of fertilizers, which have a finite source of supply, Selesky said.
He expects the strong demand for fertilizer to continue.
"It goes with the ups and downs of the crop cycle and global food demand," he said. "I don't see any of those trends slowing. With respect to crop prices, we think there's a secular change that will last for years."
CEO Doyle also sees the global agricultural boom continuing.
He notes that hundreds of millions of people in places like India and China are moving from starch-based diets to protein-based diets, including meat. It takes far more grain to produce meat to feed a family than it does for a family that simply eats grains.
Farmers will need fertilizer to grow those extra crops, Doyle said.
Potash's New Hit Highlights Fertilizer's Risks
And the hits keep on going... note, I continue to love the fertilizer story long term but we have multiple risks - in increasing order of probability
All the stocks are overextended as heck on charts
A lot of newbie investors who jumped in of late, who have very little conviction and will sell at first drop of -7% in their trading account
If, as I expect, Federal Reserve finally says something about inflation and signals they are done with cutting rates after next week, the dollar finally bounces - at least a little - this will hurt commodities
If Western governments have any moral backbone they will at least jawbone pulling biofuel subsidies... this would cause backlash reaction in fertilizer even though biofuels are just a small piece of the puzzle. (again this is a minor risk at this point, especially with US elections coming but maybe Europe will react first?) While the biofuel situation is not the major driving factor of agflation that does not matter - perception is everything and go back to point (b) a lot of new investors to a hot sector who know little about the long term situation and just are going by sound bites "rice riots" "fertilizer is hot" "Neil Cavuto even likes fertilizer" - they will panic.
It reminds me of solar in fall 2007 when all the hot money flew in and destroyed all those late to the game within weeks of when the "new crowd" joined the party.
And as a cherry on top there is always a neat little signal that its getting frenzied - I wrote about this in November [Nov 10: Chinese Big Caps Struggling Since Petrochina Shanghai Debut] Wouldn't the Intrepid Potash (IPI) IPO just fit perfectly with all these other short term tops I listed below? I got bearish on all those groups once we saw those "events" and within days in some cases we began quite savage selloffs. It almost seems ... too convenient...
Sometimes, in retrospect, we can look back at a moment in time that seems either outrageous or telling, and see a warning signal is flashing in the middle of a mania. I have pointed this out in previous entries ranging from
The Macau gambling stocks (Steve Wynn cashout), on the heels of private equity 'cash out' via Blackstone IPO (BX), on the heels of Sam Zell cashing out at the top in commercial real estate during the private equity feeding frenzy [A Top in Casino Names?]
The Chinese small cap bubble frenzy earlier in October [This Day in Bubbles Series]
The dry bulk shipping frenzy [A Chorus for Dry Bulk Shippers - Enough Already?] and [A Near Term Drop in Dry Bulk Shippers?]
And our most recent frenzy, that of the solar companies [Closing LDK Solar on the Mania that is Solar] and [Suntech Power Up 8%.... on a Downgrade]
The fundamentals remain tremendous in agriculture, but nothing straight up; the reaction to Potash's (POT) blowout earnings will be very interesting - everyone knows the numbers will be tremendous but how will the stock react - once EVERYONE knows something there is very little "surprise"... or maybe these are just ramblings of an investor "wishing" the fertilizer stocks would fall 30% so I can load up (again).
But here are more fundamentals to whet your appetite
Russian potash miner Uralkali (URKA.MM) has said it will charge about 50 percent more for spot sales of the mineral fertiliser to Asia from July 1, citing tight supply as global demand rises.
Uralkali (URKAq.L) said its export trader, Belarusian Potash Co (BPC), would raise its spot price to Asian markets to $1,000 per tonne on a cost and freight basis.
Prices to Brazil from July 1 would rise to $1,000-1,010 per tonne, an increase of 65-66 percent on the current quarter.
Moscow-based brokerage Troika Dialog said the Chinese and Indian contracts had absorbed a substantial proportion of world supply, meaning less would be available for spot sales to Brazil and Southeast Asia. "There is a supply-side deficit prevailing on the global potash market as the two largest consumers, India and China, have both recently concluded yearly agreements for supplies of potash (at conditions almost certainly dictated by producers)," Troika said in a note.
All the stocks are overextended as heck on charts
A lot of newbie investors who jumped in of late, who have very little conviction and will sell at first drop of -7% in their trading account
If, as I expect, Federal Reserve finally says something about inflation and signals they are done with cutting rates after next week, the dollar finally bounces - at least a little - this will hurt commodities
If Western governments have any moral backbone they will at least jawbone pulling biofuel subsidies... this would cause backlash reaction in fertilizer even though biofuels are just a small piece of the puzzle. (again this is a minor risk at this point, especially with US elections coming but maybe Europe will react first?) While the biofuel situation is not the major driving factor of agflation that does not matter - perception is everything and go back to point (b) a lot of new investors to a hot sector who know little about the long term situation and just are going by sound bites "rice riots" "fertilizer is hot" "Neil Cavuto even likes fertilizer" - they will panic.
It reminds me of solar in fall 2007 when all the hot money flew in and destroyed all those late to the game within weeks of when the "new crowd" joined the party.
And as a cherry on top there is always a neat little signal that its getting frenzied - I wrote about this in November [Nov 10: Chinese Big Caps Struggling Since Petrochina Shanghai Debut] Wouldn't the Intrepid Potash (IPI) IPO just fit perfectly with all these other short term tops I listed below? I got bearish on all those groups once we saw those "events" and within days in some cases we began quite savage selloffs. It almost seems ... too convenient...
Sometimes, in retrospect, we can look back at a moment in time that seems either outrageous or telling, and see a warning signal is flashing in the middle of a mania. I have pointed this out in previous entries ranging from
The Macau gambling stocks (Steve Wynn cashout), on the heels of private equity 'cash out' via Blackstone IPO (BX), on the heels of Sam Zell cashing out at the top in commercial real estate during the private equity feeding frenzy [A Top in Casino Names?]
The Chinese small cap bubble frenzy earlier in October [This Day in Bubbles Series]
The dry bulk shipping frenzy [A Chorus for Dry Bulk Shippers - Enough Already?] and [A Near Term Drop in Dry Bulk Shippers?]
And our most recent frenzy, that of the solar companies [Closing LDK Solar on the Mania that is Solar] and [Suntech Power Up 8%.... on a Downgrade]
The fundamentals remain tremendous in agriculture, but nothing straight up; the reaction to Potash's (POT) blowout earnings will be very interesting - everyone knows the numbers will be tremendous but how will the stock react - once EVERYONE knows something there is very little "surprise"... or maybe these are just ramblings of an investor "wishing" the fertilizer stocks would fall 30% so I can load up (again).
But here are more fundamentals to whet your appetite
Russian potash miner Uralkali (URKA.MM) has said it will charge about 50 percent more for spot sales of the mineral fertiliser to Asia from July 1, citing tight supply as global demand rises.
Uralkali (URKAq.L) said its export trader, Belarusian Potash Co (BPC), would raise its spot price to Asian markets to $1,000 per tonne on a cost and freight basis.
Prices to Brazil from July 1 would rise to $1,000-1,010 per tonne, an increase of 65-66 percent on the current quarter.
Moscow-based brokerage Troika Dialog said the Chinese and Indian contracts had absorbed a substantial proportion of world supply, meaning less would be available for spot sales to Brazil and Southeast Asia. "There is a supply-side deficit prevailing on the global potash market as the two largest consumers, India and China, have both recently concluded yearly agreements for supplies of potash (at conditions almost certainly dictated by producers)," Troika said in a note.
Intrepid Potash IPO: Soaring Shares Signal Fertilizer Bubble
Get your noseplugs ready. According to Bloomberg, Intrepid Potash's (IPI) surging shares on its first day of public trading may be a sign of a nascent fertilizer bubble:
After surging 58 percent in its first day of trading, Intrepid -- the largest U.S. producer of potash, according to its IPO prospectus -- is valued at 201 times last year's pro-forma earnings of 25 cents a share.
