Today's matchup is Caterpillar (NYSE: CAT) vs. Deere (NYSE: DE). Using five short-of-scientific-but-carefully chosen criteria, let's determine which is the better buy according to the numbers:
Round 1: Cheapness
Advantage: Deere. Cheapness is determined by P/E ratio. The lower the better. Be careful of earnings near zero that skew the ratio, one-time gains and losses, and pasts that aren’t indicative of futures (the more dynamic the industry, the more this is true).
Round 2: Growth
Advantage: Deere. Growth here is the trailing 5-year EPS growth rate. This trailing earnings growth helps put notoriously optimistic Wall Street projections in perspective.
Round 3: Operations
Advantage: Deere. Net margins shows the percentage of revenue that hits the bottom line. The more similar the business models, the more relevant the comparison.
Round 4: Balance sheet
Advantage: Deere. As with net margins, the debt-to-capital ratio is most relevant in comparing companies in similar industries. In this battle we give the nod to the lower-debt company, but attention should also be paid to the cost of debt, interest coverage ratios, and the stability of the business (the more stable a company’s operations, the more debt it can safely carry).
Round 5: CAPS rating
Advantage: Deere. A company’s CAPS rating is our community’s opinion of the stock. Deere has a slightly greater numerical CAPS rating than Caterpillar (even though they have the same number of stars). You can get more information on your stocks -- and our community’s opinions of those stocks -- by clicking over to CAPS.
Each of these five rankings need more context -- like, how these companies stack up against key competitors such as CNH Global (NYSE: CNH) and Illinois Tool Works (NYSE: ITW). But these basic numbers suggest that Deere is a better buy. What do you think? Let us know in the comments section below.
Tuesday, December 1, 2009
Top Takes from Real Money
The RealMoney contributors are in the business of trading and investing all day on the basis of ongoing news flow. Below, we offer the top five ideas that RealMoney contributors posted today and how they played those ideas.
TheStreet.com brings you the news all day, and with RealMoney's "Columnist Conversation," you can see how the pros are playing it on a real-time basis. Here are the top five ideas played today. To see all that RealMoney offers, click here for a free trial. 1. Markets Today
By Marc Chandler
7:52 a.m. EST
Global equity markets are higher as concerns about Dubai World continue to recede after Dubai indicated the loan package being negotiated will be about half the size ($26 billion) originally expected. That and the softer yen helped boost the Nikkei 2.4% and bring total gains since Friday's Dubai-induced drop to 5.4%.
Elsewhere, consumer and technology shares led China, Hong Kong and South Korean bourses higher. European bourses are up, with PMI manufacturing data helping boost industrials, which together with financials are lifting the DAX and CAC by about 2% in morning trading.
The FTSE 100 is up 1.7% helped by basic materials and financials while early indications suggest U.S. markets will open higher. Today's developments have not helped UAE equity markets, which are still down, falling 3.6% to 6.4% today.
No positions.
--------------------------------------------------------------------------------
2. Potash Price Target Increased
9:54 a.m. EST
Fertilizer stocks are sharply higher today on a price upgrade for Potash (POT Quote). I've been bullish on fertilizer for over a year now as the economics of the businesses look very compelling going forward: You can defer but you cannot avoid fertilizer application. After loading up a couple of years ago, farmers are nearing inventory depletion, which means they will buy at market prices. Second, more people plus less arable land equals more fertilizer needed to feed them. And the best part is that names like POT, Mosaic (MOS Quote), Agrium (AGU Quote) and CF Industries (CF Quote) are quality blue-chip-type companies that are quite cheap on a forward-looking basis.
3. Gold
By Timothy Collins
12:12 p.m. EST I'm taking a small position in the December 119 puts on the SPDR Gold Trust (GLD Quote) for $3.25 or better. GLD has become very extended from its 20- and 50-day moving averages, and I don't expect gold to plummet, but I suspect a short-term pullback from this $1,200 level may happen. I wouldn't expect GLD to go below $112.50, but that area is my target for a pullback.
Short GLD via puts.
TheStreet.com brings you the news all day, and with RealMoney's "Columnist Conversation," you can see how the pros are playing it on a real-time basis. Here are the top five ideas played today. To see all that RealMoney offers, click here for a free trial. 1. Markets Today
By Marc Chandler
7:52 a.m. EST
Global equity markets are higher as concerns about Dubai World continue to recede after Dubai indicated the loan package being negotiated will be about half the size ($26 billion) originally expected. That and the softer yen helped boost the Nikkei 2.4% and bring total gains since Friday's Dubai-induced drop to 5.4%.
Elsewhere, consumer and technology shares led China, Hong Kong and South Korean bourses higher. European bourses are up, with PMI manufacturing data helping boost industrials, which together with financials are lifting the DAX and CAC by about 2% in morning trading.
The FTSE 100 is up 1.7% helped by basic materials and financials while early indications suggest U.S. markets will open higher. Today's developments have not helped UAE equity markets, which are still down, falling 3.6% to 6.4% today.
No positions.
--------------------------------------------------------------------------------
2. Potash Price Target Increased
9:54 a.m. EST
Fertilizer stocks are sharply higher today on a price upgrade for Potash (POT Quote). I've been bullish on fertilizer for over a year now as the economics of the businesses look very compelling going forward: You can defer but you cannot avoid fertilizer application. After loading up a couple of years ago, farmers are nearing inventory depletion, which means they will buy at market prices. Second, more people plus less arable land equals more fertilizer needed to feed them. And the best part is that names like POT, Mosaic (MOS Quote), Agrium (AGU Quote) and CF Industries (CF Quote) are quality blue-chip-type companies that are quite cheap on a forward-looking basis.
3. Gold
By Timothy Collins
12:12 p.m. EST I'm taking a small position in the December 119 puts on the SPDR Gold Trust (GLD Quote) for $3.25 or better. GLD has become very extended from its 20- and 50-day moving averages, and I don't expect gold to plummet, but I suspect a short-term pullback from this $1,200 level may happen. I wouldn't expect GLD to go below $112.50, but that area is my target for a pullback.
Short GLD via puts.
Fertilizer War Rages: CF, Terra, Agrium
NEW YORK (TheStreet) -- CF Industries(CF Quote) said Tuesday that its investment bank, Morgan Stanley(MS Quote), will extend the deadline on its acquisition financing to Dec. 31, as the fertilizer maker continues to pursue its hostile takeover bid for rival Terra Industries(TRA Quote).
The extension on the funding, previously set to expire Nov. 30, was expected. Deerfield, Ill.-based CF, which successfully pushed three sympathetic directors onto Terra's board last month, has faced a defiant Terra. For its part, Terra, of Sioux City, Iowa, has refused to negotiate with its suitor, at least until CF brings a better price to the table. The Morgan Stanley financing comprises a $2.5 billion loan, which would cover more than 78% of the cash portion of CF's current offer. The bid calls for CF to pay $32 in cash and 0.1034 CF shares for each of the 99.83 million Terra shares outstanding.
CF continued in its attempt to apply pressure to Terra, saying in the press release announcing the extension that "it does not have any right to extend the financing commitments beyond December 31 unless a merger agreement with Terra is signed by that date."
Also in the press release, CF's chief executive, Stephen Wilson, said the vote at Terra's annual meeting signaled that its shareholders "want a sale of Terra in the near term and that the price we have offered forms the basis for final negotiations." He went on, "This has been confirmed to us in recent conversations with Terra stockholders. We are committed to moving forward with the acquisition of Terra."
The extension on the funding, previously set to expire Nov. 30, was expected. Deerfield, Ill.-based CF, which successfully pushed three sympathetic directors onto Terra's board last month, has faced a defiant Terra. For its part, Terra, of Sioux City, Iowa, has refused to negotiate with its suitor, at least until CF brings a better price to the table. The Morgan Stanley financing comprises a $2.5 billion loan, which would cover more than 78% of the cash portion of CF's current offer. The bid calls for CF to pay $32 in cash and 0.1034 CF shares for each of the 99.83 million Terra shares outstanding.
CF continued in its attempt to apply pressure to Terra, saying in the press release announcing the extension that "it does not have any right to extend the financing commitments beyond December 31 unless a merger agreement with Terra is signed by that date."
Also in the press release, CF's chief executive, Stephen Wilson, said the vote at Terra's annual meeting signaled that its shareholders "want a sale of Terra in the near term and that the price we have offered forms the basis for final negotiations." He went on, "This has been confirmed to us in recent conversations with Terra stockholders. We are committed to moving forward with the acquisition of Terra."
Materials Stocks Moving the Markets Higher
International Paper, Newmont Mining, Allegheny Technologies and U.S. Steel are clustered at the top of the S&P materials sector which is leading the broader markets higher after the open. The entire sector is up 1.3% versus 0.9% for the S&P 500 as a whole. The materials universe seems to be benefiting a bit from a bit of weakness in the U.S. greenback.
Monday, November 23, 2009
Morgan Stanley Raises Deere to “Buy”; $64 Target
Morgan Stanley (MS) analyst Robert Wertheimer this morning raised his rating on heavy equipment maker Deere (DE) from “Equal Weight” to “Overweight,” arguing the overly negative sentiment on the stock presents “a unique opportunity” given the stock’s reasonable valuation.
Among the catalysts, farmers will need new tractors as corn demand rises 4% next year from flat this year, for both feedstock and ethanol demand. Brazil, meanwhile, may bounce back, offsetting a fall in tractors in the U.S., argues Wertheimer. His target is $64, and his EPS estimate for the fiscal year ending next October is $3.22 versus the consensus $2.71.
Among the catalysts, farmers will need new tractors as corn demand rises 4% next year from flat this year, for both feedstock and ethanol demand. Brazil, meanwhile, may bounce back, offsetting a fall in tractors in the U.S., argues Wertheimer. His target is $64, and his EPS estimate for the fiscal year ending next October is $3.22 versus the consensus $2.71.
Zacks Earnings Preview: Deere
Deere (NYSE: DE - News) is expected to post EPS of just $0.05, down from $0.81 last year. That low expectation sets it up for a positive surprise. Last time out they beat by 73.7%. However there has been no change in the estimate over the last month, and the stock has a neutral Zacks Rank of 3
Thursday, November 19, 2009
Agco: A Growing Population Still Has To Eat
Farm Equipment manufacturer Deere & Co. (DE) rose as high as 7% on Wednesday after CNBC pundit Jim Cramer touted agriculture as the next sector that could “break out” during his Tuesday night Mad Money show. In promoting “agriculture” as a possible break out play, Cramer cited an optimistic crop forecast from the U.S. Department of Agriculture and said that an agriculture rally would lift companies like Deere.
We agree with Cramer that agriculture could break out, but then again we see agriculture as a demographically supported sector that will always be in demand and should generally experience healthy long-term growth. Growing populations spur an increased need for for food, and mechanized machinery offers a good means for increasing production while offsetting costs. And, while Deere will certainly continue to benefit from increased worldwide agricultural production, we believe that Agco Corp. (AGCO) offers more room for upside returns.
Agco is the world’s third-largest maker of farm machinery, offering a full line of tractors, combines, hay tools, sprayers and forage and tillage equipment sold through four core brands – Massey Ferguson, Challenger, Fendt and Valtra – in more than 140 countries. The company was established in 1990 with the management buyout of Deutz Allis Corp. from the German-based Kloeckner-Humboldt-Deutz AG. The company, which went public in 1992 at an offering price of $14 per share, quickly became a global leader through market growth, development of “cutting edge agricultural solutions” and extensive acquisition efforts, including the 1994 takeover of the Canadian-based, world-wide tractor sales leader, Massey Ferguson Ltd. Agco derives 58% of its sales from Europe, Africa and the Middle East (EAME); 21% from North America; 18% from South America; and 3% from Asia Pacific.
The year 2008 proved to be a watershed for the company, as it posted record sales of $8.4 billion, a 23% increase over 2007, and earnings per share of $4.09, more than 60% higher than in 2007. The company attributed its strong performance to robust sales and high operating margins in the EAME region, a “return to profitability in the North American market, and record tractor sales–both for the company and within the industry as a whole–in South America.
Agco’s record breaking year ended with the global financial meltdown and a worldwide recession, which helped bring the company’s sales and earnings back down to earth in 2009. On Oct. 27, the company reported a third quarter profit of $10 million, or 12 cents per share, down from $99 million, or $1.01 per share, reported in third quarter 2008. For the full fiscal year 2009, the company expects net sales to decline 23% to 25% from 2008, and expects to see adjusted earnings per share in the range of $1.30 to $1.50. Company executives attributed the reduced sales and earnings to softened market conditions that led to reduced demand, higher inventories and lowered margins. The EAME region saw the weakest demand, followed by North America and then South America.
While Agco is not expecting any improvements in fourth quarter 2009, owing to continued “dampened worldwide industry demand for farm equipment,” the company remains quite optimistic about the long-term future. In particular, the company points to world population growth and the associated increased demand for agricultural products as primary drivers for future growth. In the EAME region the company sees long-term growth opportunities in Eastern Europe, primarily Russia, Ukraine and Kazakhstan, which are increasingly turning to Western-style agricultural practices using modern equipment. These countries have immense amounts of farmland, and Agco sees significant demand for agricultural technology, a demand that can be met when credit markets recover.
In Asia Pacific, the company expects to see continued market share growth in Australia and New Zealand, and is working to develop joint-venture opportunities in China that would give access to distribution and production capabilities for both the local market and sourcing to other regions. China is currently the world’s largest market for small, low-technology agricultural tractors, but Agco believes that farm consolidation in China will lead to the need for larger, high-horsepower tractors, which are the company’s core product.
And in South America, Agco has a strong market position in Argentina and Brazil, with the latter holding significant potential for farming expansion driven by its expanding role as a world leading exporter of soybeans, sugar cane and coffee.
On a demographic basis, Agco executives are probably right in thinking that world population growth will drive increased demand for agricultural products, and thus for Agco’s farm machinery.
However, population growth is not going to be a major factor in either Eastern Europe or China, as the countries of Russia and the Ukraine are experiencing negative population growth, while China and Kazakhstan are hardly growing at all. The labor forces of Russia and the Ukraine are already in decline, while those of China and Kazakhstan have peaked and are expected to go into imminent decline. So, even though population growth may not be a driver of increased sales in these countries, declining labor forces generally lead to higher labor costs, which should spur the demand for cost-saving mechanized solutions as offered by Agco products.
While Agco competitors, like Deere & Co. in particular, will also benefit from demographic influences, we feel that Agco‘s share price has the best potential for upside growth. The company is significantly less leveraged than Deere, with a long-term debt to equity ratio of 0.13, compared to Deere’s at 1.78. The company's shares, currently at about $29.65, trade at a Dec. 2009 P/E of 14.30, falling to 12.80 for Dec. 2010. This compares to Deere, currently trading at about $50.40, which trades at an Oct. 2009 P/E of 19.30, falling to 18.80 in Oct. 2010. Agco has a trailing 12-month P/S of 0.41, compared to Deere’s P/S of 0.86
We agree with Cramer that agriculture could break out, but then again we see agriculture as a demographically supported sector that will always be in demand and should generally experience healthy long-term growth. Growing populations spur an increased need for for food, and mechanized machinery offers a good means for increasing production while offsetting costs. And, while Deere will certainly continue to benefit from increased worldwide agricultural production, we believe that Agco Corp. (AGCO) offers more room for upside returns.
Agco is the world’s third-largest maker of farm machinery, offering a full line of tractors, combines, hay tools, sprayers and forage and tillage equipment sold through four core brands – Massey Ferguson, Challenger, Fendt and Valtra – in more than 140 countries. The company was established in 1990 with the management buyout of Deutz Allis Corp. from the German-based Kloeckner-Humboldt-Deutz AG. The company, which went public in 1992 at an offering price of $14 per share, quickly became a global leader through market growth, development of “cutting edge agricultural solutions” and extensive acquisition efforts, including the 1994 takeover of the Canadian-based, world-wide tractor sales leader, Massey Ferguson Ltd. Agco derives 58% of its sales from Europe, Africa and the Middle East (EAME); 21% from North America; 18% from South America; and 3% from Asia Pacific.
The year 2008 proved to be a watershed for the company, as it posted record sales of $8.4 billion, a 23% increase over 2007, and earnings per share of $4.09, more than 60% higher than in 2007. The company attributed its strong performance to robust sales and high operating margins in the EAME region, a “return to profitability in the North American market, and record tractor sales–both for the company and within the industry as a whole–in South America.
Agco’s record breaking year ended with the global financial meltdown and a worldwide recession, which helped bring the company’s sales and earnings back down to earth in 2009. On Oct. 27, the company reported a third quarter profit of $10 million, or 12 cents per share, down from $99 million, or $1.01 per share, reported in third quarter 2008. For the full fiscal year 2009, the company expects net sales to decline 23% to 25% from 2008, and expects to see adjusted earnings per share in the range of $1.30 to $1.50. Company executives attributed the reduced sales and earnings to softened market conditions that led to reduced demand, higher inventories and lowered margins. The EAME region saw the weakest demand, followed by North America and then South America.
While Agco is not expecting any improvements in fourth quarter 2009, owing to continued “dampened worldwide industry demand for farm equipment,” the company remains quite optimistic about the long-term future. In particular, the company points to world population growth and the associated increased demand for agricultural products as primary drivers for future growth. In the EAME region the company sees long-term growth opportunities in Eastern Europe, primarily Russia, Ukraine and Kazakhstan, which are increasingly turning to Western-style agricultural practices using modern equipment. These countries have immense amounts of farmland, and Agco sees significant demand for agricultural technology, a demand that can be met when credit markets recover.
In Asia Pacific, the company expects to see continued market share growth in Australia and New Zealand, and is working to develop joint-venture opportunities in China that would give access to distribution and production capabilities for both the local market and sourcing to other regions. China is currently the world’s largest market for small, low-technology agricultural tractors, but Agco believes that farm consolidation in China will lead to the need for larger, high-horsepower tractors, which are the company’s core product.
And in South America, Agco has a strong market position in Argentina and Brazil, with the latter holding significant potential for farming expansion driven by its expanding role as a world leading exporter of soybeans, sugar cane and coffee.
On a demographic basis, Agco executives are probably right in thinking that world population growth will drive increased demand for agricultural products, and thus for Agco’s farm machinery.
However, population growth is not going to be a major factor in either Eastern Europe or China, as the countries of Russia and the Ukraine are experiencing negative population growth, while China and Kazakhstan are hardly growing at all. The labor forces of Russia and the Ukraine are already in decline, while those of China and Kazakhstan have peaked and are expected to go into imminent decline. So, even though population growth may not be a driver of increased sales in these countries, declining labor forces generally lead to higher labor costs, which should spur the demand for cost-saving mechanized solutions as offered by Agco products.
While Agco competitors, like Deere & Co. in particular, will also benefit from demographic influences, we feel that Agco‘s share price has the best potential for upside growth. The company is significantly less leveraged than Deere, with a long-term debt to equity ratio of 0.13, compared to Deere’s at 1.78. The company's shares, currently at about $29.65, trade at a Dec. 2009 P/E of 14.30, falling to 12.80 for Dec. 2010. This compares to Deere, currently trading at about $50.40, which trades at an Oct. 2009 P/E of 19.30, falling to 18.80 in Oct. 2010. Agco has a trailing 12-month P/S of 0.41, compared to Deere’s P/S of 0.86
CF Industries and Agrium Trade More Shots
CF Industries dismissed the results of a tender offer by Agrium, a rival fertilizer maker, saying Thursday that the 63 percent of its shares tendered to Agrium did not reflect stockholder support for the terms of the offer.
Agrium quickly shot back, noting that its “best and final offer” for the company — in which CF shareholders would receive $45 in cash and one common share of Agrium for each CF share — was clearly superior to CF Industries’ desire to stay independent and take over Terra Industries, another fertilizer maker.
“CF quickly dismissed what we consider to be a compelling majority, so we don’t understand why they say their stockholders don’t support the deal,” Mike Wilson, Agrium’s chief executive, told DealBook on Thursday afternoon. “Hopefully, once they have a chance to reflect on it, they will realize that shareholders do want to do this deal.”
This is the second time that Agrium made a tender offer for CF Industries. In June, the company received the same percentage of support. CF argues that Agrium’s revised tender offer has failed to increase investor interest, but the bid has failed to convince management that a merger is in the best interest of the company.
“Agrium did not get any further support even though it increased its offer,” a CF spokeswoman told DealBook. “So this is a very tepid response.”
CF Industries has a poison pill, which would preclude Agrium from calling a special meeting and forcing the issue, meaning that CF’s management must agree if the two companies are ever to be joined.
But Mr. Wilson is hopeful that CF’s management will acquiesce in the end.
“The CF board, I am assuming, is pragmatic and Steve Wilson is a very reasonable person,” Mr. Wilson said, referring to CF’s chief executive. “Give them time to reflect on this and they will sit down with us to have a conversation.”
Mr. Wilson noted that Agrium had reached out to CF executives and planned to speak with them about the situation.
Meanwhile, CF may be holding out for the results of its own unsolicited takeover attempt. On Friday, Terra’s shareholders will vote on three board members proposed by CF Industries as part of its takeover efforts. If successful, the extra votes could help sway management to agree to CF’s offer — its seventh such offer this year.
Agrium quickly shot back, noting that its “best and final offer” for the company — in which CF shareholders would receive $45 in cash and one common share of Agrium for each CF share — was clearly superior to CF Industries’ desire to stay independent and take over Terra Industries, another fertilizer maker.
“CF quickly dismissed what we consider to be a compelling majority, so we don’t understand why they say their stockholders don’t support the deal,” Mike Wilson, Agrium’s chief executive, told DealBook on Thursday afternoon. “Hopefully, once they have a chance to reflect on it, they will realize that shareholders do want to do this deal.”
This is the second time that Agrium made a tender offer for CF Industries. In June, the company received the same percentage of support. CF argues that Agrium’s revised tender offer has failed to increase investor interest, but the bid has failed to convince management that a merger is in the best interest of the company.
“Agrium did not get any further support even though it increased its offer,” a CF spokeswoman told DealBook. “So this is a very tepid response.”
CF Industries has a poison pill, which would preclude Agrium from calling a special meeting and forcing the issue, meaning that CF’s management must agree if the two companies are ever to be joined.
But Mr. Wilson is hopeful that CF’s management will acquiesce in the end.
“The CF board, I am assuming, is pragmatic and Steve Wilson is a very reasonable person,” Mr. Wilson said, referring to CF’s chief executive. “Give them time to reflect on this and they will sit down with us to have a conversation.”
Mr. Wilson noted that Agrium had reached out to CF executives and planned to speak with them about the situation.
Meanwhile, CF may be holding out for the results of its own unsolicited takeover attempt. On Friday, Terra’s shareholders will vote on three board members proposed by CF Industries as part of its takeover efforts. If successful, the extra votes could help sway management to agree to CF’s offer — its seventh such offer this year.
What’s Up With Bunge? The Cramer Bounce ?
$8.4 billlion (market cap) Bunge (BG) of White Plains, NY, one of the nation’s smaller agribusiness outfits, rose $3.73, or 6%, to $62.62, along with very heavy volume in its December call options, as Forbes notes this afternoon, including the December 65 calls, which have traded about 5,500 today, as of 1pm, according to Forbes. Is it the Cramer “bounce”? Jim Cramer went down a list of his favorite ag names on last night’s Mad Money, but he mentioned specifically Monsanto (MON) and Potash (POT), which are both up over 3%, which is nice but not the same as Bunge’s 6% rise. Is it acquisition speculation? Perhaps Archer Daniels (ADM) will buy Bunge? Or is it something esle…?
This POT Is Smoking
Call it a game of follow the leader today. George Soros buys Potash [POT 113.17 -0.62 (-0.54%) ] shares and now everyone is clamoring to buy POT.
"It is interesting that the ‘ags’ are higher today even as equity prices are weaker, and they are stronger even as the dollar is a bit firmer of late," said commodity King, Dennis Gartman of the Gartman letter.
Last night's disclosure that billionaire investor George Soros increased his steak in the company by nearly 50%, picking up nearly one million shares in the last quarter, has sent the stock up by more than 2% today.
But while equity traders are excited, options traders are in a virtual tizzy, with investors buying a respective 11,000 and 8,000 calls in Potash at the 115-strike and 120-strike in the November expiry.
"What's interesting here is that much of this is coming ahead expiration. These things only have a few days left, so that's pretty bullish," said Mike Khouw, Options Action contributor and director of equity derivative trading over at Cantor Fitzgerald.
"It is interesting that the ‘ags’ are higher today even as equity prices are weaker, and they are stronger even as the dollar is a bit firmer of late," said commodity King, Dennis Gartman of the Gartman letter.
Last night's disclosure that billionaire investor George Soros increased his steak in the company by nearly 50%, picking up nearly one million shares in the last quarter, has sent the stock up by more than 2% today.
But while equity traders are excited, options traders are in a virtual tizzy, with investors buying a respective 11,000 and 8,000 calls in Potash at the 115-strike and 120-strike in the November expiry.
"What's interesting here is that much of this is coming ahead expiration. These things only have a few days left, so that's pretty bullish," said Mike Khouw, Options Action contributor and director of equity derivative trading over at Cantor Fitzgerald.
Wednesday, November 18, 2009
Agricultural Stocks And Precious Metals Miners Next Sectors To Take Off
According To Commodities Money Management Expert
67 WALL STREET, New York - November 18, 2009 - The Wall Street Transcript has just published its TWST Small Cap Value Report offering a timely review of the sector to serious investors and industry executives. This 55 page feature contains expert industry commentary through in-depth interviews with highly experienced Money Managers
Topics covered: Small-Cap Value - Capital Preservation - Sovereign Bonds - Precious Metals - Value-Investing - Companies with International Exposure - US-listed Chinese Companies - Risk Limitation - Industry-Diversified Portfolios - Long-Term Value - Micro-Cap Companies - Turnaround Situations - Strategic Buying - Fundamental Analysis
Companies include: Bridgepoint Education (BPI); Compass Minerals (CMP); Flexsteel (FLXS); General Electric (GE); Gold Miners ETF (GDX); Hardinge Corp (HDNG); Northgate Minerals (NXG); Phillips-Van Heusen (PVH); Potash (POT); Adobe (ADB); Affiliated Computer Services (ACS); Agrium (AGU); Alliance Data Systems (ADS); American Society of Civil Engineers (ASCE); American Water Works (AWK); Atlantic Tele-Network (ATNI); BHP Billiton (BHP); Celanese Chemical (CE); CenturyTel (CTL); Cisco (CSCO); Clean Energy Fuels (CLNE); Consolidated Graphics (CGX); Dell (DELL); Dell Inc. (DEL); Dillard's Department Stores (DDS); Drew Industries (DW); Educational Development Corporation (EDUC); First Acceptance Corp (FAC); Forestar Group (FOR); Freeport-McMoRan Copper & Gold Inc (FCX); Fresh Del Monte (FDP); Goldcorp (GG); Hain Celestial (HAIN); Harbin Electric (HRBN); Huron Consulting (HURN); IBM (IBM); IMAX (IMAX); IMS Health (RX); Intel (INTC); John Deere (DEE); Kennametal (KMT); Kraft Foods (KFT); Lamar Advertising (LAMR); Microsoft (MSFT); Minefinders (MFN); Monsanto (MON); Mosaic (MOS); NBTY (NTY); Nature's Sunshine Products (NATR); Newmont Mining (NEM); Nobility Homes (NOBH); Omniture, Inc. (OMTR); Perot Systems (PER); Pfizer (PFE); Puplava Financial Services, Inc. (PFS); Puplava Securities, Inc. (PSI); SPDR Barclays Capital International Treasury Bond Fund (BWX); SPDR Gold Trust (GLD); Silver Wheaton (SLW); Syngenta (SYT); Tellabs (TLAB); Temple-Inland (TIN); Tempur-Pedic (TPX); Tesoro (TSO); Valero (VLO); Verizon Wireless (VZ); Whole Foods (WFMI); Xerox (XRX); Yamana (AUY).
In the following brief excerpt from just one of the in depth interviews in the Special Report, a top tier money manager discusses the outlook for the market for investors.
James J. Puplava has been President and CEO of Puplava Financial Services, Inc. (PFS) since 1985. For 12 years, he held a position as Branch Manager for LPL Financial Services, LLC. In 1996, he incorporated the broker/dealer firm, Puplava Securities, Inc. (PSI) and is its President. He also serves on the Board of Directors for Kimber Resources, Inc. of Vancouver, British Columbia,Canada. He graduated cum laude in History and Economics from Arizona State University. He then went on to graduate summa cum laude with a Master's Degree in finance and Accounting from the American Graduate School of International Management (Thunderbird).
TWST: What are some of these opportunities that you have found over the last few months and what are the reasons why you found the companies attractive?
Mr. Puplava: Let's just take the agricultural space. As I mentioned earlier, there's a trend-and it's global-of an ongoing decline in the amount of arable land per person. This ratio peaked in 1970, and by 1980, there was less arable land per person than in 1970; the same thing happened in 1990 vs. 1980, and 2000 vs. 1990. 2010 vs. 2000 is predicted to continue the trend. So there are only two ways to increase agricultural output. One is to increase the amount of arable land devoted to crops; or two, to increase crop yield. So seed companies like Monsanto and Syngenta which provide seeds and products that can increase crop yield, or fertilizer companies like Mosaic (MOS), Potash (POT), and Agrium (AGU) that also affect land arability and yield, or companies like John Deere (DE) that help large farms' automation to increase output per field acre of planted crops are attractive.
We think the agricultural space is very undervalued right now and I don't think the market is paying a lot of attention to it right now. Even though some of the companies in this sector are up, they have not participated to the same extent that you've seen in other sectors. So, we still like agriculture. Another thing we think is that we are heading for a train wreck in the area of energy. Somewhere around the year 2011 or 2012, all of the recent cancellations of projects by major oil companies and national oil companies will start to cause another bottleneck in supply. We think the oil service sector will be one of the first sectors to benefit if that happens. If oil prices go up to $85 per barrel-and we think we could be looking at over $100 oil by the end of next year-the expansion of profit margins in the oil sector will be very promising. We believe that space offers an attractive opportunity for investors.
TWST: What about precious metals and gold? Gold of course has been going up and up as the dollar has been depreciating. What is your outlook there and have you found any companies to play that field?
Mr. Puplava: We still think we have a good possibility of hitting $1,250 or $1,300 gold in the next 12 months. In the gold sector, one of the opportunities we like is with mid-tier producers that are going to be able to increase their production over time. A company like Newmont Mining (NEM), whose production has peaked and who is having difficulty of replacing their reserves and increasing their production is still a fairly solid bet, but I think the outside performance is going to be in mid-tier producers who have the ability to increase their production.
A company like Minefinders (MFN), which went into production in the third quarter of last year, will be growing their production to close to 200,000 ounces-this is a company that is up 100% over the past year, although they did take a severe downturn in the sell-off last fall. Other companies like Northgate Minerals (NXG), which, even though one of their bigger mines will be going out of production by the end of next year, will be producing 400,000 ounces. They're also brining new mines on line. Yamana (AUY), which already producing a million ounces, will be increasing their production considerably over the next couple of years.