This makes the Denver-based company's shares more costly than those of Cisco Systems Inc., the world's biggest maker of computer-networking equipment, when the Internet bubble reached its high point in March 2000. Cisco peaked at 193 times profit, according to data compiled by Bloomberg.
Bloomberg goes on to suggest that the stock's impressive first day of trading was not surprising, given rising potash and other fertilizer prices.
WSJ's Marketbeat blogger David Gaffen adds that :
After the 57.5% first-day gain in Intrepid Potash Inc. on Tuesday, other major potash companies were pulling back in activity Wednesday, including Potash Corp. of Saskatchewan, Mosaic Co. and Agrium Inc. Other agricultural names were lower as well.
Finally, Kevin Price notes that:
[Tuesday's] furious IPO of Intrepid Potash, coming on the heels of a truly parabolic run in the group over the last several weeks, does have a certain late-in-the-game feel, doesn't it?
After surging 58 percent in its first day of trading, Intrepid -- the largest U.S. producer of potash, according to its IPO prospectus -- is valued at 201 times last year's pro-forma earnings of 25 cents a share.
This makes the Denver-based company's shares more costly than those of Cisco Systems Inc., the world's biggest maker of computer-networking equipment, when the Internet bubble reached its high point in March 2000. Cisco peaked at 193 times profit, according to data compiled by Bloomberg.
Bloomberg goes on to suggest that the stock's impressive first day of trading was not surprising, given rising potash and other fertilizer prices.
WSJ's Marketbeat blogger David Gaffen adds that :
After the 57.5% first-day gain in Intrepid Potash Inc. on Tuesday, other major potash companies were pulling back in activity Wednesday, including Potash Corp. of Saskatchewan, Mosaic Co. and Agrium Inc. Other agricultural names were lower as well.
Finally, Kevin Price notes that:
[Tuesday's] furious IPO of Intrepid Potash, coming on the heels of a truly parabolic run in the group over the last several weeks, does have a certain late-in-the-game feel, doesn't it?
Potash profit soars, boosts 2008 outlook
TORONTO, April 24 (Reuters) - Potash Corp of Saskatchewan (POT.TO: Quote, Profile, Research) said on Thursday its first-quarter profit nearly tripled and it ratcheted up its outlook for the remainder of the year because of soaring prices and demand for fertilizer to boost crop yields.
Potash, the world's largest fertilizer company, said it earned $566 million, or $1.74 per share, for the quarter ended March 31, up from $198 million, or 62 cents a share a year earlier.
Potash, the world's largest fertilizer company, said it earned $566 million, or $1.74 per share, for the quarter ended March 31, up from $198 million, or 62 cents a share a year earlier.
Terra Industries Inc. Reports First Quarter Results
Q1/08 vs. Q1/07:
-- Operating income up $101 million, or 150%.
-- North American revenues up $164 million, or 40%.
-- Ammonia, UAN and AN selling prices up 40%, 55% and 37%.
Outlook:
-- UAN product demand should remain strong as the ammonia application window narrows due to delays caused by cool, wet weather.
-- Nitrogen applications to wheat are expected to increase, partially offsetting a decrease in corn acreage.
-- Natural gas price volatility will continue to affect Terra's manufacturing costs.
SIOUX CITY, Iowa--(BUSINESS WIRE)--Terra Industries Inc. (NYSE:TRA - News) announced today net income available to common shareholders for the 2008 first quarter of $100.2 million ($.97 per diluted share), up from $5.9 million ($.06 per diluted share) for the same period in 2007. The 2007 results include a one-time loss on early retirement of debt of $38.7 million ($24.3 million, net of tax or $.26 per diluted share).
Terra reported 2008 first quarter operating income of $168.3 million, compared to operating income of $67.2 million for the 2007 first quarter. The 2008 improvement was mostly due to higher nitrogen products selling prices.
Analysis of first quarter results
Revenues for the 2008 first quarter totaled $574.7 million compared to $500.9 million for the 2007 first quarter. The 2007 revenues included $89.9 million from Terra’s UK operations that were later contributed to a joint venture. Excluding the 2007 UK results, revenues increased $163.7 million from the 2007 to the 2008 first quarter, primarily due to higher nitrogen selling prices. Ammonia, UAN and ammonium nitrate (AN) selling prices increased 40, 55 and 37 percent, respectively, over those of the same period last year. The improved selling prices reflect continued strong nitrogen products demand resulting from good commodity grain prices and Terra customers’ efforts to secure supplies for the 2008 spring planting season. North American sales volumes for ammonia increased by 3 percent, while sales volumes for UAN and AN decreased by 2 and 8 percent respectively. Sales volumes were affected by delayed product movement due to cool, wet conditions.
First quarter equity earnings of affiliates of $9.3 million reflect Terra’s interest in earnings from the GrowHow UK joint venture.
Selling, general and administrative (SG&A) expense for the 2008 first quarter decreased by $4.4 million from the 2007 first quarter. The decline was due to lower expenses for share-based compensation and the elimination of SG&A costs for Terra’s UK operations.
Forward natural gas position
Terra’s forward purchase contracts at March 31, 2008, fixed prices for about 18 percent of our next 12 months’ natural gas needs at about $26.6 million below the published forward market prices at that date. These forward positions hedge production costs associated with product that Terra has sold and plans to ship primarily in the second and third quarters of 2008.
Cash balances, customer prepayments and share buybacks
Cash balances, including about $282 million in customer prepayments, totaled $817 million at March 31, 2008. Terra expects to ship products under the prepay agreements during the 2008 second and third quarters.
During the 2008 first quarter, Terra did not repurchase any of its common shares under its share repurchase program. Since announcing its authorization to repurchase up to 9.5 million of its outstanding common shares by June 30, 2008, Terra has repurchased 6.7 million shares
-- Operating income up $101 million, or 150%.
-- North American revenues up $164 million, or 40%.
-- Ammonia, UAN and AN selling prices up 40%, 55% and 37%.
Outlook:
-- UAN product demand should remain strong as the ammonia application window narrows due to delays caused by cool, wet weather.
-- Nitrogen applications to wheat are expected to increase, partially offsetting a decrease in corn acreage.
-- Natural gas price volatility will continue to affect Terra's manufacturing costs.
SIOUX CITY, Iowa--(BUSINESS WIRE)--Terra Industries Inc. (NYSE:TRA - News) announced today net income available to common shareholders for the 2008 first quarter of $100.2 million ($.97 per diluted share), up from $5.9 million ($.06 per diluted share) for the same period in 2007. The 2007 results include a one-time loss on early retirement of debt of $38.7 million ($24.3 million, net of tax or $.26 per diluted share).
Terra reported 2008 first quarter operating income of $168.3 million, compared to operating income of $67.2 million for the 2007 first quarter. The 2008 improvement was mostly due to higher nitrogen products selling prices.
Analysis of first quarter results
Revenues for the 2008 first quarter totaled $574.7 million compared to $500.9 million for the 2007 first quarter. The 2007 revenues included $89.9 million from Terra’s UK operations that were later contributed to a joint venture. Excluding the 2007 UK results, revenues increased $163.7 million from the 2007 to the 2008 first quarter, primarily due to higher nitrogen selling prices. Ammonia, UAN and ammonium nitrate (AN) selling prices increased 40, 55 and 37 percent, respectively, over those of the same period last year. The improved selling prices reflect continued strong nitrogen products demand resulting from good commodity grain prices and Terra customers’ efforts to secure supplies for the 2008 spring planting season. North American sales volumes for ammonia increased by 3 percent, while sales volumes for UAN and AN decreased by 2 and 8 percent respectively. Sales volumes were affected by delayed product movement due to cool, wet conditions.
First quarter equity earnings of affiliates of $9.3 million reflect Terra’s interest in earnings from the GrowHow UK joint venture.
Selling, general and administrative (SG&A) expense for the 2008 first quarter decreased by $4.4 million from the 2007 first quarter. The decline was due to lower expenses for share-based compensation and the elimination of SG&A costs for Terra’s UK operations.
Forward natural gas position
Terra’s forward purchase contracts at March 31, 2008, fixed prices for about 18 percent of our next 12 months’ natural gas needs at about $26.6 million below the published forward market prices at that date. These forward positions hedge production costs associated with product that Terra has sold and plans to ship primarily in the second and third quarters of 2008.