If I can draw the analogy to the bull market in technology in the 1990s, if you were in IBM (IBM), the big behemoth in the technology space, you made money, but the real money was made in Intel (INTC) Microsoft (MSFT) and Dell Inc. (DELL) or at Cisco (CSCO). These smaller companies that were able to grow their topline and also their bottom line over the decade were the real place to be; in a bull market you want to be in those companies that have the ability to grow their topline. In the mining space, that means either increasing production or reducing the cost of production. So, we like companies like a Minefinders, a Yamana, or a Northgate; and then in the larger-cap space, we like companies like a Goldcorp (GG), which is now a major producer, but is still a company that is going to be able to increase its production over the next 3 to 5 years. .. from the Wall Street transcript, JAMES J. PUPLAVA
67 WALL STREET, New York - November 18, 2009 - The Wall Street Transcript has just published its TWST Small Cap Value Report offering a timely review of the sector to serious investors and industry executives. This 55 page feature contains expert industry commentary through in-depth interviews with highly experienced Money Managers
Topics covered: Small-Cap Value - Capital Preservation - Sovereign Bonds - Precious Metals - Value-Investing - Companies with International Exposure - US-listed Chinese Companies - Risk Limitation - Industry-Diversified Portfolios - Long-Term Value - Micro-Cap Companies - Turnaround Situations - Strategic Buying - Fundamental Analysis
Companies include: Bridgepoint Education (BPI); Compass Minerals (CMP); Flexsteel (FLXS); General Electric (GE); Gold Miners ETF (GDX); Hardinge Corp (HDNG); Northgate Minerals (NXG); Phillips-Van Heusen (PVH); Potash (POT); Adobe (ADB); Affiliated Computer Services (ACS); Agrium (AGU); Alliance Data Systems (ADS); American Society of Civil Engineers (ASCE); American Water Works (AWK); Atlantic Tele-Network (ATNI); BHP Billiton (BHP); Celanese Chemical (CE); CenturyTel (CTL); Cisco (CSCO); Clean Energy Fuels (CLNE); Consolidated Graphics (CGX); Dell (DELL); Dell Inc. (DEL); Dillard's Department Stores (DDS); Drew Industries (DW); Educational Development Corporation (EDUC); First Acceptance Corp (FAC); Forestar Group (FOR); Freeport-McMoRan Copper & Gold Inc (FCX); Fresh Del Monte (FDP); Goldcorp (GG); Hain Celestial (HAIN); Harbin Electric (HRBN); Huron Consulting (HURN); IBM (IBM); IMAX (IMAX); IMS Health (RX); Intel (INTC); John Deere (DEE); Kennametal (KMT); Kraft Foods (KFT); Lamar Advertising (LAMR); Microsoft (MSFT); Minefinders (MFN); Monsanto (MON); Mosaic (MOS); NBTY (NTY); Nature's Sunshine Products (NATR); Newmont Mining (NEM); Nobility Homes (NOBH); Omniture, Inc. (OMTR); Perot Systems (PER); Pfizer (PFE); Puplava Financial Services, Inc. (PFS); Puplava Securities, Inc. (PSI); SPDR Barclays Capital International Treasury Bond Fund (BWX); SPDR Gold Trust (GLD); Silver Wheaton (SLW); Syngenta (SYT); Tellabs (TLAB); Temple-Inland (TIN); Tempur-Pedic (TPX); Tesoro (TSO); Valero (VLO); Verizon Wireless (VZ); Whole Foods (WFMI); Xerox (XRX); Yamana (AUY).
In the following brief excerpt from just one of the in depth interviews in the Special Report, a top tier money manager discusses the outlook for the market for investors.
James J. Puplava has been President and CEO of Puplava Financial Services, Inc. (PFS) since 1985. For 12 years, he held a position as Branch Manager for LPL Financial Services, LLC. In 1996, he incorporated the broker/dealer firm, Puplava Securities, Inc. (PSI) and is its President. He also serves on the Board of Directors for Kimber Resources, Inc. of Vancouver, British Columbia,Canada. He graduated cum laude in History and Economics from Arizona State University. He then went on to graduate summa cum laude with a Master's Degree in finance and Accounting from the American Graduate School of International Management (Thunderbird).
TWST: What are some of these opportunities that you have found over the last few months and what are the reasons why you found the companies attractive?
Mr. Puplava: Let's just take the agricultural space. As I mentioned earlier, there's a trend-and it's global-of an ongoing decline in the amount of arable land per person. This ratio peaked in 1970, and by 1980, there was less arable land per person than in 1970; the same thing happened in 1990 vs. 1980, and 2000 vs. 1990. 2010 vs. 2000 is predicted to continue the trend. So there are only two ways to increase agricultural output. One is to increase the amount of arable land devoted to crops; or two, to increase crop yield. So seed companies like Monsanto and Syngenta which provide seeds and products that can increase crop yield, or fertilizer companies like Mosaic (MOS), Potash (POT), and Agrium (AGU) that also affect land arability and yield, or companies like John Deere (DE) that help large farms' automation to increase output per field acre of planted crops are attractive.
We think the agricultural space is very undervalued right now and I don't think the market is paying a lot of attention to it right now. Even though some of the companies in this sector are up, they have not participated to the same extent that you've seen in other sectors. So, we still like agriculture. Another thing we think is that we are heading for a train wreck in the area of energy. Somewhere around the year 2011 or 2012, all of the recent cancellations of projects by major oil companies and national oil companies will start to cause another bottleneck in supply. We think the oil service sector will be one of the first sectors to benefit if that happens. If oil prices go up to $85 per barrel-and we think we could be looking at over $100 oil by the end of next year-the expansion of profit margins in the oil sector will be very promising. We believe that space offers an attractive opportunity for investors.
TWST: What about precious metals and gold? Gold of course has been going up and up as the dollar has been depreciating. What is your outlook there and have you found any companies to play that field?
Mr. Puplava: We still think we have a good possibility of hitting $1,250 or $1,300 gold in the next 12 months. In the gold sector, one of the opportunities we like is with mid-tier producers that are going to be able to increase their production over time. A company like Newmont Mining (NEM), whose production has peaked and who is having difficulty of replacing their reserves and increasing their production is still a fairly solid bet, but I think the outside performance is going to be in mid-tier producers who have the ability to increase their production.
A company like Minefinders (MFN), which went into production in the third quarter of last year, will be growing their production to close to 200,000 ounces-this is a company that is up 100% over the past year, although they did take a severe downturn in the sell-off last fall. Other companies like Northgate Minerals (NXG), which, even though one of their bigger mines will be going out of production by the end of next year, will be producing 400,000 ounces. They're also brining new mines on line. Yamana (AUY), which already producing a million ounces, will be increasing their production considerably over the next couple of years.
If I can draw the analogy to the bull market in technology in the 1990s, if you were in IBM (IBM), the big behemoth in the technology space, you made money, but the real money was made in Intel (INTC) Microsoft (MSFT) and Dell Inc. (DELL) or at Cisco (CSCO). These smaller companies that were able to grow their topline and also their bottom line over the decade were the real place to be; in a bull market you want to be in those companies that have the ability to grow their topline. In the mining space, that means either increasing production or reducing the cost of production. So, we like companies like a Minefinders, a Yamana, or a Northgate; and then in the larger-cap space, we like companies like a Goldcorp (GG), which is now a major producer, but is still a company that is going to be able to increase its production over the next 3 to 5 years. .. from the Wall Street transcript, JAMES J. PUPLAVA
Tuesday, November 17, 2009
Potash Gets a Soros-Led Boost
Shares of Potash Corp. of Saskatchewan (POT) hit a five-month high and led the Toronto Stock Exchange to higher ground Tuesday, after the hedge fund of billionaire investor George Soros increased its stake in the company by nearly 50%.
Soros Fund Management LLC purchased 970,368 shares of the world’s biggest fertilizer producer in the third quarter, bringing its total stake to 2.95 million shares, or 1% of the company, according to a report filed Monday with the U.S. Securities and Exchange Commission.
Potash Corp. shares jumped 6% to $115.81, making the company the biggest gainer among the S&P/TSX index. The benchmark rose 11.86 points to trade at 11613.12 late in Tuesday’s session.
Potash Corp.’s stock hit a 52-week high of $135 in the spring, off a low of $61.81 last December. Recent speculation that Australia’s BHP Billiton Ltd. could buy the company has helped lift the shares in the last month.
Soros Fund was the 19th largest shareholder as of Sept. 30. The biggest was Capital World Investors, a division of Capital Research & Management Co., which held 14.7 million shares, representing about 5% of the company.
Soros Fund Management LLC purchased 970,368 shares of the world’s biggest fertilizer producer in the third quarter, bringing its total stake to 2.95 million shares, or 1% of the company, according to a report filed Monday with the U.S. Securities and Exchange Commission.
Potash Corp. shares jumped 6% to $115.81, making the company the biggest gainer among the S&P/TSX index. The benchmark rose 11.86 points to trade at 11613.12 late in Tuesday’s session.
Potash Corp.’s stock hit a 52-week high of $135 in the spring, off a low of $61.81 last December. Recent speculation that Australia’s BHP Billiton Ltd. could buy the company has helped lift the shares in the last month.
Soros Fund was the 19th largest shareholder as of Sept. 30. The biggest was Capital World Investors, a division of Capital Research & Management Co., which held 14.7 million shares, representing about 5% of the company.
Cramer's take on AG
Cramer said that agriculture is the next sector that's ready to break out, after the Department of Agriculture raised its spot price forecast last week citing production shortfalls.
He said that seed giant Monsanto (MON Quote) confirmed the strength in the sector when it came out with positive news at its recent analysts meeting.
Cramer said Monsanto is the first "buy, buy, buy" in the group, now that the company can clearly see the light at the end of the tunnel for this long underperforming sector.
He also gave the nod to the fertilizer stocks of Potash (POT Quote), Agrium (AGU Quote) and Mosaic (MOS Quote). Cramer said that while Potash remains the cheapest in the group, his favorite remains Terra Nitrogen (TNH Quote) for its 6.4% dividend yield.
No agriculture rally would be complete without John Deere (DE Quote), said Cramer.
He said Deere no longer suffers from a strong dollar, and with 12 analysts rating the company a "hold," there's plenty of room for upgrades. Deere reports in just five days, and Cramer said he'd be a buyer of the stock ahead of any positive news the company is likely to report.
He said that seed giant Monsanto (MON Quote) confirmed the strength in the sector when it came out with positive news at its recent analysts meeting.
Cramer said Monsanto is the first "buy, buy, buy" in the group, now that the company can clearly see the light at the end of the tunnel for this long underperforming sector.
He also gave the nod to the fertilizer stocks of Potash (POT Quote), Agrium (AGU Quote) and Mosaic (MOS Quote). Cramer said that while Potash remains the cheapest in the group, his favorite remains Terra Nitrogen (TNH Quote) for its 6.4% dividend yield.
No agriculture rally would be complete without John Deere (DE Quote), said Cramer.
He said Deere no longer suffers from a strong dollar, and with 12 analysts rating the company a "hold," there's plenty of room for upgrades. Deere reports in just five days, and Cramer said he'd be a buyer of the stock ahead of any positive news the company is likely to report.
Cramer: Ag’s In Season Again
The rolling bull markets that Cramer described last week continue, this time agriculture taking the lead. It all started when the Department of Agriculture, also last week, raised its crop price forecast because of production shortfalls.
Monsanto [MON 77.33 2.30 (+3.07%) ], the genetically modified seed maker, immediately took off. The stock has climbed to $77 from $73, after management told analysts that it expects to double its gross profits by 2012. CEO Hugh Grant also said that there’s no longer any need to cut earnings estimates as a result of herbicide Roundup going generic. The higher crop prices will help to put a floor in those estimates as well.
Also key for Monsanto is the rally in corn prices, which climbed 21% to $3.73 in October. December futures now trade at $4.27. The company makes the best genetically engineered corn seed, Cramer said, the commodity’s lading value has hurt Monsanto. But now it has the chance to catch, and that’s another reason Cramer recommended the stock.
Rising crop prices mean that farmers will want to produce more to take advantage. That’s where the fertilizers come into play. Cramer’s favorites? Potash [POT 110.60 6.42 (+6.16%) ] is the cheapest, he said, but he’s still partial to Terra Nitrogen’s [TNH 101.24 1.63 (+1.64%) ] 6.4% dividend yield.
And lastly, investors who want to play ag should buy Deere [DE 49.15 0.24 (+0.49%) ]. This stock may be flirting with its 52-week high, but DE is up just 28% for the year. That’s still down 48% from 20 months ago, Cramer said. Admittedly, Deere has had a habit of underperformance, but the Mad Money host is expecting an analyst change-of-heart. An upgrade from the 12 holds and one sell should send the share price higher.
How does he know the analysts will turn bullish? Because their outlook is too bearish for the premier ag manufacturer, Cramer said, which has a great overseas business that should be helped by the weaker dollar. Plus, he thinks the company during its Nov. 25 earnings report will tell investors that its construction and forestry division has finally bottomed.
Ag’s turn to carry the market has just started, Cramer pointed out, and these rolling bull markets have lasted for at least three months. So investors can “load up on a Monsanto or a TNH,” he said, or buy Deere ahead of its quarter.
Monsanto [MON 77.33 2.30 (+3.07%) ], the genetically modified seed maker, immediately took off. The stock has climbed to $77 from $73, after management told analysts that it expects to double its gross profits by 2012. CEO Hugh Grant also said that there’s no longer any need to cut earnings estimates as a result of herbicide Roundup going generic. The higher crop prices will help to put a floor in those estimates as well.
Also key for Monsanto is the rally in corn prices, which climbed 21% to $3.73 in October. December futures now trade at $4.27. The company makes the best genetically engineered corn seed, Cramer said, the commodity’s lading value has hurt Monsanto. But now it has the chance to catch, and that’s another reason Cramer recommended the stock.
Rising crop prices mean that farmers will want to produce more to take advantage. That’s where the fertilizers come into play. Cramer’s favorites? Potash [POT 110.60 6.42 (+6.16%) ] is the cheapest, he said, but he’s still partial to Terra Nitrogen’s [TNH 101.24 1.63 (+1.64%) ] 6.4% dividend yield.
And lastly, investors who want to play ag should buy Deere [DE 49.15 0.24 (+0.49%) ]. This stock may be flirting with its 52-week high, but DE is up just 28% for the year. That’s still down 48% from 20 months ago, Cramer said. Admittedly, Deere has had a habit of underperformance, but the Mad Money host is expecting an analyst change-of-heart. An upgrade from the 12 holds and one sell should send the share price higher.
How does he know the analysts will turn bullish? Because their outlook is too bearish for the premier ag manufacturer, Cramer said, which has a great overseas business that should be helped by the weaker dollar. Plus, he thinks the company during its Nov. 25 earnings report will tell investors that its construction and forestry division has finally bottomed.
Ag’s turn to carry the market has just started, Cramer pointed out, and these rolling bull markets have lasted for at least three months. So investors can “load up on a Monsanto or a TNH,” he said, or buy Deere ahead of its quarter.
Monday, November 16, 2009
Monsanto Confirms Guidance
At its investor conference call, Monsanto Company (NYSE: MON - News) indicated that it will accelerate launches for its Genuity SmartStax corn and Genuity Roundup Ready 2 Yield soybean products. The company emphasized its growth strategy from 2010 through 2012, which includes three operational imperatives: the conversion to Genuity SmartStax in U.S. corn, the upgradation to the Genuity Roundup Ready 2 Yield platform in U.S. soybeans, and increased penetration in Latin America.
Monsanto now anticipates its new Genuity SmartStax corn seed will launch on more than 4 million acres in 2010, compared to its previous expectation of 3 million to 4 million acres. As a part of the accelerated adoption of Genuity SmartStax, the company unveiled a new portfolio of product upgrades for key U.S. corn segments.
For the Genuity Roundup Ready 2 Yield platform in U.S. soybeans, Monsanto increased its launch-year expectation for 2010 to 8 - 10 million acres, compared to its previous projection of 7 - 8 million.
These launches, along with increased penetration in Latin America, are expected create opportunities for the company to meet its 2012 financial and commercial targets.
Monsanto is committed to doubling its gross profit by 2012 from 2007 levels. The company expects 2012 gross profit of $8.6 - $8.8 billion, including $7.3 - $7.5 billion from the Seeds and Genomics platform.
Monsanto reaffirmed fiscal year 2010 EPS guidance in the range of $3.10 - $3.30. Also, the company is confident of achieving its free cash flow target of $900 million to $1 billion for fiscal year 2010. The Zacks Consensus Earnings Estimate for fiscal 2010 is $3.27.
Monsanto now anticipates its new Genuity SmartStax corn seed will launch on more than 4 million acres in 2010, compared to its previous expectation of 3 million to 4 million acres. As a part of the accelerated adoption of Genuity SmartStax, the company unveiled a new portfolio of product upgrades for key U.S. corn segments.
For the Genuity Roundup Ready 2 Yield platform in U.S. soybeans, Monsanto increased its launch-year expectation for 2010 to 8 - 10 million acres, compared to its previous projection of 7 - 8 million.
These launches, along with increased penetration in Latin America, are expected create opportunities for the company to meet its 2012 financial and commercial targets.
Monsanto is committed to doubling its gross profit by 2012 from 2007 levels. The company expects 2012 gross profit of $8.6 - $8.8 billion, including $7.3 - $7.5 billion from the Seeds and Genomics platform.
Monsanto reaffirmed fiscal year 2010 EPS guidance in the range of $3.10 - $3.30. Also, the company is confident of achieving its free cash flow target of $900 million to $1 billion for fiscal year 2010. The Zacks Consensus Earnings Estimate for fiscal 2010 is $3.27.
Intrepid Potash: Investors Betting on a Fall
Bearish traders are betting that next spring won't be a bountiful one for fertilizer producer Intrepid Potash (IPI).
optionMONSTER's systems detected a large trade at the March 22 contracts, where 3,022puts changed hands in a clear buying pattern. All of the trading took place in a 10-minute span yesterday morning, with the puts going for $0.60 and $0.65.
The activity dwarfed the average volume of two puts a day at the strike for the last month and was 23 times the open interest of just 132 contracts, indicating that that buying represented newly opened positions. Overall puts at all IPI strikes outnumbered calls traded by about 6 to 1, a further bearish indication.
IPI fell 1.27% Tuesday to close at $25.58. For the puts purchased Tuesday to turn a profit, the stock would need to drop at least 16.5% by their March 19 expiration date.
Last month the stock had finally seemed to break out of a range between $22 and $29 that had been in place since mid-June, rising sharply in the first three weeks of October. But it fell when Credit Suisse initiated coverage of the shares with an "underperform" rating.
Then in its third-quarter earnings release last Thursday after the bell, the company reported that profits plummeted 81% as fertilizer sales slumped. That led to a downgrade Monday from RBC Capital to "sector perform" from "outperform."
optionMONSTER's systems detected a large trade at the March 22 contracts, where 3,022puts changed hands in a clear buying pattern. All of the trading took place in a 10-minute span yesterday morning, with the puts going for $0.60 and $0.65.
The activity dwarfed the average volume of two puts a day at the strike for the last month and was 23 times the open interest of just 132 contracts, indicating that that buying represented newly opened positions. Overall puts at all IPI strikes outnumbered calls traded by about 6 to 1, a further bearish indication.
IPI fell 1.27% Tuesday to close at $25.58. For the puts purchased Tuesday to turn a profit, the stock would need to drop at least 16.5% by their March 19 expiration date.
Last month the stock had finally seemed to break out of a range between $22 and $29 that had been in place since mid-June, rising sharply in the first three weeks of October. But it fell when Credit Suisse initiated coverage of the shares with an "underperform" rating.
Then in its third-quarter earnings release last Thursday after the bell, the company reported that profits plummeted 81% as fertilizer sales slumped. That led to a downgrade Monday from RBC Capital to "sector perform" from "outperform."
Potash: Will the Death of K+S Benefit the Sector?
Over the past few months, pricing for potash and other fertilizer products have been coming down. This is due not only to lack of demand, but because buyers are in the drivers seat and skillful at negotiation prices. The news about K+S appears to confirm the trends that we have seen with potash and fertilizer companies. Said another way… they are not doing so well.
As such, we have been shorting and covering Potash (POT) successfully between $101 and $85 recently.
According to Bloomberg reports:
K+S AG, Europe’s biggest potash producer, needs to sell shares as early as this year to bolster finances after a slump in demand for the crop nutrient almost wiped out profit, UniCredit analyst Jochen Schlachter said. A rights offer would help the company retain its credit rating level after tumbling orders weighed on third-quarter earnings, Schlachter said. K+S’s debut bond sale in September will give the company confidence it can convince equity investors to come forward with fresh funds, analysts said.
Yesterday morning Potash was down by about 2%. By mid-day it started a mysterious rise into the afternoon. Hearing the strength in Agriculture names is being attributed to positive intraday comments out from a boutique firm on POT, MOS, AGU, CF, TNH. We are exiting the position Potash now, which we added Wednesday. The cover was close to the same price that we shorted and believe that there may be more to this story and are not interested in getting caught in a short squeeze.
The move on volume was a signal that there is more to this story. Perhaps the rumor-mill is talking about takeovers again – like we saw with Mosaic recently. Either way, it is a good time to reevaluate this name and step aside until whatever is brewing passes.
As such, we have been shorting and covering Potash (POT) successfully between $101 and $85 recently.
According to Bloomberg reports:
K+S AG, Europe’s biggest potash producer, needs to sell shares as early as this year to bolster finances after a slump in demand for the crop nutrient almost wiped out profit, UniCredit analyst Jochen Schlachter said. A rights offer would help the company retain its credit rating level after tumbling orders weighed on third-quarter earnings, Schlachter said. K+S’s debut bond sale in September will give the company confidence it can convince equity investors to come forward with fresh funds, analysts said.
Yesterday morning Potash was down by about 2%. By mid-day it started a mysterious rise into the afternoon. Hearing the strength in Agriculture names is being attributed to positive intraday comments out from a boutique firm on POT, MOS, AGU, CF, TNH. We are exiting the position Potash now, which we added Wednesday. The cover was close to the same price that we shorted and believe that there may be more to this story and are not interested in getting caught in a short squeeze.
The move on volume was a signal that there is more to this story. Perhaps the rumor-mill is talking about takeovers again – like we saw with Mosaic recently. Either way, it is a good time to reevaluate this name and step aside until whatever is brewing passes.
Tuesday, October 20, 2009
Potash Is Busting out All over
As with gold 6 weeks ago, as with oil 2 days ago, now comes the liquidity chasing one of the few laggard areas... agriculture. Potash (POT) is breaking out in almost identical fashion to the other 2 commodities mentioned.
Last Thursday we saw a story that potash inventories declined for a 3rd consecutive month, although still at 142% above the 5 year average. However, by the time they get closer to average - these stocks most likely will have run a long way.
Potash Corp of Saskatchewan (POT) said on Thursday North American potash inventories declined for a third consecutive month, but inventories at the manufacturer level continue to remain well above average.
Potash inventories had risen steadily through the first-half of 2009, despite major production cuts, as farmers concerned by exorbitant pricing and hurt by the credit crunch had deferred fertilizer application.
In July, India signed contracts to import the bulk of its annual potash requirements at $460 a tonne, well below last year's contract price of more than $600 and the spot market price of $700 at the time.
The new Indian contract has brought some international buyers back into the market, but many buyers and distributors still remain on the sidelines and are waiting for Chinese importers to finalize their annual contract, as they believe that potash prices could fall further.
In a set of graphical data posted to its website, Potash Corp also indicated that potash spot market pricing was almost flat at just under $500 per tonne in September.
With a bevy of bad news in this sector 6+ quarters, sellers may finally be exhausted. Or it simply could be the chase of the underperformers as Ben Bernanke's money looks for the next thing to inflate. Can't tell anymore how much of these moves have to do with actual fundamentals and how much is so much paper currency chasing a fixed amount of stock certificates. Let's keep an eye on what price the Chinese offer for potash; if its favorable, it might set the stage for the next bull run in fertilizer (still among our favorite long term themes). Earnings are Thursday and apparently no one has any fear going into the report since technicals are all that matter in this market.
Last Thursday we saw a story that potash inventories declined for a 3rd consecutive month, although still at 142% above the 5 year average. However, by the time they get closer to average - these stocks most likely will have run a long way.
Potash Corp of Saskatchewan (POT) said on Thursday North American potash inventories declined for a third consecutive month, but inventories at the manufacturer level continue to remain well above average.
Potash inventories had risen steadily through the first-half of 2009, despite major production cuts, as farmers concerned by exorbitant pricing and hurt by the credit crunch had deferred fertilizer application.
In July, India signed contracts to import the bulk of its annual potash requirements at $460 a tonne, well below last year's contract price of more than $600 and the spot market price of $700 at the time.
The new Indian contract has brought some international buyers back into the market, but many buyers and distributors still remain on the sidelines and are waiting for Chinese importers to finalize their annual contract, as they believe that potash prices could fall further.
In a set of graphical data posted to its website, Potash Corp also indicated that potash spot market pricing was almost flat at just under $500 per tonne in September.
With a bevy of bad news in this sector 6+ quarters, sellers may finally be exhausted. Or it simply could be the chase of the underperformers as Ben Bernanke's money looks for the next thing to inflate. Can't tell anymore how much of these moves have to do with actual fundamentals and how much is so much paper currency chasing a fixed amount of stock certificates. Let's keep an eye on what price the Chinese offer for potash; if its favorable, it might set the stage for the next bull run in fertilizer (still among our favorite long term themes). Earnings are Thursday and apparently no one has any fear going into the report since technicals are all that matter in this market.
Monday, October 19, 2009
MOO is on sale
Real-time Monetary Inflation (last 12 months): 2.5%*
Too bad the stock market doesn't operate like a grocery store. Grocers regularly run ads touting lower prices to draw customers into their stores. Market makers advertise "specials" too, but unfortunately, a many investors pass up these stocks or funds when they go "on sale."
There's just such a bargain to be had with the Market Vectors Agribusiness Fund (NYSE Arca: MOO) now. Well, to be exact, the bargain's in the options market for the exchange-traded fund. Option premiums are priced now at some of their lowest levels over the past 500 days.
By "priced," I don't mean in terms of dollars but, rather, implied volatility. Implied volatility reflects the option seller's assumption of the underlying stock's price variance over the life of the option.
Right now, with MOO trading just south of the $40 level, market makers are setting call prices with very long odds on upside moves. Just how long are those odds? Look back at the steep plunge MOO shares took in the summer of 2008. After bottoming in fall, the ETFs retraced about a quarter of the decline before leveling out. Market makers figure there's only a 2.2% chance the fund shares can extend that retracement to the $48-$49 level by late November.
Largely, that's due to MOO's dawdling between $36 and $40 since August. Dawdling doesn't go on forever, though.
November $40 calls were offered for only $1.40 per share this morning. These calls break even at expiry on Nov. 20 at only $41.40. Paying 3 1/2 cents a day for a lease on MOO seems like one of the market's current best buys. You don't even need a coupon.
*Note: The monetary inflation rate is calculated daily and represents the change in our proprietary index from this date one year ago. We update long-term inflation in real time as well. Since 1999, the compound annual growth rate in our index is 5.2%.
Too bad the stock market doesn't operate like a grocery store. Grocers regularly run ads touting lower prices to draw customers into their stores. Market makers advertise "specials" too, but unfortunately, a many investors pass up these stocks or funds when they go "on sale."
There's just such a bargain to be had with the Market Vectors Agribusiness Fund (NYSE Arca: MOO) now. Well, to be exact, the bargain's in the options market for the exchange-traded fund. Option premiums are priced now at some of their lowest levels over the past 500 days.
By "priced," I don't mean in terms of dollars but, rather, implied volatility. Implied volatility reflects the option seller's assumption of the underlying stock's price variance over the life of the option.
Right now, with MOO trading just south of the $40 level, market makers are setting call prices with very long odds on upside moves. Just how long are those odds? Look back at the steep plunge MOO shares took in the summer of 2008. After bottoming in fall, the ETFs retraced about a quarter of the decline before leveling out. Market makers figure there's only a 2.2% chance the fund shares can extend that retracement to the $48-$49 level by late November.
Largely, that's due to MOO's dawdling between $36 and $40 since August. Dawdling doesn't go on forever, though.
November $40 calls were offered for only $1.40 per share this morning. These calls break even at expiry on Nov. 20 at only $41.40. Paying 3 1/2 cents a day for a lease on MOO seems like one of the market's current best buys. You don't even need a coupon.
*Note: The monetary inflation rate is calculated daily and represents the change in our proprietary index from this date one year ago. We update long-term inflation in real time as well. Since 1999, the compound annual growth rate in our index is 5.2%.
Agriculture Stocks May Be In for a Fertile Future
Not long ago, before the dark days of the economic fallout, the increasing needs of the growing populations of the developing world were the name of the game. Indeed, for a time, we saw fertilizer and seeds become sexier stories than semiconductors and smart phones. However, as Newton would have it, for every great commodities boom, there must be an equal and opposite bust.
Cautious optimism has firmly taken hold of Wall Street. The US Dollar seems poised for a period of long-term weakness, and those once-sexy agriculture names may be primed for a renewed period of strength.
Last week, The Mosaic Company (MOS) reported their quarterly profits had fallen 92% year-over-year on 66% lower revenue. Still, shares traded up 4% the next day. This may not be unlike much of the financial sector, which rallied sharply off of huge losses last quarter due to a more positive outlook on the future.
Additionally, shares of Potash Corp. of Saskatchewan (POT), another ringleader of the sector, cut earnings estimates back on Sept. 21. However, after a moderate sell-off, shares have begun to rally.
If dollar weakness persists and news from developing nations continues to grow more positive, we may be primed for a nice end of year rally throughout the sector. Moreover, these formerly hot Ag names are not nearly as frothy as their financial and tech sector brethren.
For instance, while POT and MOS are up 36% and 26%, respectively off their March lows, the duo has been left in the dust by companies like Apple (AAPL) (up 129%), Google (GOOG) (up 78%), Goldman Sachs (GS) (up 91%) and Citigroup (C) (up 349%). As a result, money managers who did not participate in the rally in those uber-popular names may turn to MOS and POT because they can more easily justify starting a new position rather than chasing the over-heated runners.
The big day to watch out for is 10/22 when POT will release its numbers before the market opens. Although, as was the case for MOS, the numbers themselves are sure to be lower compared to last year, the importance of the report will come via guidance for 2010 and beyond.
Still, significant interim risks exist. Stocks like POT and MOS are sure to participate in any major sell-off if the vaunted correction ever does in fact come. Also, any short-term dollar strength will act to push the sector down as we saw last Friday following Ben Bernanke’s comments regarding potential for tightening fed policy. Until then, keep your eyes peeled and your noses pinched because these fertilizer names may be about to come back in a big way.
Cautious optimism has firmly taken hold of Wall Street. The US Dollar seems poised for a period of long-term weakness, and those once-sexy agriculture names may be primed for a renewed period of strength.
Last week, The Mosaic Company (MOS) reported their quarterly profits had fallen 92% year-over-year on 66% lower revenue. Still, shares traded up 4% the next day. This may not be unlike much of the financial sector, which rallied sharply off of huge losses last quarter due to a more positive outlook on the future.
Additionally, shares of Potash Corp. of Saskatchewan (POT), another ringleader of the sector, cut earnings estimates back on Sept. 21. However, after a moderate sell-off, shares have begun to rally.
If dollar weakness persists and news from developing nations continues to grow more positive, we may be primed for a nice end of year rally throughout the sector. Moreover, these formerly hot Ag names are not nearly as frothy as their financial and tech sector brethren.
For instance, while POT and MOS are up 36% and 26%, respectively off their March lows, the duo has been left in the dust by companies like Apple (AAPL) (up 129%), Google (GOOG) (up 78%), Goldman Sachs (GS) (up 91%) and Citigroup (C) (up 349%). As a result, money managers who did not participate in the rally in those uber-popular names may turn to MOS and POT because they can more easily justify starting a new position rather than chasing the over-heated runners.
The big day to watch out for is 10/22 when POT will release its numbers before the market opens. Although, as was the case for MOS, the numbers themselves are sure to be lower compared to last year, the importance of the report will come via guidance for 2010 and beyond.
Still, significant interim risks exist. Stocks like POT and MOS are sure to participate in any major sell-off if the vaunted correction ever does in fact come. Also, any short-term dollar strength will act to push the sector down as we saw last Friday following Ben Bernanke’s comments regarding potential for tightening fed policy. Until then, keep your eyes peeled and your noses pinched because these fertilizer names may be about to come back in a big way.
Thursday, October 1, 2009
Terra Industries Rejects CF Takeover Yet Again
Fertilizer maker Terra Industries ( TRA - news - people ) said Thursday that its board had rejected a takeover offer from rival CF Industries ( CF - news - people ) for a fifth time.