Cash balances, customer prepayments and share buybacks
Cash balances, including about $282 million in customer prepayments, totaled $817 million at March 31, 2008. Terra expects to ship products under the prepay agreements during the 2008 second and third quarters.
During the 2008 first quarter, Terra did not repurchase any of its common shares under its share repurchase program. Since announcing its authorization to repurchase up to 9.5 million of its outstanding common shares by June 30, 2008, Terra has repurchased 6.7 million shares
PotashCorp's First-Quarter Earnings 50 Percent Higher Than Previous Record
SASKATOON, SK, April 24 /PRNewswire-FirstCall/ - Potash Corporation of Saskatchewan Inc. (PotashCorp) today announced record first-quarter results with earnings of $1.74 per share(1) ($566.0 million), a 181 percent increase over the $0.62 per share ($198.0 million) recorded in last year's first quarter and 50 percent higher than the previous record of $1.16 per share set in the fourth quarter of 2007. The pressure to increase global food production continued to drive demand for potash, phosphate and nitrogen and pushed prices for all three nutrients to new heights. As a result, each segment contributed record gross margin and raised total gross margin for the quarter to $856.0 million, up from $369.7 million in last year's first quarter.
Cash from operating activities prior to working capital changes during the first three months of 2008 reached a record $625.5 million(2), compared to $283.0 million in the same period last year, while adjusted earnings before interest, taxes, depreciation and amortization grew to $872.0 million(2) from $381.0 million in first-quarter 2007.
The same global conditions that drove PotashCorp's record performance this quarter also improved earnings from our offshore investments. Arab Potash Company Ltd. (APC) in Jordan and Sociedad Quimica y Minera de Chile S.A. (SQM) in Chile contributed a total of $23.4 million to other income during the quarter, up from $13.0 million in the first quarter of 2007. These investments, along with our positions in Israel Chemicals Ltd. (ICL) in Israel and Sinofert Holdings Limited (Sinofert) in China, currently have a total market value of $8.6 billion, equating to $26.50 per PotashCorp share.
"Another record quarter for our company reflects the ongoing growth in global demand for food and the fertilizers that are essential to maximizing crop production," said PotashCorp President and Chief Executive Officer Bill Doyle. "This is especially true of potash, where we have unmatched assets that continue to elevate our performance. In this environment, we are demonstrating the increasing value of our company - as an essential part of the solution to concerns about the world's food supply."
Cash from operating activities prior to working capital changes during the first three months of 2008 reached a record $625.5 million(2), compared to $283.0 million in the same period last year, while adjusted earnings before interest, taxes, depreciation and amortization grew to $872.0 million(2) from $381.0 million in first-quarter 2007.
The same global conditions that drove PotashCorp's record performance this quarter also improved earnings from our offshore investments. Arab Potash Company Ltd. (APC) in Jordan and Sociedad Quimica y Minera de Chile S.A. (SQM) in Chile contributed a total of $23.4 million to other income during the quarter, up from $13.0 million in the first quarter of 2007. These investments, along with our positions in Israel Chemicals Ltd. (ICL) in Israel and Sinofert Holdings Limited (Sinofert) in China, currently have a total market value of $8.6 billion, equating to $26.50 per PotashCorp share.
"Another record quarter for our company reflects the ongoing growth in global demand for food and the fertilizers that are essential to maximizing crop production," said PotashCorp President and Chief Executive Officer Bill Doyle. "This is especially true of potash, where we have unmatched assets that continue to elevate our performance. In this environment, we are demonstrating the increasing value of our company - as an essential part of the solution to concerns about the world's food supply."
Wednesday, April 23, 2008
Growth in Store for Monsanto
Monsanto (MON) posted record results for the fiscal second-quarter and is watching Wall Street lift estimates. The company’s earnings per share are expected to grow by 19% over the next 3 – 5 years, while the industry’s expectation stands at 11%. Monsanto’s ROE of 21% signals growth and surpasses the industry average of 9%. In addition to growth, Monsanto offers income in the form of a dividend yield of 0.5%, which is ahead of what the industry pays.
Monsanto is an agricultural company that applies innovation and technology to help farmers around the world produce healthier foods, better animal feeds and more fiber, while also reducing agriculture's impact on the environment.
The company announced fiscal second-quarter results in early April. MON said it had record net sales of $3.8 billion for the second quarter, 45% higher than sales in the same period in fiscal year 2007. Key drivers for the quarter were increased revenues from the company's U.S. corn seed and traits business, as well as increased revenues from its Brazilian corn seed business. Results in the quarter also reflected increased revenues from the company's Roundup agricultural herbicides globally.
Chairman, President and Chief Executive Officer Hugh Grant stated:
The performance of our seeds and traits business has us on track for another exceptional year and well positioned to support our five-year strategic growth plan. Between now and 2012, we are the only agriculture company that can point to consistent growth irrespective of commodity price swings, fluctuations in planted acres or the popularity of ethanol. Over the next five years we're poised to set the bar higher as we deliver a game changing platform every other year, real products that create real value for the farmer and for our shareowners.
Analyst earnings estimates have been on the rise since the second-quarter report with increases occurring in just the past week.
The company’s earnings per share are expected to grow by 19% over the next 3 – 5 years, while the industry’s expectation stands at 11%. Growth is also evident in its net profit margin of 17%, versus the industry’s average of 14%, and Monsanto’s return on equity [ROE] of 21% signals growth, surpassing the industry average of 9%.
In addition to growth, Monsanto offers income in the form of a dividend yield of 0.5%, which is ahead of what the industry pays.
Monsanto is an agricultural company that applies innovation and technology to help farmers around the world produce healthier foods, better animal feeds and more fiber, while also reducing agriculture's impact on the environment.
The company announced fiscal second-quarter results in early April. MON said it had record net sales of $3.8 billion for the second quarter, 45% higher than sales in the same period in fiscal year 2007. Key drivers for the quarter were increased revenues from the company's U.S. corn seed and traits business, as well as increased revenues from its Brazilian corn seed business. Results in the quarter also reflected increased revenues from the company's Roundup agricultural herbicides globally.
Chairman, President and Chief Executive Officer Hugh Grant stated:
The performance of our seeds and traits business has us on track for another exceptional year and well positioned to support our five-year strategic growth plan. Between now and 2012, we are the only agriculture company that can point to consistent growth irrespective of commodity price swings, fluctuations in planted acres or the popularity of ethanol. Over the next five years we're poised to set the bar higher as we deliver a game changing platform every other year, real products that create real value for the farmer and for our shareowners.
Analyst earnings estimates have been on the rise since the second-quarter report with increases occurring in just the past week.
The company’s earnings per share are expected to grow by 19% over the next 3 – 5 years, while the industry’s expectation stands at 11%. Growth is also evident in its net profit margin of 17%, versus the industry’s average of 14%, and Monsanto’s return on equity [ROE] of 21% signals growth, surpassing the industry average of 9%.
In addition to growth, Monsanto offers income in the form of a dividend yield of 0.5%, which is ahead of what the industry pays.
Potent Potables: Potash
For one day, potash-related companies are taking a breather, even though prices of the fertilizer element are soaring, hitting $1000 a ton in some markets around the world.
After the 57.5% first-day gain in Intrepid Potash Inc. on Tuesday, other major potash companies were pulling back in activity Wednesday, including Potash Corp. of Saskatchewan, Mosaic Co. and Agrium Inc. Other agricultural names were lower as well.
However, Belarusian Potash Company, partially owned by Russia’s Uralkali, said in a release that it was increasing the price of Belarus- and Russia-made potash fertilizers to $1,000 a ton for the South Asian market as of the beginning of July. The companies are “raising spot prices to put pressure on the Chinese,” note analysts at Citigroup.
At $1,000 a ton, the price of potash, an ingredient in plant fertilizer, has nearly quintupled from the beginning of 2007, when prices were $210 a ton, according to Citigroup. However, increased farming productivity in the U.S. and Canada, and government subsidies in developing nations, should continue to support these prices, the brokerage says.
“Spot price increases in Europe and the US should follow today’s announcement,” they write.