CF has turned up the heat recently in its relentless acquisition pursuit of Terra, saying earlier this week that it had bought about 7% of Terra's shares, valued at around $247 million. Its latest bid for the remaining stake in Terra was $4 billion.
Terra has continually rejected CF's advances, however, and labeled the latest offer as not being in the best interests of the company or its shareholders.
Terra CEO Michael Bennett said that "over the last nine months, our board has reviewed five proposals from CF--and each time the board has unanimously determined that a combination of our companies lacks compelling industrial logic and runs counter to Terra's strategic objectives."
To complicate matters even more, CF Industries itself has been targeted for a takeover, by fellow fertilized maker Agrium ( AGU - news - people ).
Terra shares fell 24 cents, or 0.6%, in morning trading Thursday, while CF shares were mostly flat.
The Bottom Line
We have avoided shares of TRA since our early June coverage began last year, when the stock was trading at $45.44. The stock has technical support in the $30 price area. If the shares can build further momentum, we see overhead resistance around the $37 to $40 price levels. We would remain on the sidelines for now and avoid this fertilizer "love triangle."
Terra Industries is not recommended at this time, holding a Dividend.com rating of 3.2 out of five stars. CF Industries is not currently recommended either, with a Dividend.com rating of 3.4 out of five stars.
CF has turned up the heat recently in its relentless acquisition pursuit of Terra, saying earlier this week that it had bought about 7% of Terra's shares, valued at around $247 million. Its latest bid for the remaining stake in Terra was $4 billion.
Terra has continually rejected CF's advances, however, and labeled the latest offer as not being in the best interests of the company or its shareholders.
Terra CEO Michael Bennett said that "over the last nine months, our board has reviewed five proposals from CF--and each time the board has unanimously determined that a combination of our companies lacks compelling industrial logic and runs counter to Terra's strategic objectives."
To complicate matters even more, CF Industries itself has been targeted for a takeover, by fellow fertilized maker Agrium ( AGU - news - people ).
Terra shares fell 24 cents, or 0.6%, in morning trading Thursday, while CF shares were mostly flat.
The Bottom Line
We have avoided shares of TRA since our early June coverage began last year, when the stock was trading at $45.44. The stock has technical support in the $30 price area. If the shares can build further momentum, we see overhead resistance around the $37 to $40 price levels. We would remain on the sidelines for now and avoid this fertilizer "love triangle."
Terra Industries is not recommended at this time, holding a Dividend.com rating of 3.2 out of five stars. CF Industries is not currently recommended either, with a Dividend.com rating of 3.4 out of five stars.
Zacks Industry Rank Analysis Highlights: Agrium, CF Industries, Intrepid Potash, Mosaic and Potash of Saskatchewan
Chicago, IL – September 30, 2009 – Zacks.com releases the latest Zacks Industry Rank. Stocks featured in this week’s analysis include Agrium (NYSE: AGU - News), CF Industries (NYSE: CF - News), Intrepid Potash (NYSE: IPI - News), Mosaic (NYSE: MOS - News), Potash of Saskatchewan (NYSE: POT - News) and Market Vectors Agribusiness (NYSEArca: MOO - News).
Zacks Industry Rank Analysis is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.
This week: Fertilizer's Farming Problem
Hostile takeover attempts have kept fertilizer companies in the news. The acquisition talk has helped to overshadow a negative trend that should have investors concerned - ongoing cuts to full-year profit forecasts.
During the past 90 days, the Zacks Consensus Estimates have been revised downwards on several fertilizer companies, including Agrium (NYSE: AGU - News), Intrepid Potash (NYSE: IPI - News), Mosaic (NYSE: MOS - News) and Potash of Saskatchewan (NYSE: POT - News).
The most recent cuts were related to a warning from POT. The company predicted that its full-year profits would be in the range of $3.25 to $3.75 per share, instead of the prior guidance of $4 to $5 per share. The company blamed 'continued slow demand and limited restocking by fertilizer distributors' as the reasons for the revised forecast.
All Is Not Well on the Farm
The big reason why profit projections for fertilizer companies have been falling is not weaker demand for fertilizer, but rather why demand is down. After enjoying very strong profits in 2007 and 2008, many farmers are now seeing their incomes drop. Even after adjusting for a recent rebound, corn futures are down substantially from the start of the year. Wheat prices are also down. Soy prices have plunged over the past few months.
Supply is a big reason why. Though the spring planting season was delayed, favorable weather patterns resulted in bumper crops throughout the summer. At the same time, a decline in oil prices hurt demand for ethanol, which, in turn, impacted farmers.
Compounding matters is the economy. The worldwide contraction likely reduced food consumption. (Did you notice how there were not any headlines about food shortages this year?) Plus, consumers have looked for cheaper ways to feed their families. These factors have kept cattle prices weak, which contributed to weaker demand for grains.
Then there is the banking crisis. Bank closures affect rural areas worse than urban areas because of a lack of competition. In some rural communities, the only nearby bank was seized by the FDIC. Not to mention the increased difficulty of securing loans.
The net result is lower farm profitability. In late August, the Department of Agriculture forecast that farm profits would fall 38% this year. There has been relatively little since then that would cause a big, positive revision to that forecast.
Mergers Are the One Positive
The one positive for the group are the proposed deals.
CF Industries (NYSE: CF - News) announced on Monday that it bought 7% of Terra Industries' outstanding stock over the past 2 weeks. CF wants TRA shareholders to accept a merger agreement that would represent an approximate 15% premium over TRA's current share price.
However, Agrium wants to purchase CF. AGU recently extended the deadline for its acquisition offer of CF to Oct 22. (The offer represents approximately a 4% premium over CF's current price.) It is probable that if AGU were to buy CF, CF's acquisition of TRA would be called off.
Compounding matters is the fact that TRA recently announced a special $7.50 per share dividend, payable in the fourth quarter. CF's offer for TRA would be adjusted to reflect this dividend.
The merger activity makes shorting these stocks risky over the very near-term, even with the falling estimates. On the other hand, much of the upside from the proposed deals appears to be priced in. Overall, the downside risks outweigh probable short-term upside, particularly if neither acquisition offer is accepted.
Zacks Rank
IPI, MOS and POT are Zacks #5 Rank ('strong sell') stocks. AGU and CF are Zacks #3 Rank ('hold') stocks. They are all classified in Fertilizers, which has a Zacks Industry Rank of 206, placing the group near the bottom of the Industry Rank List.
Fertilizers stock also account for a significant portion of Market Vectors Agribusiness (NYSEArca: MOO - News), something to consider when evaluating this ETF.
Zacks "Profit from the Pros " e-mail newsletter offers continuous coverage of the industries and the stocks poised to outperform the market. Subscribe to this free newsletter today by visiting http://at.zacks.com/?id=5611.
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3:1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit From the Pros by going to http://at.zacks.com/?id=5610.
Follow us on Twitter: http://twitter.com/zacksresearch
Zacks Industry Rank Analysis is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.
This week: Fertilizer's Farming Problem
Hostile takeover attempts have kept fertilizer companies in the news. The acquisition talk has helped to overshadow a negative trend that should have investors concerned - ongoing cuts to full-year profit forecasts.
During the past 90 days, the Zacks Consensus Estimates have been revised downwards on several fertilizer companies, including Agrium (NYSE: AGU - News), Intrepid Potash (NYSE: IPI - News), Mosaic (NYSE: MOS - News) and Potash of Saskatchewan (NYSE: POT - News).
The most recent cuts were related to a warning from POT. The company predicted that its full-year profits would be in the range of $3.25 to $3.75 per share, instead of the prior guidance of $4 to $5 per share. The company blamed 'continued slow demand and limited restocking by fertilizer distributors' as the reasons for the revised forecast.
All Is Not Well on the Farm
The big reason why profit projections for fertilizer companies have been falling is not weaker demand for fertilizer, but rather why demand is down. After enjoying very strong profits in 2007 and 2008, many farmers are now seeing their incomes drop. Even after adjusting for a recent rebound, corn futures are down substantially from the start of the year. Wheat prices are also down. Soy prices have plunged over the past few months.
Supply is a big reason why. Though the spring planting season was delayed, favorable weather patterns resulted in bumper crops throughout the summer. At the same time, a decline in oil prices hurt demand for ethanol, which, in turn, impacted farmers.
Compounding matters is the economy. The worldwide contraction likely reduced food consumption. (Did you notice how there were not any headlines about food shortages this year?) Plus, consumers have looked for cheaper ways to feed their families. These factors have kept cattle prices weak, which contributed to weaker demand for grains.
Then there is the banking crisis. Bank closures affect rural areas worse than urban areas because of a lack of competition. In some rural communities, the only nearby bank was seized by the FDIC. Not to mention the increased difficulty of securing loans.
The net result is lower farm profitability. In late August, the Department of Agriculture forecast that farm profits would fall 38% this year. There has been relatively little since then that would cause a big, positive revision to that forecast.
Mergers Are the One Positive
The one positive for the group are the proposed deals.
CF Industries (NYSE: CF - News) announced on Monday that it bought 7% of Terra Industries' outstanding stock over the past 2 weeks. CF wants TRA shareholders to accept a merger agreement that would represent an approximate 15% premium over TRA's current share price.
However, Agrium wants to purchase CF. AGU recently extended the deadline for its acquisition offer of CF to Oct 22. (The offer represents approximately a 4% premium over CF's current price.) It is probable that if AGU were to buy CF, CF's acquisition of TRA would be called off.
Compounding matters is the fact that TRA recently announced a special $7.50 per share dividend, payable in the fourth quarter. CF's offer for TRA would be adjusted to reflect this dividend.
The merger activity makes shorting these stocks risky over the very near-term, even with the falling estimates. On the other hand, much of the upside from the proposed deals appears to be priced in. Overall, the downside risks outweigh probable short-term upside, particularly if neither acquisition offer is accepted.
Zacks Rank
IPI, MOS and POT are Zacks #5 Rank ('strong sell') stocks. AGU and CF are Zacks #3 Rank ('hold') stocks. They are all classified in Fertilizers, which has a Zacks Industry Rank of 206, placing the group near the bottom of the Industry Rank List.
Fertilizers stock also account for a significant portion of Market Vectors Agribusiness (NYSEArca: MOO - News), something to consider when evaluating this ETF.
Zacks "Profit from the Pros " e-mail newsletter offers continuous coverage of the industries and the stocks poised to outperform the market. Subscribe to this free newsletter today by visiting http://at.zacks.com/?id=5611.
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3:1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit From the Pros by going to http://at.zacks.com/?id=5610.
Follow us on Twitter: http://twitter.com/zacksresearch
Tuesday, September 29, 2009
Sugar Fundamentals Sweeten Up
Stronger demand and persistent rainfall in Brazil could push sugar prices to new highs.
Sugar prices soared on Tuesday even as a stronger U.S. dollar kept prices muted across soft commodities. Rain in Brazil has heightened concerns that the top sugar grower's yields won't be robust enough to meet strong demand from Mexico and India.
The sweetener has been the year's best-performing soft commodity with prices at levels not seen in more than 28 years. Supply issues have supported stronger prices -- Indian production faltered because a weak monsoon season left plantations dry and now Brazilian output is also threatened by weather. India, which swung from an exporter to an importer of sugar, has had to rely more heavily on Brazil for supplies and traders say Brazil has also seen stronger demand from Mexico and the U.S. Analysts expect sugar prices to hit 26 cents a pound.
Raw sugar for March delivery trading in New York gained 0.84 cent to settle at 24.94 cents a pound on Tuesday while the October contract, which expires on Wednesday, added 0.81 cent to settle at 23.46 cents. In London, white sugar futures touched a record level of $617.70 per metric ton before pulling back slightly to $616.
"Rainfall in Brazil is delaying the crush along with lowered sucrose levels; weak Indian output and still positive demand," said Barclays Capital analyst Sudakshina Unnikrishnan, who holds a near-term price target of 25 cents a pound.
Sugar shortages could mean good things for potash fertilizer producers since potash is essential to increase cane sucrose concentration, or the amount of sweetener than can be produced from cane. Brazil currently imports 90% of its potash needs, which could increase if more land is converted to cane fields.
Shares of potash companies closed Tuesday's trading session broadly lower with Potash Corp of Saskatchewan ( POT - news - people ) down by 39 cents, or 0.4%, at $90.69; Mosaic ( MOS - news - people ) off by 77 cents, or 1.6%, at $48.77 and Intrepid Potash ( IPI - news - people ) lower by 21 cents, or 0.9%, at $23.52.
Sugar prices soared on Tuesday even as a stronger U.S. dollar kept prices muted across soft commodities. Rain in Brazil has heightened concerns that the top sugar grower's yields won't be robust enough to meet strong demand from Mexico and India.
The sweetener has been the year's best-performing soft commodity with prices at levels not seen in more than 28 years. Supply issues have supported stronger prices -- Indian production faltered because a weak monsoon season left plantations dry and now Brazilian output is also threatened by weather. India, which swung from an exporter to an importer of sugar, has had to rely more heavily on Brazil for supplies and traders say Brazil has also seen stronger demand from Mexico and the U.S. Analysts expect sugar prices to hit 26 cents a pound.
Raw sugar for March delivery trading in New York gained 0.84 cent to settle at 24.94 cents a pound on Tuesday while the October contract, which expires on Wednesday, added 0.81 cent to settle at 23.46 cents. In London, white sugar futures touched a record level of $617.70 per metric ton before pulling back slightly to $616.
"Rainfall in Brazil is delaying the crush along with lowered sucrose levels; weak Indian output and still positive demand," said Barclays Capital analyst Sudakshina Unnikrishnan, who holds a near-term price target of 25 cents a pound.
Sugar shortages could mean good things for potash fertilizer producers since potash is essential to increase cane sucrose concentration, or the amount of sweetener than can be produced from cane. Brazil currently imports 90% of its potash needs, which could increase if more land is converted to cane fields.
Shares of potash companies closed Tuesday's trading session broadly lower with Potash Corp of Saskatchewan ( POT - news - people ) down by 39 cents, or 0.4%, at $90.69; Mosaic ( MOS - news - people ) off by 77 cents, or 1.6%, at $48.77 and Intrepid Potash ( IPI - news - people ) lower by 21 cents, or 0.9%, at $23.52.
Friday, September 25, 2009
What the Heck Is Wrong With Fertilizer Stocks?
By all accounts, fertilizer stocks should be blazing hot. They sport some of the market's best historical and forward-looking fundamentals. Yet, the S&P 500 Fertilizer and Agricultural Chemical Index is only one of two (of a few dozen) industries with stocks that are - on average - in the red for the last six months.
Oh, don't misunderstand - they look great on paper.
Terra Industries (NYSE:TRA) and CF Industries (NYSE:CF) have trailing P/Es of 8.2 and 8.9 for cryin' out loud, and most of these stocks aren't far behind. So what's wrong with these stocks, and when will they shape up? The secret behind the answer is below, though the timing of the turn-around is still a little elusive.
Back to the Beginning
Just need to make sure we're all on the same page....
Fertilizer stocks basically doubled in price between mid-2006 and mid-2008, but don't assume it was anything the companies did. Fertilizer prices - potash and ammonia based ones in particular - went through the roof. On average, fertilizer costs increased by 83% during those two years. Why? For the same reasons any other commodity rallies - greater demand, limited supply and because manufacturers can charge that price and get it.
Stubborn to the Bone
Other commodity prices, stock prices and even crop prices for that matter don't move in sync. The CRB (commodity) index topped in early 2008. Stocks technically topped in late 2007. Corn, wheat and soybean prices all topped in the first half of 2008.
But fertilizer prices - and potash in particular - barely budged then. As August, 2008 turned into September, 2008, phosphate, potash and nitrogen prices were still on the rise. They didn't start to slide until late in 2008, and even then the price dip wasn't commensurate with the global economic implosion.
Though they'd never say so explicitly, companies like Potash Corp. (NYSE:POT), Syngenta AG (NYSE:SYT), and Mosaic Co. (NYSE:MOS) enjoy the fact that there are few major players in their arena, and as such they can collectively cut production (i.e. hold out) to maintain pricing pressure.
It worked, too. Potash prices only sank from a peak above $900 per ton in late 2008, to only the low $800 level earlier in the year. Only this year, farmers called these companies' bluffs by scaling back on potash and fertilizer usage, by as much as 30%.
That's also the reason Potash once again cut its revenue and earnings forecast (again). It's an epidemic that's not unique to that particular fertilizer company though.
Fast Forward to Today
The farmers are winning the war, and it's likely to come out of the hides of agricultural chemical producers. Translation? It may get worse before it gets better, for these stocks.
As evidence to my thesis, take the recent decision from Canpotex (which represents Potash, Mosaic and Agrium (NYSE:AGU)) to sell potash in India at $460 per ton. That's about half the price from late last year, and doesn't exactly say these companies are sticking to their guns.
Fertilizer companies may argue that the price break was given only because it was a massive 850,000 ton deal, though skeptics aren't hard to find. Those skeptical eyes are now on the lookout for a similar low price to Chinese customers. If China gets a bargain, that will be a sign that the farmers' hold-out has beaten the fertilizer companies'.
Bigger picture, it will also mean lowered margins and a diminished top line for the likes of Monsanto Inc. (NYSE:MON) and Mosaic.
The Outlook
So what may put an end to the fertilizer misery? Two things: the first is higher crop prices, and the second is lower crop yields (which actually go hand in hand). Neither is likely to be a reality in 2009 though, for three reasons.
It's too late to bother with fertilizer this season, which means demand won't likely improve until at least early 2010.
Corn prices - and most crops - are considerably lower than they were at the beginning of the year; many farms simply can't afford to utilize fertilizer.
Despite the lack of fertilizer use this year, crop yields are actually up this season; corn yields are close to hitting peak levels. It hurts corn prices, but forces the question "who needs fertilizer?"
Oh, don't misunderstand - they look great on paper.
Terra Industries (NYSE:TRA) and CF Industries (NYSE:CF) have trailing P/Es of 8.2 and 8.9 for cryin' out loud, and most of these stocks aren't far behind. So what's wrong with these stocks, and when will they shape up? The secret behind the answer is below, though the timing of the turn-around is still a little elusive.
Back to the Beginning
Just need to make sure we're all on the same page....
Fertilizer stocks basically doubled in price between mid-2006 and mid-2008, but don't assume it was anything the companies did. Fertilizer prices - potash and ammonia based ones in particular - went through the roof. On average, fertilizer costs increased by 83% during those two years. Why? For the same reasons any other commodity rallies - greater demand, limited supply and because manufacturers can charge that price and get it.
Stubborn to the Bone
Other commodity prices, stock prices and even crop prices for that matter don't move in sync. The CRB (commodity) index topped in early 2008. Stocks technically topped in late 2007. Corn, wheat and soybean prices all topped in the first half of 2008.
But fertilizer prices - and potash in particular - barely budged then. As August, 2008 turned into September, 2008, phosphate, potash and nitrogen prices were still on the rise. They didn't start to slide until late in 2008, and even then the price dip wasn't commensurate with the global economic implosion.
Though they'd never say so explicitly, companies like Potash Corp. (NYSE:POT), Syngenta AG (NYSE:SYT), and Mosaic Co. (NYSE:MOS) enjoy the fact that there are few major players in their arena, and as such they can collectively cut production (i.e. hold out) to maintain pricing pressure.
It worked, too. Potash prices only sank from a peak above $900 per ton in late 2008, to only the low $800 level earlier in the year. Only this year, farmers called these companies' bluffs by scaling back on potash and fertilizer usage, by as much as 30%.
That's also the reason Potash once again cut its revenue and earnings forecast (again). It's an epidemic that's not unique to that particular fertilizer company though.
Fast Forward to Today
The farmers are winning the war, and it's likely to come out of the hides of agricultural chemical producers. Translation? It may get worse before it gets better, for these stocks.
As evidence to my thesis, take the recent decision from Canpotex (which represents Potash, Mosaic and Agrium (NYSE:AGU)) to sell potash in India at $460 per ton. That's about half the price from late last year, and doesn't exactly say these companies are sticking to their guns.
Fertilizer companies may argue that the price break was given only because it was a massive 850,000 ton deal, though skeptics aren't hard to find. Those skeptical eyes are now on the lookout for a similar low price to Chinese customers. If China gets a bargain, that will be a sign that the farmers' hold-out has beaten the fertilizer companies'.
Bigger picture, it will also mean lowered margins and a diminished top line for the likes of Monsanto Inc. (NYSE:MON) and Mosaic.
The Outlook
So what may put an end to the fertilizer misery? Two things: the first is higher crop prices, and the second is lower crop yields (which actually go hand in hand). Neither is likely to be a reality in 2009 though, for three reasons.
It's too late to bother with fertilizer this season, which means demand won't likely improve until at least early 2010.
Corn prices - and most crops - are considerably lower than they were at the beginning of the year; many farms simply can't afford to utilize fertilizer.
Despite the lack of fertilizer use this year, crop yields are actually up this season; corn yields are close to hitting peak levels. It hurts corn prices, but forces the question "who needs fertilizer?"
Today in Commodities: The Almighty Buck
I’m calling an interim bottom, made yesterday on the US dollar index at 76.05 on the December contract. Prices gained 1% today, the first hurdle that must be overcome to confirm my feeling is a close above the 20 day moving average at 77.50. Our first target is 78.50, again on the December contract.
How we are trying to take advantage of this is short cocoa, short Euro-currency and short silver for clients. How did those work out today? Cocoa was lower by just shy of 3%, a move of $890 on a futures contract, the Euro gave up 1%, a move of $1875 on a futures contract, silver was lower by 3.5%, a move of $3000 on a futures contract.
We should have listened to our own advice on oil, as soon as $69 gave way more selling came into the market. We could see a trade down to $62 on this leg. We own December call spreads and will either use a powerful rally to cut losses or look to leg out, stay tuned. Natural gas continues to creep higher on what I believe as more short covering. We would like to see a 40 plus cent pullback to re-establish longs in December or January for clients.
Sugar could follow oil lower so we may suggest lightening up on longs if we get a pop in the next few sessions. Longer term we like being long but as we’ve suggested in past blogs, manage your trades… do not fall asleep at the wheel.
As seen above, the correction in metals we predicted appears to be underway. We’re not suggesting booking profits on shorts or getting long yet!
Treasuries were higher, some clients remain long 30-yr bonds. We expect a trade above 122′00 in coming weeks on the December contract.
Profit taking in live cattle, conservative traders may want to re-establish puts against their long December futures. Corn and wheat traded higher, that makes 3 higher days in a row for corn and 2 on wheat. We suggest long exposure via futures and options for clients. The KCBOT/CBOT wheat spread has yet to develop, keep profit objective at 20 cents premium to KCBOT.
Key reversal in the stock market yesterday as we see the S&P making its way to 990 and the Dow to 9150. Perhaps some speculators bought puts or hedged off their portfolio??
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.
How we are trying to take advantage of this is short cocoa, short Euro-currency and short silver for clients. How did those work out today? Cocoa was lower by just shy of 3%, a move of $890 on a futures contract, the Euro gave up 1%, a move of $1875 on a futures contract, silver was lower by 3.5%, a move of $3000 on a futures contract.
We should have listened to our own advice on oil, as soon as $69 gave way more selling came into the market. We could see a trade down to $62 on this leg. We own December call spreads and will either use a powerful rally to cut losses or look to leg out, stay tuned. Natural gas continues to creep higher on what I believe as more short covering. We would like to see a 40 plus cent pullback to re-establish longs in December or January for clients.
Sugar could follow oil lower so we may suggest lightening up on longs if we get a pop in the next few sessions. Longer term we like being long but as we’ve suggested in past blogs, manage your trades… do not fall asleep at the wheel.
As seen above, the correction in metals we predicted appears to be underway. We’re not suggesting booking profits on shorts or getting long yet!
Treasuries were higher, some clients remain long 30-yr bonds. We expect a trade above 122′00 in coming weeks on the December contract.
Profit taking in live cattle, conservative traders may want to re-establish puts against their long December futures. Corn and wheat traded higher, that makes 3 higher days in a row for corn and 2 on wheat. We suggest long exposure via futures and options for clients. The KCBOT/CBOT wheat spread has yet to develop, keep profit objective at 20 cents premium to KCBOT.
Key reversal in the stock market yesterday as we see the S&P making its way to 990 and the Dow to 9150. Perhaps some speculators bought puts or hedged off their portfolio??
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.
Potash: Suffering from an Unrelenting Price Squeeze
We have been watching as Potash (POT) and other fertilizer suppliers are having a hard time negotiating with some of the world’s most influential customers. The problem started earlier this year when India pressed hard and negotiated a deal way below market for the products. Demand was so low that Potash and others had no choice.
In their recent conference call after the abysmal earnings report, management expected prices to come down and predicted a soft market. That was reinforced after the market close last Friday when they again lower estimates. Now it looks like other customers have the idea that bargaining will work as demand is weak. This is not a good sign for companies in this industry.
From the looks of it, prices are falling fast for potash and other fertilizer products through at least the end of 2010. Obviously the sharp decline in prices will erase any hopes for top line earnings growth. We continue to maintain a SELL for the sector and in particular Potash (POT).
From Bloomberg News
Sept. 22 (Bloomberg) — China may skip price negotiations to buy potash supplies this year on weak domestic demand, an analyst at Scotia Capital Inc. said. Buyers may instead start talks for 2010 contracts in the next two months, wrote analyst Na Liu in a report dated yesterday. Liu forecast contract prices for next year at $395 a metric ton, FOB. China is the world’s biggest potash importer.
China has not concluded annual negotiations on prices this year as demand has weakened with farmers replacing potash with other compound or organic fertilizers. Prices of the nutrient tumbled from a record last year as farmers around the world cut purchases because of slumping grain prices.
“Domestic potash sales remain very sluggish and real transaction prices keep slipping,” Liu wrote in the report. The country was a net exporter of potash in July, she said.
China’s consumption of the crop nutrient has declined following a rally in prices and it will take more time for demand to recover, Liu said. “Demand can only revive from the current level into next spring’s planting season,” Liu said. Producers including BPC and Canpotex, a trader representing North American potash suppliers, last year raised the price for Chinese customers to $567 a ton, excluding freight costs.
Potash Corp. of Saskatchewan Inc. and other producers agreed in July to sell to India for $460 a ton, or about 26 percent below last year’s price. Still, contracts to supply potash to China are likely to be signed before the year-end and may spur demand in Europe and other markets, Russian producer OAO Uralkali said Sept 8. It’s “reasonable” to expect a cut compared with last year’s price given market conditions, Acting President Mikhail Antonov said.
In their recent conference call after the abysmal earnings report, management expected prices to come down and predicted a soft market. That was reinforced after the market close last Friday when they again lower estimates. Now it looks like other customers have the idea that bargaining will work as demand is weak. This is not a good sign for companies in this industry.
From the looks of it, prices are falling fast for potash and other fertilizer products through at least the end of 2010. Obviously the sharp decline in prices will erase any hopes for top line earnings growth. We continue to maintain a SELL for the sector and in particular Potash (POT).
From Bloomberg News
Sept. 22 (Bloomberg) — China may skip price negotiations to buy potash supplies this year on weak domestic demand, an analyst at Scotia Capital Inc. said. Buyers may instead start talks for 2010 contracts in the next two months, wrote analyst Na Liu in a report dated yesterday. Liu forecast contract prices for next year at $395 a metric ton, FOB. China is the world’s biggest potash importer.
China has not concluded annual negotiations on prices this year as demand has weakened with farmers replacing potash with other compound or organic fertilizers. Prices of the nutrient tumbled from a record last year as farmers around the world cut purchases because of slumping grain prices.
“Domestic potash sales remain very sluggish and real transaction prices keep slipping,” Liu wrote in the report. The country was a net exporter of potash in July, she said.
China’s consumption of the crop nutrient has declined following a rally in prices and it will take more time for demand to recover, Liu said. “Demand can only revive from the current level into next spring’s planting season,” Liu said. Producers including BPC and Canpotex, a trader representing North American potash suppliers, last year raised the price for Chinese customers to $567 a ton, excluding freight costs.
Potash Corp. of Saskatchewan Inc. and other producers agreed in July to sell to India for $460 a ton, or about 26 percent below last year’s price. Still, contracts to supply potash to China are likely to be signed before the year-end and may spur demand in Europe and other markets, Russian producer OAO Uralkali said Sept 8. It’s “reasonable” to expect a cut compared with last year’s price given market conditions, Acting President Mikhail Antonov said.
Saturday, September 19, 2009
PotashCorp Reduces 2009 Earnings Guidance
Listed: TSX, NYSE Symbol: POT
SASKATOON, Sept. 18 /CNW/ - Potash Corporation of Saskatchewan Inc. (PotashCorp) today announced revised earnings guidance of $3.25-$3.75 per share for full-year 2009, shifting from a range of $4.00-$5.00 per share(1) provided in July 2009. The change primarily reflects lower than forecasted potash sales volumes due to continued slow demand and limited restocking by fertilizer distributors around the world. Over the past 12 months, nearly 20 million tonnes of potash production has been curtailed by global producers. PotashCorp will continue to keep a tight rein on our production until demand returns in the new year. Our 2009 earnings are still expected to be among the best in company history, despite an anticipated decrease of 60 percent in year-over-year potash volumes and an 85 percent decline in our combined phosphate and nitrogen gross margin. Earnings for third-quarter 2009 are expected to be at the low-end of the $0.80-$1.20 per share guidance range previously provided.
Potash inventories that can be measured in the retail chain - this excludes less easily identified inventories in China - have been largely eliminated and potash levels in soils around the world have been significantly reduced. This creates a progressively higher risk to crop yields as soil fertility is continually diminished. While the immediate impact has been masked by good weather and residual soil nutrient levels in markets with healthy long-term fertilization and agronomic practices, such as the US and Australia, yields for key crops in several other major growing regions are expected to be substantially below 2008 levels. A significant rebound is required to address this situation and we expect 2010 global potash demand to be in the range of 50-55 million tonnes.
"Food production is an unending and long-term business," said PotashCorp President and Chief Executive Officer Bill Doyle. "Decisions related to fertilizer use today inevitably impact crop yields - and soil needs - for years to come. Although there are fluctuations in fertilizer demand, there is an essential need for our products that is based on science. The potash, phosphate and nitrogen being mined from the soil by current crops must be replaced to protect the world's future food production. As farmers around the world begin the lengthy process of replenishing nutrients in the soil, we anticipate a new wave of demand growth that will allow us to once again demonstrate the full potential of our company."
Potash Corporation of Saskatchewan Inc. is the world's largest fertilizer enterprise by capacity producing the three primary plant nutrients and a leading supplier to three distinct market categories: agriculture, with the largest capacity in the world in potash and third largest in phosphate and nitrogen; animal nutrition, with the world's largest capacity in phosphate feed ingredients; and industrial chemicals, as the largest global producer of industrial nitrogen products and the world's largest capacity for production of purified industrial phosphoric acid.
SASKATOON, Sept. 18 /CNW/ - Potash Corporation of Saskatchewan Inc. (PotashCorp) today announced revised earnings guidance of $3.25-$3.75 per share for full-year 2009, shifting from a range of $4.00-$5.00 per share(1) provided in July 2009. The change primarily reflects lower than forecasted potash sales volumes due to continued slow demand and limited restocking by fertilizer distributors around the world. Over the past 12 months, nearly 20 million tonnes of potash production has been curtailed by global producers. PotashCorp will continue to keep a tight rein on our production until demand returns in the new year. Our 2009 earnings are still expected to be among the best in company history, despite an anticipated decrease of 60 percent in year-over-year potash volumes and an 85 percent decline in our combined phosphate and nitrogen gross margin. Earnings for third-quarter 2009 are expected to be at the low-end of the $0.80-$1.20 per share guidance range previously provided.
Potash inventories that can be measured in the retail chain - this excludes less easily identified inventories in China - have been largely eliminated and potash levels in soils around the world have been significantly reduced. This creates a progressively higher risk to crop yields as soil fertility is continually diminished. While the immediate impact has been masked by good weather and residual soil nutrient levels in markets with healthy long-term fertilization and agronomic practices, such as the US and Australia, yields for key crops in several other major growing regions are expected to be substantially below 2008 levels. A significant rebound is required to address this situation and we expect 2010 global potash demand to be in the range of 50-55 million tonnes.