After the 57.5% first-day gain in Intrepid Potash Inc. on Tuesday, other major potash companies were pulling back in activity Wednesday, including Potash Corp. of Saskatchewan, Mosaic Co. and Agrium Inc. Other agricultural names were lower as well.
However, Belarusian Potash Company, partially owned by Russia’s Uralkali, said in a release that it was increasing the price of Belarus- and Russia-made potash fertilizers to $1,000 a ton for the South Asian market as of the beginning of July. The companies are “raising spot prices to put pressure on the Chinese,” note analysts at Citigroup.
At $1,000 a ton, the price of potash, an ingredient in plant fertilizer, has nearly quintupled from the beginning of 2007, when prices were $210 a ton, according to Citigroup. However, increased farming productivity in the U.S. and Canada, and government subsidies in developing nations, should continue to support these prices, the brokerage says.
“Spot price increases in Europe and the US should follow today’s announcement,” they write.
Intrepid Potash IPO has sweet smell of success
A company launched a successful initial public offering Tuesday centered around a product that, like the IPO market in general, stinks to high heaven.
Intrepid Potash (IPI), the largest U.S.-based company that mines an essential fertilizer ingredient called potash, braved a mean market for IPOs and saw its shares soar. The company's shares jumped $18.40, or 58%, to close at $50.40. The first-day gain came despite the initial price being 14% above the expected range.
The strong reception for Intrepid Potash comes while the number of IPOs is off 66% from the same point last year, Renaissance Capital says. Share prices of IPOs, on average, are down nearly 13% this year from their first-day close while the Standard & Poor's 500 is down 6.3%.
The warm welcome for Intrepid Potash shows worldwide demand for food and agricultural commodities supersedes any concerns about the U.S. economy or the IPO market, says Robbert Van Batenburg, head of global research at Louis Capital Markets. "This is the new bull market," he says. "The agricultural sector is on fire."
Seeing shares of Intrepid Potash rise despite the S&P 500 losing 12 points to 1376 Tuesday shows that the agricultural boom has several things going for it, including:
•Pricing power. Potash providers can hardly keep up with demand and are able to pass along stiff price increases, says Matt Therian, research analyst at Renaissance Capital. Rapidly expanding countries around the world see fertilizer as a way to boost farm production. Domestically, fertilizer is critical in keeping up with needs to grow crops for ethanol and other alternative fuels, he says.
The price of a ton of potash says it all. Intrepid Potash's regulatory filing says it was charging an average of $217 a ton for red granular potash in September 2007. That price soared to $503 as of April 1. Prices could rise more, Van Batenburg says.
•Benefit from the weak dollar. The dollar, which touched a record low against the euro Tuesday, benefits Intrepid Potash, says Francis Gaskins of IPOdesktop. The weak dollar makes U.S. exports cost less in foreign markets.
•Scarcity of supply and competition. Potash is extracted from just 20 mines in the world, Therian says. And the market is dominated by a handful of key players, including Intrepid and rivals Potash of Saskatchewan, Mosaic and Agrium.
Intrepid doesn't signal the IPO market is back on track, Gaskins says. Investors are willing to give only established companies such as Intrepid and Visa, which went public in March, a chance. "The IPO window is closed … except in special situations like this," he says.
Intrepid Potash (IPI), the largest U.S.-based company that mines an essential fertilizer ingredient called potash, braved a mean market for IPOs and saw its shares soar. The company's shares jumped $18.40, or 58%, to close at $50.40. The first-day gain came despite the initial price being 14% above the expected range.
The strong reception for Intrepid Potash comes while the number of IPOs is off 66% from the same point last year, Renaissance Capital says. Share prices of IPOs, on average, are down nearly 13% this year from their first-day close while the Standard & Poor's 500 is down 6.3%.
The warm welcome for Intrepid Potash shows worldwide demand for food and agricultural commodities supersedes any concerns about the U.S. economy or the IPO market, says Robbert Van Batenburg, head of global research at Louis Capital Markets. "This is the new bull market," he says. "The agricultural sector is on fire."
Seeing shares of Intrepid Potash rise despite the S&P 500 losing 12 points to 1376 Tuesday shows that the agricultural boom has several things going for it, including:
•Pricing power. Potash providers can hardly keep up with demand and are able to pass along stiff price increases, says Matt Therian, research analyst at Renaissance Capital. Rapidly expanding countries around the world see fertilizer as a way to boost farm production. Domestically, fertilizer is critical in keeping up with needs to grow crops for ethanol and other alternative fuels, he says.
The price of a ton of potash says it all. Intrepid Potash's regulatory filing says it was charging an average of $217 a ton for red granular potash in September 2007. That price soared to $503 as of April 1. Prices could rise more, Van Batenburg says.
•Benefit from the weak dollar. The dollar, which touched a record low against the euro Tuesday, benefits Intrepid Potash, says Francis Gaskins of IPOdesktop. The weak dollar makes U.S. exports cost less in foreign markets.
•Scarcity of supply and competition. Potash is extracted from just 20 mines in the world, Therian says. And the market is dominated by a handful of key players, including Intrepid and rivals Potash of Saskatchewan, Mosaic and Agrium.
Intrepid doesn't signal the IPO market is back on track, Gaskins says. Investors are willing to give only established companies such as Intrepid and Visa, which went public in March, a chance. "The IPO window is closed … except in special situations like this," he says.
Potash, King of Canada
We must state for the record that we are as surprised as anyone by the rapid price appreciation experienced by Potash Corp. of Saskatchewan (POT) shareholders over the past ten years. We started following the stock back in 1998 and were intrigued by its dominate market position, large amount of reserves and potential future resources, as well as their business dealings abroad with foreign entities. Make no mistake, at the time the industry was in troubled times as they could not sell all of their production and relied heavily upon controlling supply into the market to get by.
All that was then right has continued, and that which was wrong has dramatically changed, in favor of course to the potash producers. Most notably Potash Corp., which closed Monday April 21 at a price of C$211.10 on the Toronto Stock Exchange and is sporting a hefty sixty-six and a half billion dollar plus market cap, thus making POT Canada's largest company by market cap.
Monday's price increase places Potash Corp. roughly C$1.5 billion ahead of Encana (ECA) for the title of largest company, and this gap could increase greatly on Thursday April 24 when POT announces earnings.
Expectations are running high for POT, especially after The Mosaic Company (MOS) reported blow-out earnings and when considering the fact of how high the stock has risen in recent weeks. The market has set the bar very high and left little room for error, but if 'King Potash' (so long as POT is the largest company by market cap in Canada we will refer to it affectionately by this name) can find a way to surprise the market it will be off to the races once again for the industry as a whole.
Times have changed dramatically since the late 90s and early part of this decade. Unlike in those days, POT, and others in the industry, have customers who are more than willing to purchase any quantity that they can currently offer due to the current market where demand outstrips supply. Not only can Potash Corp. sell all of its current production, but prices have risen steadily over the past three years to all-time highs, further adding to earnings.
In the next year potash production should increase by roughly 5% worldwide, with at least 80% of that increase attributable to 'King Potash'. By 2010, POT should have production roughly a third higher than where it stands today, and that will be roughly half of all the added capacity created within that period.
The potash industry reminds us greatly of the go-go days in the uranium industry which occurred over the past three years. Currently those equities are in a funk, but there is no reason why potash companies must end their bull run anytime soon. These companies have earnings, production, and a cartel to market their production. Also, potash is not found in many places around the world, so there are very few companies who produce it, thus keeping IPOs to a minimum and limiting competition.
It must be noted that Intrepid Potash (IPI) went public yesterday and (at the time of writing) is currently trading up 50%. Nice to see established entities cashing in on the favorable market right now, and hopefully Intrepid will use a portion of these proceeds to increase production in some way. We currently have them producing 800,000 tonnes KCl for the future and if they want to please investors they will be forced to go about increasing production to increase earnings.
We doubt that many more potash focused companies will come public, not because of a lack of interest, but rather due to a lack of quality issues available. MagIndustries (MAAFF.PK) will have an IPO for its potash subsidiary (which expects to have a mine in the D.R. Congo with capacity of roughly 500,000 tonnes KCl production), but there are still no guarantees that even this will happen- though the wheels have been set in motion.