"Food production is an unending and long-term business," said PotashCorp President and Chief Executive Officer Bill Doyle. "Decisions related to fertilizer use today inevitably impact crop yields - and soil needs - for years to come. Although there are fluctuations in fertilizer demand, there is an essential need for our products that is based on science. The potash, phosphate and nitrogen being mined from the soil by current crops must be replaced to protect the world's future food production. As farmers around the world begin the lengthy process of replenishing nutrients in the soil, we anticipate a new wave of demand growth that will allow us to once again demonstrate the full potential of our company."
Potash Corporation of Saskatchewan Inc. is the world's largest fertilizer enterprise by capacity producing the three primary plant nutrients and a leading supplier to three distinct market categories: agriculture, with the largest capacity in the world in potash and third largest in phosphate and nitrogen; animal nutrition, with the world's largest capacity in phosphate feed ingredients; and industrial chemicals, as the largest global producer of industrial nitrogen products and the world's largest capacity for production of purified industrial phosphoric acid.
Citigroup Analyst Pessimistic on Fertilizer Industry
After holding off from buying fertilizers last year, industry analysts have expected farmers to return to their potash-buying ways this fall, but a recent survey among growers and distributors has Citigroup Global Markets less than confident this will happen any time soon.
P.J. Juvekar, analyst with Citigroup, recently conducted a survey, talked to fertilizer distributors, and even went to a farming convention in Illinois.
"Based on our discussions it seems that the fall fertilizer application season is likely to be weaker than expected," he said in a note to clients. "Our earlier thesis that farmers could not skip application indefinitely ... still stands, but application may be delayed past fall."
Several factors concern Mr. Juvekar, including the fact that farmers may be harvesting their crops two to four weeks later than usual, delaying and limiting the fall fertilizer application window.
"Every month that passes without normal volumes increases the risk a producer will break in price, which is what happened in July when Silvinit lowered price sto US$460 a tonne," he said. Silvinit agreed to a contract with India earlier this summer.
As well, while most expected China to agree to terms with producers shortly after India did, so far that has not happened. There is definite risk that China will also use volume as an incentive for lower prices.
At the same time, while producers have historically been able to hold rank on pricing, the recent Silvinit deal shows there are cracks in the facade.
"In the recent weak demand environment, some producers have shown a willingness to place volume over price to generate cash. Potash is a global commodity and pricing resolve is only as strong as the weakest link in the chain," he said.
Yet another problem is shrinking income for many farmers as corn prices have plummeted 25% year-to-date, with the U.S. Deparment of Agriculture forecasting farmer net income to fall 38% to US$54-billion. The current price of US$3.15 a bushel is also not enough, as one Illinoisian farmer claimed to need prices at US$4 a bushel to break even.
All of this has left Mr. Juvekar with a rather pessimistic view of the industry in the short term. He has cut the forecasted potash export price in for 2010-2011 to US$400 a tonne from US$450.
He is also dropping ratings on both Potash Corp. of Saskatchewan Inc. (POT) and Mosaic Co. (MOS) to Hold from Buy while slashing target prices to US$98 and US$54 from US$115 and US$62 respectively.
P.J. Juvekar, analyst with Citigroup, recently conducted a survey, talked to fertilizer distributors, and even went to a farming convention in Illinois.
"Based on our discussions it seems that the fall fertilizer application season is likely to be weaker than expected," he said in a note to clients. "Our earlier thesis that farmers could not skip application indefinitely ... still stands, but application may be delayed past fall."
Several factors concern Mr. Juvekar, including the fact that farmers may be harvesting their crops two to four weeks later than usual, delaying and limiting the fall fertilizer application window.
"Every month that passes without normal volumes increases the risk a producer will break in price, which is what happened in July when Silvinit lowered price sto US$460 a tonne," he said. Silvinit agreed to a contract with India earlier this summer.
As well, while most expected China to agree to terms with producers shortly after India did, so far that has not happened. There is definite risk that China will also use volume as an incentive for lower prices.
At the same time, while producers have historically been able to hold rank on pricing, the recent Silvinit deal shows there are cracks in the facade.
"In the recent weak demand environment, some producers have shown a willingness to place volume over price to generate cash. Potash is a global commodity and pricing resolve is only as strong as the weakest link in the chain," he said.
Yet another problem is shrinking income for many farmers as corn prices have plummeted 25% year-to-date, with the U.S. Deparment of Agriculture forecasting farmer net income to fall 38% to US$54-billion. The current price of US$3.15 a bushel is also not enough, as one Illinoisian farmer claimed to need prices at US$4 a bushel to break even.
All of this has left Mr. Juvekar with a rather pessimistic view of the industry in the short term. He has cut the forecasted potash export price in for 2010-2011 to US$400 a tonne from US$450.
He is also dropping ratings on both Potash Corp. of Saskatchewan Inc. (POT) and Mosaic Co. (MOS) to Hold from Buy while slashing target prices to US$98 and US$54 from US$115 and US$62 respectively.
Dow Keep Agri Business
EI DuPont De Nemours Co. (NYSE: DD - News) recently said it expects the performance of its seed business, Pioneer Hi-Bred, to grow more than 15% year over year in 2009. The company’s seed business has gained more than 2% of share in the North American seed corn market, which is the largest industry gain in the current year. It gained 3% in the North American soybean market and 5% in the Canadian canola seed market.
Considering a 15% growth, the seed division should generate revenue of $4.6 billion, compared with $4 billion in 2008. The business had accounted for roughly 13% of Du Pont’s total sales of $30.5 billion last year.
DuPont is the world’s second-largest chemical company. While its Agricultural and Nutrition segment is expected to be the key performance driver, continued weakness in demand across most of US markets offsets overall growth for the company. DuPont’s second-quarter profit of $417 million, or 46 cents per share, missed the Zacks Consensus Estimate of 53 cents, due to lower sales volumes and adverse currency impact.
Meanwhile, rival Dow Chemical Co. (NYSE: DOW - News) also said it does not plan to divest Dow AgroSciences in the near term. Rumors were rife earlier this year that Dow might spin off this fast-growing agricultural unit or team it up with another agricultural company in order to reduce its over $16 billion debt from the Rohm & Haas acquisition.
Dow AgroSciences, which makes genetically modified seeds, herbicides and pesticides, has seen robust growth in recent years and added to the parent company’s first-quarter profit. Currently, the unit is facing tough competition from the industry leader Monsanto Co. (NYSE: MON - News). Dow is also planning to pay off the loan from the sale of its Morton Salt and Optimal businesses. The deal is expected to close by the end of the year.
We maintain our Neutral recommendation on Du Pont and Dow Chemical.
zacks.com
Considering a 15% growth, the seed division should generate revenue of $4.6 billion, compared with $4 billion in 2008. The business had accounted for roughly 13% of Du Pont’s total sales of $30.5 billion last year.
DuPont is the world’s second-largest chemical company. While its Agricultural and Nutrition segment is expected to be the key performance driver, continued weakness in demand across most of US markets offsets overall growth for the company. DuPont’s second-quarter profit of $417 million, or 46 cents per share, missed the Zacks Consensus Estimate of 53 cents, due to lower sales volumes and adverse currency impact.
Meanwhile, rival Dow Chemical Co. (NYSE: DOW - News) also said it does not plan to divest Dow AgroSciences in the near term. Rumors were rife earlier this year that Dow might spin off this fast-growing agricultural unit or team it up with another agricultural company in order to reduce its over $16 billion debt from the Rohm & Haas acquisition.
Dow AgroSciences, which makes genetically modified seeds, herbicides and pesticides, has seen robust growth in recent years and added to the parent company’s first-quarter profit. Currently, the unit is facing tough competition from the industry leader Monsanto Co. (NYSE: MON - News). Dow is also planning to pay off the loan from the sale of its Morton Salt and Optimal businesses. The deal is expected to close by the end of the year.
We maintain our Neutral recommendation on Du Pont and Dow Chemical.
zacks.com
Monday, September 7, 2009
Thumbs Up for Agrium - Desjardins
Agrium Inc. (AGU) got the thumbs up this week from Desjardins Securities analyst John Redstone, who initiated coverage on the fertilizer company, with a BUY rating and C$75.80 price target.
"Agrium is well positioned to benefit from improving fertilizer markets through its current operations and from its acquisition of CF Industries," said Mr. Redstone in a note to clients.
On the macro front, he said fertilizer markets should recover in the short term because of curtailed production, low soil nutrient levels and rising foodstuff prices. Longer term, they will benefit from rising demand from developing countries, low inventories and a limited supply-side response.
Mr. Redstone said Agrium has several key advantages to help it benefit from improving fertilizer markets, including a long potash reserve life, in-house production of ammonia, and low sulphur and natural gas costs.
"Furthermore, Agrium continues to demonstrate its determination and ability to grow by acquisition," he wrote.
As part of his bullish valuation, the analyst has included Agrium's hostile and yet unresolved bid for CF Industries (CF).
Our valuation of AGU assumes this transaction is successful, and that AGU acquires all the outstanding shares of CF for US$40.00/share (US$2.008b total through debt financing) and issues an additional 49.2m shares (on top of its existing 158.1m fully diluted shares outstanding).
We have also assumed that AGU’s estimate of US$150m/year in operational synergies is realized.
As of late June, roughly 62% of the outstanding shares of CF had been tendered to the AGU offer, but CF remains unwilling to engage in dialogue with Agrium.
"Agrium is well positioned to benefit from improving fertilizer markets through its current operations and from its acquisition of CF Industries," said Mr. Redstone in a note to clients.
On the macro front, he said fertilizer markets should recover in the short term because of curtailed production, low soil nutrient levels and rising foodstuff prices. Longer term, they will benefit from rising demand from developing countries, low inventories and a limited supply-side response.
Mr. Redstone said Agrium has several key advantages to help it benefit from improving fertilizer markets, including a long potash reserve life, in-house production of ammonia, and low sulphur and natural gas costs.
"Furthermore, Agrium continues to demonstrate its determination and ability to grow by acquisition," he wrote.
As part of his bullish valuation, the analyst has included Agrium's hostile and yet unresolved bid for CF Industries (CF).
Our valuation of AGU assumes this transaction is successful, and that AGU acquires all the outstanding shares of CF for US$40.00/share (US$2.008b total through debt financing) and issues an additional 49.2m shares (on top of its existing 158.1m fully diluted shares outstanding).
We have also assumed that AGU’s estimate of US$150m/year in operational synergies is realized.
As of late June, roughly 62% of the outstanding shares of CF had been tendered to the AGU offer, but CF remains unwilling to engage in dialogue with Agrium.
Ways to Trade the Ag Space
A reader asked in an email, "if one wanted to invest in Grains, what symbols [do] you recommend?"
I don't know if I would necessarily recommend any symbol. The two stocks that I am most familiar with in this arena are the Rogers Agricultural Index (RJA) and the PowerShares DB Agriculture Fund (DBA). I once owned RJA so let's start with that one first.
RJA is an ETN designed to track the (Jim) Rogers Agricultural Index, which itself is a blend of a whole slew of soft commodities in various weights. You can get more information from its prospectus. The important item to note on RJA is that it is basically a promissory note, not an ETF, and does not hold any actual commodities or contracts. It is a liability of the bank or organization that sponsors it. In light of the financial crisis, this is an important consideration. Also, while RJA promises exposure to a wide range of commodities, the weighting may dampen any price run-up. For instance, when rice made its huge run, RJA barely moved as rice was less than 5% of the index at the time.
DBA is an actual ETF that is basically equal-weighted in four commodities: wheat, corn, soybeans and sugar. Obviously, this leaves investors out in the cold if rice or orange juice makes a big run but conversely, sugar is on a tear and the 25% (actually 31% according to ETFConnect) weighting gives investors better exposure to price moves. I would advise interested readers to read the prospectus to find out more about how the fund buys its contracts and how that might affect investor returns.
My inclination at this point would be to play the ag space via companies in the supply chain which can range from equipment suppliers like Caterpillar (CAT) to fertilizer producers like Mosaic (MOS) to seed companies like Monsanto. I feel more comfortable making buy/sell decisions on companies, where I can estimate intrinsic values, than with commodities where I have less of a base to judge fundamental value.
Keep in mind that each investor should determine the appropriate strategy for his own portfolio. What works for me may not be right for you and vice versa..seeking alpha
I don't know if I would necessarily recommend any symbol. The two stocks that I am most familiar with in this arena are the Rogers Agricultural Index (RJA) and the PowerShares DB Agriculture Fund (DBA). I once owned RJA so let's start with that one first.
RJA is an ETN designed to track the (Jim) Rogers Agricultural Index, which itself is a blend of a whole slew of soft commodities in various weights. You can get more information from its prospectus. The important item to note on RJA is that it is basically a promissory note, not an ETF, and does not hold any actual commodities or contracts. It is a liability of the bank or organization that sponsors it. In light of the financial crisis, this is an important consideration. Also, while RJA promises exposure to a wide range of commodities, the weighting may dampen any price run-up. For instance, when rice made its huge run, RJA barely moved as rice was less than 5% of the index at the time.
DBA is an actual ETF that is basically equal-weighted in four commodities: wheat, corn, soybeans and sugar. Obviously, this leaves investors out in the cold if rice or orange juice makes a big run but conversely, sugar is on a tear and the 25% (actually 31% according to ETFConnect) weighting gives investors better exposure to price moves. I would advise interested readers to read the prospectus to find out more about how the fund buys its contracts and how that might affect investor returns.
My inclination at this point would be to play the ag space via companies in the supply chain which can range from equipment suppliers like Caterpillar (CAT) to fertilizer producers like Mosaic (MOS) to seed companies like Monsanto. I feel more comfortable making buy/sell decisions on companies, where I can estimate intrinsic values, than with commodities where I have less of a base to judge fundamental value.
Keep in mind that each investor should determine the appropriate strategy for his own portfolio. What works for me may not be right for you and vice versa..seeking alpha
Market Vectors Agribusiness ETF Takes a Hit on UBS Downgrades
UBS Investment Research (UBS) downgraded two top agriculture companies Mosaic Co (MOS) and Potash Corp (POT) to Neutral from Buy on Friday. This comes after the Department of Agriculture says profits for U.S. farmers will plunge more than expected this year, dropping 38 percent from 2008 as the recession erodes demand for crops, livestock and dairy products.
These downgrades put pressure on the Market Vectors Agribusiness ETF (MOO) which holds top stakes in the two companies. The ETF (MOO) primarily invests in equity securities of U.S. and foreign companies primarily engaged in the business of agriculture. The ETF has enjoyed nice gains since its November 08 low.
We have included a list of the top holdings within the ETF:
TOP 10 HOLDINGS (MOO) ( 60.41% OF TOTAL ASSETS)
Company Symbol % Assets
ARCHER DANIELS MDLND (ADM) 5.78
DEERE CO (DE) 4.85
Komatsu Ltd. N/A 4.55
Kubota Corporation N/A 4.54
MONSANTO COMPANY (MON) 6.08
POTASH CP SASKATCHEW (POT) 8.82
SYNGENTA AG ADS (SYT) 7.8
MOSAIC COMPANY (THE) (MOS) 7.6
Wilmar (F34.SI) 5.67
Yara International (YAR) 4.72
These downgrades put pressure on the Market Vectors Agribusiness ETF (MOO) which holds top stakes in the two companies. The ETF (MOO) primarily invests in equity securities of U.S. and foreign companies primarily engaged in the business of agriculture. The ETF has enjoyed nice gains since its November 08 low.
We have included a list of the top holdings within the ETF:
TOP 10 HOLDINGS (MOO) ( 60.41% OF TOTAL ASSETS)
Company Symbol % Assets
ARCHER DANIELS MDLND (ADM) 5.78
DEERE CO (DE) 4.85
Komatsu Ltd. N/A 4.55
Kubota Corporation N/A 4.54
MONSANTO COMPANY (MON) 6.08
POTASH CP SASKATCHEW (POT) 8.82
SYNGENTA AG ADS (SYT) 7.8
MOSAIC COMPANY (THE) (MOS) 7.6
Wilmar (F34.SI) 5.67
Yara International (YAR) 4.72
Sunday, September 6, 2009
The tale of two grains
The price of corn is down, and it is all on supply news.