There are not many companies who can now attach themselves to ''King Potash's" coattails, which will force interested investors into the readily available securities currently on the market. Fund managers will flock to POT due to its large market cap, liquidity, and dominate market position and will help to continue its upward march. Also of interest is the fact that many indexes will have to be rebalanced now that POT is the largest Canadian company- this has already happened to a large extent, but the higher its market cap goes, the more buying you should see. Many investors should marvel at their investment and how far it has come, and to those doubters we have but one thing to say: "Long live the king!".
All that was then right has continued, and that which was wrong has dramatically changed, in favor of course to the potash producers. Most notably Potash Corp., which closed Monday April 21 at a price of C$211.10 on the Toronto Stock Exchange and is sporting a hefty sixty-six and a half billion dollar plus market cap, thus making POT Canada's largest company by market cap.
Monday's price increase places Potash Corp. roughly C$1.5 billion ahead of Encana (ECA) for the title of largest company, and this gap could increase greatly on Thursday April 24 when POT announces earnings.
Expectations are running high for POT, especially after The Mosaic Company (MOS) reported blow-out earnings and when considering the fact of how high the stock has risen in recent weeks. The market has set the bar very high and left little room for error, but if 'King Potash' (so long as POT is the largest company by market cap in Canada we will refer to it affectionately by this name) can find a way to surprise the market it will be off to the races once again for the industry as a whole.
Times have changed dramatically since the late 90s and early part of this decade. Unlike in those days, POT, and others in the industry, have customers who are more than willing to purchase any quantity that they can currently offer due to the current market where demand outstrips supply. Not only can Potash Corp. sell all of its current production, but prices have risen steadily over the past three years to all-time highs, further adding to earnings.
In the next year potash production should increase by roughly 5% worldwide, with at least 80% of that increase attributable to 'King Potash'. By 2010, POT should have production roughly a third higher than where it stands today, and that will be roughly half of all the added capacity created within that period.
The potash industry reminds us greatly of the go-go days in the uranium industry which occurred over the past three years. Currently those equities are in a funk, but there is no reason why potash companies must end their bull run anytime soon. These companies have earnings, production, and a cartel to market their production. Also, potash is not found in many places around the world, so there are very few companies who produce it, thus keeping IPOs to a minimum and limiting competition.
It must be noted that Intrepid Potash (IPI) went public yesterday and (at the time of writing) is currently trading up 50%. Nice to see established entities cashing in on the favorable market right now, and hopefully Intrepid will use a portion of these proceeds to increase production in some way. We currently have them producing 800,000 tonnes KCl for the future and if they want to please investors they will be forced to go about increasing production to increase earnings.
We doubt that many more potash focused companies will come public, not because of a lack of interest, but rather due to a lack of quality issues available. MagIndustries (MAAFF.PK) will have an IPO for its potash subsidiary (which expects to have a mine in the D.R. Congo with capacity of roughly 500,000 tonnes KCl production), but there are still no guarantees that even this will happen- though the wheels have been set in motion.
There are not many companies who can now attach themselves to ''King Potash's" coattails, which will force interested investors into the readily available securities currently on the market. Fund managers will flock to POT due to its large market cap, liquidity, and dominate market position and will help to continue its upward march. Also of interest is the fact that many indexes will have to be rebalanced now that POT is the largest Canadian company- this has already happened to a large extent, but the higher its market cap goes, the more buying you should see. Many investors should marvel at their investment and how far it has come, and to those doubters we have but one thing to say: "Long live the king!".
Tuesday, April 22, 2008
Intrepid Potash Soars 58% In Debut After Strong IPO
Intrepid Potash roared out of the starting gate Tuesday, rising 57.5% to 50.40.
The fertilizer maker went public at $32 a share, 14% above the midpoint 15f its proposed range. Intrepid had raised its price target from $24 to $26 in April and expanded the offering size to 30 million shares from 24 million.
This was exactly what IPO watchers expected.
"The price came out spot-on with what we were looking for," said analyst Ben Johnson of Morningstar. "We knew there was going to be a lot of demand."
Analyst Matt Therian of Renaissance Capital, an IPO research firm, also said that "we are not surprised by the first-day action."
The reason for the high expectations is the record demand for crop fertilizers amid the agricultural boom. Just last week, China's Sinofert ordered 1 million tons of potash from Canada for $576 a ton -- up 227% from last year's pact.
Sinofert had to cough up because supply is so limited. There are only 20 commercial potash deposits in the world, and just seven firms control 83% of production.
Intrepid Potash produces just 1.5% of global potash. But it's the largest player in the U.S., smack in the middle of the world's biggest market.
Intrepid thinks lower transport costs give it an edge over the dominant Canadian producers, including Potash Corp. of Saskatchewan (NYSE:POT - News) and Agrium (NYSE:AGU - News). Potash releases quarterly results Thursday.
The concentrated supply means that there probably aren't more potash firms waiting to go public. But the overall IPO market is showing signs of picking up.
IPOs are off 66% from the same point 14 2007, according to Renaissance's IPOhome.com. Intrepid is April's first debut after just three in March, though that included Visa's (NYSE:V - News) record U.S. offering.
But four more companies are lined up for this week alone -- a water utility, a small tech firm and two REITs. An oil and gas producer and a solar-power firm have also recently announced terms.
"The supply-demand fundamentals in the IPO market are just as strong (as in potash)," Johnson said. "There's limited supply and plenty of pent-up demand there."
The fertilizer maker went public at $32 a share, 14% above the midpoint 15f its proposed range. Intrepid had raised its price target from $24 to $26 in April and expanded the offering size to 30 million shares from 24 million.
This was exactly what IPO watchers expected.
"The price came out spot-on with what we were looking for," said analyst Ben Johnson of Morningstar. "We knew there was going to be a lot of demand."
Analyst Matt Therian of Renaissance Capital, an IPO research firm, also said that "we are not surprised by the first-day action."
The reason for the high expectations is the record demand for crop fertilizers amid the agricultural boom. Just last week, China's Sinofert ordered 1 million tons of potash from Canada for $576 a ton -- up 227% from last year's pact.
Sinofert had to cough up because supply is so limited. There are only 20 commercial potash deposits in the world, and just seven firms control 83% of production.
Intrepid Potash produces just 1.5% of global potash. But it's the largest player in the U.S., smack in the middle of the world's biggest market.
Intrepid thinks lower transport costs give it an edge over the dominant Canadian producers, including Potash Corp. of Saskatchewan (NYSE:POT - News) and Agrium (NYSE:AGU - News). Potash releases quarterly results Thursday.
The concentrated supply means that there probably aren't more potash firms waiting to go public. But the overall IPO market is showing signs of picking up.
IPOs are off 66% from the same point 14 2007, according to Renaissance's IPOhome.com. Intrepid is April's first debut after just three in March, though that included Visa's (NYSE:V - News) record U.S. offering.
But four more companies are lined up for this week alone -- a water utility, a small tech firm and two REITs. An oil and gas producer and a solar-power firm have also recently announced terms.
"The supply-demand fundamentals in the IPO market are just as strong (as in potash)," Johnson said. "There's limited supply and plenty of pent-up demand there."
Fertilizer Maker Grows As Farmers Struggle To Meet Global Demand
Farmers may be planting less corn this year, but there's still plenty of fertile ground for agriculture companies like CF Industries.
The Deerfield, Ill.-based fertilizer maker and distributor put up a record fourth quarter as farmers applied its chemicals in the fall and stocked up for spring planting.
Even if those farmers plant fewer acres of corn, as the government projects, acreage for other crops should grow.
CF (NYSE:CF - News) said the weather so far hasn't been perfect everywhere -- it was too wet in some places, too dry in others -- but the overall picture is good.
"The worldwide market for grain, and the fertilizer to grow it, is robust," CF's chief executive, Stephen Wilson, told analysts in an investor conference earlier this month.
"If we can get by the current weather problems in a reasonable amount of time, the overall planting this spring should reflect that general strength."
Earnings Report
The company will report first-quarter results after the market closes Thursday.
Officials declined to comment in advance of earnings. Analysts polled by Thomson Reuters expect earnings of $2.13 a share, up from $1.02 a year ago.
They expect almost $751 million in revenue, up 59% from the year-ago period.
In the fourth quarter -- CF's best as a public company -- it posted earnings of $2.38 a share, up from 14 cents a year earlier. Sales were up 62% to $852.5 million.
The company cited the usual factors that have made agribusinesses bulls amid a bearish economy. Global grain stocks are low, and demand is rising as populations grow. Rising wealth also creates demand for meat, which requires grains for feed.
That pushes food prices up, which encourages farmers to plant more and to use more fertilizers.
The ethanol boom, which is diverting corn and other grains for fuel, is merely adding more fuel to the fire.
"Arable landmass is finite," said Edwin Chee, a chemical and fertilizer analyst with BMO Capital Markets, speaking at a fertilizer conference this month. "And obviously, in order to alleviate these high prices that everybody is fearful about, you need to increase supply. You need to raise your yields."
That means more demand for the nitrogen and phosphate fertilizers CF produces.
The company formed in 1946 as a cooperative fertilizer brokerage. Over the years, it expanded its distribution and branched into fertilizer manufacturing. It went public in 2005.
Now, it's branching out overseas. Last year, it bought a 50% stake in Keytrade, a Zurich, Switzerland-based global fertilizer trader. The company now markets fertilizers in 65 nations.
Also last year, the company won the rights to build fertilizer operations in Peru. It would use excess natural gas there to supply Peru and neighboring markets with nitrogen fertilizers. The plants could be running by 2012.
Back at home, CF says it's managing its distribution and storage networks efficiently and keeping plants running at or near capacity. That helps it deliver to American farmers quickly during times of peak demand.
CF says it has 26% of the nitrogen market and 19% of the phosphate market across the North American Corn Belt.
But it remains to be seen how the reduction in corn planting this year will affect CF.
Corn Production Forecasts
The Agriculture Department says U.S. farmers will plant about 86 million acres of corn, down from the peak last year of 93.6 million. The high cost for producing corn and the attractive prices for alternatives, such as soybeans, caused the shift, the government says.
But CF says those early projections could be off. The economics still favor higher corn planting, the company says.
Even if the lower figures hold, corn acreage will still far exceed the 79-million-acre average that farmers planted between 1997 and 2006.
And if farmers do plant less, they won't leave their fields idle. The government expects them to plant more wheat, sorghum and other crops that demand nitrogen.
Globally, demand is high for phosphate fertilizers too, and the company says supply is tight.
Prices for phosphate fertilizers have skyrocketed as the price for phosphate rock rises. And no major new capacity is expected in the next two or three years, the company says.
But CF has its own phosphate mine in Florida, which keeps its costs down. "We're in heady times in this business," CEO Wilson told analysts.
Uranium Possibilities
Long term, the company is looking for ways to extract uranium from its phosphate fertilizers, which it could then sell to utilities.
On the nitrogen side, the company is considering converting part of one of its nitrogen plants to coal, to reduce its reliance on natural gas in North America.
Credit Suisse analyst Mark Connelly thinks the company's might have been burned earlier this year by steep increases in the price for sulfur, another key ingredient in phosphate fertilizers.
CF has longer-term deals with some customers that lock in prices.
That might have crimped margins in the short term, Connelly wrote in an analyst note. But he thinks the long-term prospects are good.
"Phosphate demand remains high and inventories are low, which has helped producers raise prices," he wrote.
The Deerfield, Ill.-based fertilizer maker and distributor put up a record fourth quarter as farmers applied its chemicals in the fall and stocked up for spring planting.
Even if those farmers plant fewer acres of corn, as the government projects, acreage for other crops should grow.
CF (NYSE:CF - News) said the weather so far hasn't been perfect everywhere -- it was too wet in some places, too dry in others -- but the overall picture is good.
"The worldwide market for grain, and the fertilizer to grow it, is robust," CF's chief executive, Stephen Wilson, told analysts in an investor conference earlier this month.
"If we can get by the current weather problems in a reasonable amount of time, the overall planting this spring should reflect that general strength."
Earnings Report
The company will report first-quarter results after the market closes Thursday.
Officials declined to comment in advance of earnings. Analysts polled by Thomson Reuters expect earnings of $2.13 a share, up from $1.02 a year ago.
They expect almost $751 million in revenue, up 59% from the year-ago period.
In the fourth quarter -- CF's best as a public company -- it posted earnings of $2.38 a share, up from 14 cents a year earlier. Sales were up 62% to $852.5 million.
The company cited the usual factors that have made agribusinesses bulls amid a bearish economy. Global grain stocks are low, and demand is rising as populations grow. Rising wealth also creates demand for meat, which requires grains for feed.
That pushes food prices up, which encourages farmers to plant more and to use more fertilizers.
The ethanol boom, which is diverting corn and other grains for fuel, is merely adding more fuel to the fire.
"Arable landmass is finite," said Edwin Chee, a chemical and fertilizer analyst with BMO Capital Markets, speaking at a fertilizer conference this month. "And obviously, in order to alleviate these high prices that everybody is fearful about, you need to increase supply. You need to raise your yields."
That means more demand for the nitrogen and phosphate fertilizers CF produces.
The company formed in 1946 as a cooperative fertilizer brokerage. Over the years, it expanded its distribution and branched into fertilizer manufacturing. It went public in 2005.
Now, it's branching out overseas. Last year, it bought a 50% stake in Keytrade, a Zurich, Switzerland-based global fertilizer trader. The company now markets fertilizers in 65 nations.
Also last year, the company won the rights to build fertilizer operations in Peru. It would use excess natural gas there to supply Peru and neighboring markets with nitrogen fertilizers. The plants could be running by 2012.
Back at home, CF says it's managing its distribution and storage networks efficiently and keeping plants running at or near capacity. That helps it deliver to American farmers quickly during times of peak demand.
CF says it has 26% of the nitrogen market and 19% of the phosphate market across the North American Corn Belt.
But it remains to be seen how the reduction in corn planting this year will affect CF.
Corn Production Forecasts
The Agriculture Department says U.S. farmers will plant about 86 million acres of corn, down from the peak last year of 93.6 million. The high cost for producing corn and the attractive prices for alternatives, such as soybeans, caused the shift, the government says.
But CF says those early projections could be off. The economics still favor higher corn planting, the company says.
Even if the lower figures hold, corn acreage will still far exceed the 79-million-acre average that farmers planted between 1997 and 2006.
And if farmers do plant less, they won't leave their fields idle. The government expects them to plant more wheat, sorghum and other crops that demand nitrogen.
Globally, demand is high for phosphate fertilizers too, and the company says supply is tight.
Prices for phosphate fertilizers have skyrocketed as the price for phosphate rock rises. And no major new capacity is expected in the next two or three years, the company says.
But CF has its own phosphate mine in Florida, which keeps its costs down. "We're in heady times in this business," CEO Wilson told analysts.
Uranium Possibilities
Long term, the company is looking for ways to extract uranium from its phosphate fertilizers, which it could then sell to utilities.
On the nitrogen side, the company is considering converting part of one of its nitrogen plants to coal, to reduce its reliance on natural gas in North America.
Credit Suisse analyst Mark Connelly thinks the company's might have been burned earlier this year by steep increases in the price for sulfur, another key ingredient in phosphate fertilizers.
CF has longer-term deals with some customers that lock in prices.
That might have crimped margins in the short term, Connelly wrote in an analyst note. But he thinks the long-term prospects are good.
"Phosphate demand remains high and inventories are low, which has helped producers raise prices," he wrote.
Fertilize and Water Daily for Stock Growth
Investors looking to jump into the newest hot public offering used to go ga-ga over technology. Now, they look at fertilizer.
Shares of Intrepid Potash Inc., the largest producer of potash in the U.S., jumped 56% in their first day of trading as investors gobbled up shares of the agricultural play, giving it the best one-day return for any U.S. initial public offering larger than $10 million in 2008. The company priced 30 million shares of stock at $32 a share, higher than originally expected.
The potash market has a few things in common with the market for publicly traded potash names — scarcity and demand. Scott Sweet, senior managing partner at IPO Boutique, which tracks initial public offerings, says the costs to get into the potash business are high, leaving a handful of well-capitalized players. According to Intrepid’s prospectus, the top five worldwide producers of potash have 64% of market share.
As a result, returns for the publicly traded potash companies have been outstanding. Potash Corp. of Saskatchewan, Mosaic Co., and Agrium Inc. posted one-year gains of 239%, 119% and 376%, respectively. Mr. Sweet says there are few other such companies of this size (the Intrepid deal was $960 million), and as a result, these names may continue to rally.
“There’s every reason to consider that these stocks will continue to do well,” he says. As to whether these stocks are in a bubble phase, he doesn’t think so, but says “over the last several months, you’ve got some momentum players in.”
Prices of potash, one of three key ingredients in plant fertilizer, have soared due to worldwide demand and the scarcity of the product — it is only mined in 12 countries worldwide, and Intrepid noted in its offering prospectus that “potash prices increased throughout 2007 and this trend is continuing into 2008 due primarily to potash demand increasing faster than potash supply.”
Last week, a consortium of major potash producers agreed to sell potash to China at triple last year’s price. The average Midwestern U.S. delivered list prices for potash per ton rose to $502 at the end of the first quarter, compared with $214 at the end of the first quarter of 2007, according to Intrepid. “It’s tough to see that going away in the very near-term,” says Matt Pherian, analyst at Renaissance Capital in Greenwich, Conn.--seeking alpha
Shares of Intrepid Potash Inc., the largest producer of potash in the U.S., jumped 56% in their first day of trading as investors gobbled up shares of the agricultural play, giving it the best one-day return for any U.S. initial public offering larger than $10 million in 2008. The company priced 30 million shares of stock at $32 a share, higher than originally expected.
The potash market has a few things in common with the market for publicly traded potash names — scarcity and demand. Scott Sweet, senior managing partner at IPO Boutique, which tracks initial public offerings, says the costs to get into the potash business are high, leaving a handful of well-capitalized players. According to Intrepid’s prospectus, the top five worldwide producers of potash have 64% of market share.
As a result, returns for the publicly traded potash companies have been outstanding. Potash Corp. of Saskatchewan, Mosaic Co., and Agrium Inc. posted one-year gains of 239%, 119% and 376%, respectively. Mr. Sweet says there are few other such companies of this size (the Intrepid deal was $960 million), and as a result, these names may continue to rally.
“There’s every reason to consider that these stocks will continue to do well,” he says. As to whether these stocks are in a bubble phase, he doesn’t think so, but says “over the last several months, you’ve got some momentum players in.”
Prices of potash, one of three key ingredients in plant fertilizer, have soared due to worldwide demand and the scarcity of the product — it is only mined in 12 countries worldwide, and Intrepid noted in its offering prospectus that “potash prices increased throughout 2007 and this trend is continuing into 2008 due primarily to potash demand increasing faster than potash supply.”
Last week, a consortium of major potash producers agreed to sell potash to China at triple last year’s price. The average Midwestern U.S. delivered list prices for potash per ton rose to $502 at the end of the first quarter, compared with $214 at the end of the first quarter of 2007, according to Intrepid. “It’s tough to see that going away in the very near-term,” says Matt Pherian, analyst at Renaissance Capital in Greenwich, Conn.--seeking alpha
IPI's Soaring IPO: Harvesting Gains from Fertilizer Manufacturers
While commodity prices keep soaring, some of the fertilizer producers continue to harvest the profits. The ongoing demand for grains, whether for food or alternative fuels, is expected to remain strong. Fertilizer producers are benefiting from the increased usage of specialty chemicals by farmers in industrialized nations seeking to maximize their crops. Emerging markets are adding pressure to the prices for these grains, as the booming middle class changes its food diet. Consider rough rice, for example; prices are up 138 percent in the past year. The global demand for fertilizers was once again confirmed by last week’s news that Potash Potash Corp of Saskatchewan and two other companies had agreed to sell their products to Sinofert Holdings –a major Chinese importer- at $576 a ton, or a more than triple premium over 2007 price-levels.
The need for alternative fuels due to record-high prices for energy commodities, especially crude oil, as well as global warming concerns have influenced the prices for agricultural commodities. The demand for corn-based ethanol is one of the main drivers for the price increase in corn, which has surged 60.36 percent in the past six months. According to the International Fertilizer Development Center, in 2007, the United States designated 18 to 20 percent of its corn crops to the production of ethanol (this figure is projected to be approximately 25 percent in 2008). Although the benefits derived from ethanol are still debated, the need for alternative bio-fuels remains a top priority.
Intrepid Potash Intrepid Potash IncIPI, a significant player in producing the fertilizer potash, raised $960 million, or $3 above the projected pricing of $27 to $29 per share. It's shares jumped over 40% on the open this morning. Potash (or carbonate of potash) is an impure form of potassium carbonate. Potassium, Nitrogen and Phosphorous are the three most important ingredients for crop growth.
The need for alternative fuels due to record-high prices for energy commodities, especially crude oil, as well as global warming concerns have influenced the prices for agricultural commodities. The demand for corn-based ethanol is one of the main drivers for the price increase in corn, which has surged 60.36 percent in the past six months. According to the International Fertilizer Development Center, in 2007, the United States designated 18 to 20 percent of its corn crops to the production of ethanol (this figure is projected to be approximately 25 percent in 2008). Although the benefits derived from ethanol are still debated, the need for alternative bio-fuels remains a top priority.
Intrepid Potash Intrepid Potash IncIPI, a significant player in producing the fertilizer potash, raised $960 million, or $3 above the projected pricing of $27 to $29 per share. It's shares jumped over 40% on the open this morning. Potash (or carbonate of potash) is an impure form of potassium carbonate. Potassium, Nitrogen and Phosphorous are the three most important ingredients for crop growth.
UPDATE-Shares of Intrepid Potash soar in debut
NEW YORK, April 22 (Reuters) - Shares of crop nutrient producer Intrepid Potash Inc (IPI.N: Quote, Profile, Research), which priced above the anticipated range in its initial public offering, soared in early trade on the New York Stock Exchange on Tuesday.
The stock rose $15.90 or 50 percent to $47.90, giving the company a market capitalization of about $3.6 billion.
The 30 million-share IPO sold for $32 per share, according to an underwriter. At $32, the IPO price was $3 above the top of the $27 to $29 forecast range. The offering had already been increased from 24 million shares and had an estimated price of $24 to $26 per share.
Intrepid Potash's bullish move came amid a dearth of new IPOs, with just 25 deals priced in the first quarter, the lowest number since 2003, and 36 companies withdrew or postponed IPOs in the quarter.
Rising demand for grain across the globe, driven largely by the growing needs of developing economies and the increasing use of biofuels, has led to soaring prices.
Farmers trying to boost yields are using more fertilizers, leading to tight global supply conditions for crop nutrients and bumper profits for fertilizer producers.
Shares of North American fertilizer producers have risen dramatically in the last 12 months -- and companies with sizable potash assets have been among the biggest winners in the sector.
Earlier this month, Chinese importers agreed to pay North American and Russian potash exporters more than triple the price they paid a year ago for the agricultural nutrient.
Intrepid Potash accounts for about 1.5 percent of global potash production, with nearly all of its sales in the United States.
Shares of rivals Potash Corp (POT.TO: Quote, Profile, Research) slipped 0.4 percent to C$210.35 on the Toronto Stock Exchange and Mosaic Co (MOS.N: Quote, Profile, Research) eased 0.8 percent to $138.27 on the New York Stock Exchange. - Rueters
The stock rose $15.90 or 50 percent to $47.90, giving the company a market capitalization of about $3.6 billion.
The 30 million-share IPO sold for $32 per share, according to an underwriter. At $32, the IPO price was $3 above the top of the $27 to $29 forecast range. The offering had already been increased from 24 million shares and had an estimated price of $24 to $26 per share.
Intrepid Potash's bullish move came amid a dearth of new IPOs, with just 25 deals priced in the first quarter, the lowest number since 2003, and 36 companies withdrew or postponed IPOs in the quarter.
Rising demand for grain across the globe, driven largely by the growing needs of developing economies and the increasing use of biofuels, has led to soaring prices.
Farmers trying to boost yields are using more fertilizers, leading to tight global supply conditions for crop nutrients and bumper profits for fertilizer producers.
Shares of North American fertilizer producers have risen dramatically in the last 12 months -- and companies with sizable potash assets have been among the biggest winners in the sector.
Earlier this month, Chinese importers agreed to pay North American and Russian potash exporters more than triple the price they paid a year ago for the agricultural nutrient.
Intrepid Potash accounts for about 1.5 percent of global potash production, with nearly all of its sales in the United States.
Shares of rivals Potash Corp (POT.TO: Quote, Profile, Research) slipped 0.4 percent to C$210.35 on the Toronto Stock Exchange and Mosaic Co (MOS.N: Quote, Profile, Research) eased 0.8 percent to $138.27 on the New York Stock Exchange. - Rueters
Pisani: Hot Fertilizer
Who said the IPO market was dead? Not if you have a hot product. Intrepid Potash (IPI) priced 30 million shares at $32 last night, and will be ringing the opening bell this morning. Was demand strong? You tell me: initial price talk was 24 million shares between $24-$26, then bumped up to 30 million shares between $27-$29, then finally priced at $32.
What's going on? You have a product -- potash -- a critical ingredient in fertilizer. Food supplies are getting scarcer, and fertilizer is one of the best ways to increase yield. So you have international demand, and somewhat constrained capacity. You can also thank demand for ethanol from corn and the need to increase yield there. (Read more about Intrepid here).
It's amazing it took this long for another major fertilizer company to come along. Look at CF Industries CF Industries Holdings IncCF
155.51 -0.59 -0.38% NYSE
Quote | Chart | News | Profile
[CF 155.51 -0.59 (-0.38%) ] -- they went public in 2005 at $16. Closed yesterday at $156.
We'll be discussing the state of the IPO market this morning at 10:50 ET on Squawk on the Street.
Elsewhere:
1) Southeast bank SunTrust missed earnings by a wide margin ($0.81 vs. $1.03 estimates). The usual suspects -- losses in real estate -- were cited, which is no surprise--they have lots of southeast real estate exposure. There was a spike in problem loans, again associated with residential construction, home equity and residential mortgages.
Traders tell me that management seems optimistic on the conference call, saying things will be better in two quarters. Much of this now depends on your view of the real estate situation in the southeast.
Down 4 percent pre-open.
2) Oppenheimer's Meredith Whitney was right--she said yesterday Citigroup Citigroup IncC
25.01 -0.02 -0.08% NYSE
Quote | Chart | News | Profile
[C 25.01 -0.02 (-0.08%) ] would need to raise more capital, and they did--right after the bell yesterday announced an offering of $6 billion in preferred shares. Carries a dividend of 8.4 percent for 10 years and a floating rate after that. That makes roughly $36 b in capital raising Citi has done since November.
This comes after JP Morgan also raised $6 billion last week.
Speaking of capital raising--CIT raised $1 billion, half in common stock, the other half in convertible preferreds.
3) Dupont DuPont CoDD
50.33 -1.92 -3.67% NYSE
Quote | Chart | News | Profile
[DD 50.33 -1.92 (-3.67%) ] beat estimates and reaffirmed their full year guidance. It's important to realize that Dupont now gets about 25 percent of its sales from its Agricultural & Nutrition division, which includes genetically modified seed. Of course, they are most famous for their Performance Materials (polymers, about 25 percent of sales), automotive finishings and coatings (about 20 percent of sales), and safety materials like Tyvek, Kevlar, and Corian (also about 20 percent of sales.
4) McDonald's McDonald's CorpMCD
58.39 -0.28 -0.48% NYSE
Quote | Chart | News | Profile
[MCD 58.39 -0.28 (-0.48%) ] beat estimates handily, $0.81 vs. $0.70. International sales again were strong: Europe up 11.1 percent in constant currency, Asia/Pacific Middle East and Africa up 16 percent in constant currency, U.S. up 2.9 percent. Menu items, expanded hours, and the dollar all were positive factors.
A few other consumer discretionary stocks beat--Coach and Brinker. Coach reported earnings for their third quarter, affirmed guidance for the rest of the year (one quarter remaining), but declined to give guidance after that.
5) UnitedHealth Group UnitedHealth Group IncUNH
33.928 -3.882 -10.27% NYSE
Quote | Chart | News | Profile
[UNH 33.928 -3.882 (-10.27%) ] continued the trend of earnings warnings from HMOs; they reduced 2008 guidance by 10 percent, citing unusually high influenza costs, as well as declining membership gains because prices have gone up. Down 10 percent pre-open.
What's going on? You have a product -- potash -- a critical ingredient in fertilizer. Food supplies are getting scarcer, and fertilizer is one of the best ways to increase yield. So you have international demand, and somewhat constrained capacity. You can also thank demand for ethanol from corn and the need to increase yield there. (Read more about Intrepid here).
It's amazing it took this long for another major fertilizer company to come along. Look at CF Industries CF Industries Holdings IncCF
155.51 -0.59 -0.38% NYSE
Quote | Chart | News | Profile
[CF 155.51 -0.59 (-0.38%) ] -- they went public in 2005 at $16. Closed yesterday at $156.
We'll be discussing the state of the IPO market this morning at 10:50 ET on Squawk on the Street.
Elsewhere:
1) Southeast bank SunTrust missed earnings by a wide margin ($0.81 vs. $1.03 estimates). The usual suspects -- losses in real estate -- were cited, which is no surprise--they have lots of southeast real estate exposure. There was a spike in problem loans, again associated with residential construction, home equity and residential mortgages.
Traders tell me that management seems optimistic on the conference call, saying things will be better in two quarters. Much of this now depends on your view of the real estate situation in the southeast.
Down 4 percent pre-open.
2) Oppenheimer's Meredith Whitney was right--she said yesterday Citigroup Citigroup IncC
25.01 -0.02 -0.08% NYSE
Quote | Chart | News | Profile
[C 25.01 -0.02 (-0.08%) ] would need to raise more capital, and they did--right after the bell yesterday announced an offering of $6 billion in preferred shares. Carries a dividend of 8.4 percent for 10 years and a floating rate after that. That makes roughly $36 b in capital raising Citi has done since November.
This comes after JP Morgan also raised $6 billion last week.
Speaking of capital raising--CIT raised $1 billion, half in common stock, the other half in convertible preferreds.
3) Dupont DuPont CoDD
50.33 -1.92 -3.67% NYSE
Quote | Chart | News | Profile
[DD 50.33 -1.92 (-3.67%) ] beat estimates and reaffirmed their full year guidance. It's important to realize that Dupont now gets about 25 percent of its sales from its Agricultural & Nutrition division, which includes genetically modified seed. Of course, they are most famous for their Performance Materials (polymers, about 25 percent of sales), automotive finishings and coatings (about 20 percent of sales), and safety materials like Tyvek, Kevlar, and Corian (also about 20 percent of sales.
4) McDonald's McDonald's CorpMCD
58.39 -0.28 -0.48% NYSE
Quote | Chart | News | Profile
[MCD 58.39 -0.28 (-0.48%) ] beat estimates handily, $0.81 vs. $0.70. International sales again were strong: Europe up 11.1 percent in constant currency, Asia/Pacific Middle East and Africa up 16 percent in constant currency, U.S. up 2.9 percent. Menu items, expanded hours, and the dollar all were positive factors.
A few other consumer discretionary stocks beat--Coach and Brinker. Coach reported earnings for their third quarter, affirmed guidance for the rest of the year (one quarter remaining), but declined to give guidance after that.
5) UnitedHealth Group UnitedHealth Group IncUNH
33.928 -3.882 -10.27% NYSE
Quote | Chart | News | Profile
[UNH 33.928 -3.882 (-10.27%) ] continued the trend of earnings warnings from HMOs; they reduced 2008 guidance by 10 percent, citing unusually high influenza costs, as well as declining membership gains because prices have gone up. Down 10 percent pre-open.
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