This spring, farmers put 87 million acres of corn in the ground, and even though planting was late (and, therefore, so was crop development), the current buzz is that it's going to be a bumper year.
As of the August 12 World Supply and Demand Estimates, the USDA is expecting 12.76 billion bushels of corn to be harvested this year, up from last year's 12.1 billion bushels. The jump comes both from the number of acres harvested (80 million this year, versus last year's 78.6 million) and projected yield increases (159.5 bushels/acre, compared with last year's 153.9). Of course, a successful harvest will depend on the weather staying warm and dry, but if it does, corn supplies are projected to hit a record 14.5 billion bushels.
All this means that there's plenty of corn to go around - probably more than needed, especially since the demand picture looks so dismal right now. Demand in the feed sector remains weak, and ethanol demand is questionable at best. Between tight credit and sub-$70 oil, the push for more ethanol is more of a nudge than a shove, unlike the days when oil was over $100 and credit was easy.
However, there is one question mark in the demand picture: high-fructose corn syrup. That compound, much maligned in "The Omnivore's Dilemma" and currently starring in a feel-good PR campaign by the Corn Refiners Association, is a cheap substitute for sugar. With sugar now over 23 cents a pound and possibly on its way higher, we could see new demand, as some food producers increasingly switch over to the lower-cost corn-based sweetener.
Soybeans have a different story, and it's as simple as ABC: Argentina, Brazil and China. But first, we need to start at home.
The U.S. soybean supply is at its lowest in five years, with beginning stocks sitting at 110 million bushels in July. Compare that with last year's 205 million bushels, or 2007/08's 574 million bushels, and you can understand why analysts call the market tight.
Adding to last year's supply problems, Argentina suffered a drought and had a dismal harvest for the 2008/09 crop year (ending in June). Only 32 million tons of soybeans were harvested - a 33% drop from the 2006/07 crop of 47.5 million tons. (Brazil also suffered lower soybean production due to drought, although it wasn't hit nearly as bad as Argentina.)
But planting season is coming - and Argentinian and Brazilian farmers have a couple of things going for them as they plant. First of all, soy is the cheapest crop to plant, as opposed to corn or wheat, and the credit crunch is still alive and well in the agricultural sector. Second, the rains are back. Weather forecasters expect El Nino to drop much-needed rain all over Argentina's growing regions by November, right in time for planting. Third, farmers in South America know that the less-than-exceptional U.S. harvest means that all eyes will turn to Argentina and Brazil for their soybean supply.
One country sure to be watching the U.S. harvest is China. Last May, China's demand for old crop soybeans made headlines, and there have been reports of sales for delivery in the 2009/10 marketing year that began on Tuesday. It won't stop here; analysts expect China will continue its usual pattern of stocking up on soybeans during price decreases.
This year, acres devoted to soybeans increased to 77.7 million. Even though crop development is a little slow compared with the five-year average - due to the late planting and unusual summer weather - production should be good. If the weather remains warm and dry while the beans finish developing and are harvested, yields are estimated to be 41.7 bushels/acre or 3.2 billion bushels - roughly 240 million bushels more than last year.
Betting On The Weather
These last few weeks of crop development and harvesting are heavily reliant on the weather. Good weather means high corn and soybean yields - but low prices. Bad weather means lower yields and difficulty drying out a wet harvest, but also the possibility of higher prices. No wonder all eyes are on The Weather Channel.
We've got farmers hoping for dry weather and no frost, so they can get their crops in - and at this point, the bigger, the better for them. Traders, on the other hand, are watching the weather reports as well - but for bad news. If you look at the charts, you can almost tell if traders are betting on frost or not, because at this point in the season, that's what moves the curve. As Chad Henderson from Prime Ag Consultants said about corn's performance last week:
"Everyone who bought last week was betting on a frost. We didn't get it."
As of Wednesday, the weather picture for the next few weeks seems in favor of a good harvest, which corn and soy prices reflected. As of 2:16 p.m. on Wednesday, December corn had dropped 2.25 cents to $3.17 a bushel on the day, and November soybeans dropped 3.2 cents to $9.522 a bushel.
Already Looking Ahead
This year's corn and soybean harvest isn't even complete yet, but that hasn't stopped farmers from planning what to plant next year. A recent survey by Farm Futures indicates that next year, farmers may move away from planting soybeans and plant more corn - even though the corn/soybean price ratio favors soybeans.
Of course, since much of this year's crop is still in the field, plans may change, especially as the market prices factor in the harvest. More than any other time of the year, this critical pre-harvest period is really just a bet on the weather.
This spring, farmers put 87 million acres of corn in the ground, and even though planting was late (and, therefore, so was crop development), the current buzz is that it's going to be a bumper year.
As of the August 12 World Supply and Demand Estimates, the USDA is expecting 12.76 billion bushels of corn to be harvested this year, up from last year's 12.1 billion bushels. The jump comes both from the number of acres harvested (80 million this year, versus last year's 78.6 million) and projected yield increases (159.5 bushels/acre, compared with last year's 153.9). Of course, a successful harvest will depend on the weather staying warm and dry, but if it does, corn supplies are projected to hit a record 14.5 billion bushels.
All this means that there's plenty of corn to go around - probably more than needed, especially since the demand picture looks so dismal right now. Demand in the feed sector remains weak, and ethanol demand is questionable at best. Between tight credit and sub-$70 oil, the push for more ethanol is more of a nudge than a shove, unlike the days when oil was over $100 and credit was easy.
However, there is one question mark in the demand picture: high-fructose corn syrup. That compound, much maligned in "The Omnivore's Dilemma" and currently starring in a feel-good PR campaign by the Corn Refiners Association, is a cheap substitute for sugar. With sugar now over 23 cents a pound and possibly on its way higher, we could see new demand, as some food producers increasingly switch over to the lower-cost corn-based sweetener.
Soybeans have a different story, and it's as simple as ABC: Argentina, Brazil and China. But first, we need to start at home.
The U.S. soybean supply is at its lowest in five years, with beginning stocks sitting at 110 million bushels in July. Compare that with last year's 205 million bushels, or 2007/08's 574 million bushels, and you can understand why analysts call the market tight.
Adding to last year's supply problems, Argentina suffered a drought and had a dismal harvest for the 2008/09 crop year (ending in June). Only 32 million tons of soybeans were harvested - a 33% drop from the 2006/07 crop of 47.5 million tons. (Brazil also suffered lower soybean production due to drought, although it wasn't hit nearly as bad as Argentina.)
But planting season is coming - and Argentinian and Brazilian farmers have a couple of things going for them as they plant. First of all, soy is the cheapest crop to plant, as opposed to corn or wheat, and the credit crunch is still alive and well in the agricultural sector. Second, the rains are back. Weather forecasters expect El Nino to drop much-needed rain all over Argentina's growing regions by November, right in time for planting. Third, farmers in South America know that the less-than-exceptional U.S. harvest means that all eyes will turn to Argentina and Brazil for their soybean supply.
One country sure to be watching the U.S. harvest is China. Last May, China's demand for old crop soybeans made headlines, and there have been reports of sales for delivery in the 2009/10 marketing year that began on Tuesday. It won't stop here; analysts expect China will continue its usual pattern of stocking up on soybeans during price decreases.
This year, acres devoted to soybeans increased to 77.7 million. Even though crop development is a little slow compared with the five-year average - due to the late planting and unusual summer weather - production should be good. If the weather remains warm and dry while the beans finish developing and are harvested, yields are estimated to be 41.7 bushels/acre or 3.2 billion bushels - roughly 240 million bushels more than last year.
Betting On The Weather
These last few weeks of crop development and harvesting are heavily reliant on the weather. Good weather means high corn and soybean yields - but low prices. Bad weather means lower yields and difficulty drying out a wet harvest, but also the possibility of higher prices. No wonder all eyes are on The Weather Channel.
We've got farmers hoping for dry weather and no frost, so they can get their crops in - and at this point, the bigger, the better for them. Traders, on the other hand, are watching the weather reports as well - but for bad news. If you look at the charts, you can almost tell if traders are betting on frost or not, because at this point in the season, that's what moves the curve. As Chad Henderson from Prime Ag Consultants said about corn's performance last week:
"Everyone who bought last week was betting on a frost. We didn't get it."
As of Wednesday, the weather picture for the next few weeks seems in favor of a good harvest, which corn and soy prices reflected. As of 2:16 p.m. on Wednesday, December corn had dropped 2.25 cents to $3.17 a bushel on the day, and November soybeans dropped 3.2 cents to $9.522 a bushel.
Already Looking Ahead
This year's corn and soybean harvest isn't even complete yet, but that hasn't stopped farmers from planning what to plant next year. A recent survey by Farm Futures indicates that next year, farmers may move away from planting soybeans and plant more corn - even though the corn/soybean price ratio favors soybeans.
Of course, since much of this year's crop is still in the field, plans may change, especially as the market prices factor in the harvest. More than any other time of the year, this critical pre-harvest period is really just a bet on the weather.
Friday, September 4, 2009
Burned By Morgan Stanley, Potash & More
They looked like hot stocks. So how are the traders playing Morgan Stanley, Potash and more now that they’ve been burned?
Steve Grasso
On July 20th the Governor thought a move higher in the casino space was nothing but a losing bet. At the time he said, “Hold back on MGM , LVS and other casino stocks purely on technical basis. I think you've got to hold back on the casino names."
As it turns out Lady Luck was not smiling on this trade. Over the last month shares of MGM are about 7% higher while Las Vegas Sands soared nearly 40%. What does Grasso have to say for himself?
We've seen a nice rally in almost every stock since that time, he says. I'd still stay away from casinos.
Joe Terranova
On August 6th The Liquidator turned bullish on a bank. “If you look at Morgan Stanley , the trade has been to buy every dip this year. Why? Because the stock moves higher on every dip subsequent to when the bad news comes out,” he said.
Unfortunately this trade left Terranova weeping all the way to the bank. Since his call shares of Morgan have plunged 10%. So what does he have to say for himself?
Morgan is having trouble at $30, but I still like it, says Terranova.
Tim Seymour
On August 19th The Ambassador thought a fertilizer company was well positioned for growth “A company like Potash ,” he said. “They've got this new paradigm where the price of their underlying commodity triples or quadruples.”
As it turns out this fertilizer trade was anything but fertile. Since he said to get long shares of Potash are down about 7%. So what does he have to say for himself?
I'm sticking with this trade, says Seymour. I still believe in it.
In case you're wondering, Guy Adami gets a pass this week.
______________________________________________________
Steve Grasso
On July 20th the Governor thought a move higher in the casino space was nothing but a losing bet. At the time he said, “Hold back on MGM , LVS and other casino stocks purely on technical basis. I think you've got to hold back on the casino names."
As it turns out Lady Luck was not smiling on this trade. Over the last month shares of MGM are about 7% higher while Las Vegas Sands soared nearly 40%. What does Grasso have to say for himself?
We've seen a nice rally in almost every stock since that time, he says. I'd still stay away from casinos.
Joe Terranova
On August 6th The Liquidator turned bullish on a bank. “If you look at Morgan Stanley , the trade has been to buy every dip this year. Why? Because the stock moves higher on every dip subsequent to when the bad news comes out,” he said.
Unfortunately this trade left Terranova weeping all the way to the bank. Since his call shares of Morgan have plunged 10%. So what does he have to say for himself?
Morgan is having trouble at $30, but I still like it, says Terranova.
Tim Seymour
On August 19th The Ambassador thought a fertilizer company was well positioned for growth “A company like Potash ,” he said. “They've got this new paradigm where the price of their underlying commodity triples or quadruples.”
As it turns out this fertilizer trade was anything but fertile. Since he said to get long shares of Potash are down about 7%. So what does he have to say for himself?
I'm sticking with this trade, says Seymour. I still believe in it.
In case you're wondering, Guy Adami gets a pass this week.
______________________________________________________
Thursday, September 3, 2009
Mosaic Takeover Speculation Heating Up Again
The rumor mill is centered on Mosaic (MOS) again, as there is renewed interest in a possible takeover bid. In mid-July when we first wrote about this topic (Mosaic’s Potash Attracts Vale’s Eye), the rumors originated in a Brazilian newspaper that mining giant Vale SA (VALE) was looking to diversify into potash mines. There was also a side note, that BHP Billiton could potentially have an interest as well. After that double-digit rally in July, a spokesperson from Vale dismissed the possibility of a deal because of concerns it might strain relationships with the government, also saying that they would prefer to grow organically for the time being.
Wednesday, Mosaic is up about 2% even as the rest of the market is selling off. Options trading on Mosaic has been exceedingly bullish today as well with the September $60 calls accounting for about a third of contracts sold.
“Trading in Mosaic Co. options jumped to a six-week high on renewed speculation that North America’s second-largest potash producer will be acquired. The shares climbed as much as 4.8 percent, halting a seven-day retreat.
Volume in bullish call options rose to 92,419, more than quadruple the four-week average and six times the number of puts. Calls give the right to buy a security for a certain amount, the strike price, by a given date. Puts convey the right to sell. The stock gained 1.7 percent to $49.29 at 1 p.m. New York time, after losing 11 percent since Aug. 20.
The most-active contracts were September $60 calls, which more than doubled to $1.25 and accounted for more than a third of today’s trading. A buyer at that price is betting that the stock rises to at least $61.25 before the options expire Sept. 18. The stock hasn’t closed above $60 in 11 months.”– from Bloomberg.com
The Bloomberg article makes the case that the options activity and strength of the stock today is based solely on renewed takeover speculation. If that is the case, with Vale on the sidelines, the likely suitor would by BHP Billiton. At this point neither BHP nor Cargill (majority owner of Mosaic) have confirmed that talks have taken place. However, there is one other possible explanation, Potash’s (POT) CEO Norbert Steiner told Reuters that prices for potash fertilizer are likely “bottoming out”. This would likely give a boost to all potash firms, but Mosaic seems to be getting a particular bounce above the rest.
At this time we are reaffirming our Undervalued rating for Mosaic, and even though lower potash prices have eroded profitability the company still has a bright future. We reject the idea of investing on the basis of rumors, but we believe it is priced attractively so as to attract interest from bidders.
Wednesday, Mosaic is up about 2% even as the rest of the market is selling off. Options trading on Mosaic has been exceedingly bullish today as well with the September $60 calls accounting for about a third of contracts sold.
“Trading in Mosaic Co. options jumped to a six-week high on renewed speculation that North America’s second-largest potash producer will be acquired. The shares climbed as much as 4.8 percent, halting a seven-day retreat.
Volume in bullish call options rose to 92,419, more than quadruple the four-week average and six times the number of puts. Calls give the right to buy a security for a certain amount, the strike price, by a given date. Puts convey the right to sell. The stock gained 1.7 percent to $49.29 at 1 p.m. New York time, after losing 11 percent since Aug. 20.
The most-active contracts were September $60 calls, which more than doubled to $1.25 and accounted for more than a third of today’s trading. A buyer at that price is betting that the stock rises to at least $61.25 before the options expire Sept. 18. The stock hasn’t closed above $60 in 11 months.”– from Bloomberg.com
The Bloomberg article makes the case that the options activity and strength of the stock today is based solely on renewed takeover speculation. If that is the case, with Vale on the sidelines, the likely suitor would by BHP Billiton. At this point neither BHP nor Cargill (majority owner of Mosaic) have confirmed that talks have taken place. However, there is one other possible explanation, Potash’s (POT) CEO Norbert Steiner told Reuters that prices for potash fertilizer are likely “bottoming out”. This would likely give a boost to all potash firms, but Mosaic seems to be getting a particular bounce above the rest.
At this time we are reaffirming our Undervalued rating for Mosaic, and even though lower potash prices have eroded profitability the company still has a bright future. We reject the idea of investing on the basis of rumors, but we believe it is priced attractively so as to attract interest from bidders.
Wednesday, September 2, 2009
Tuesday, September 1, 2009
Today in Commodities: The End Is Beginning
Really it is just the beginning of September, but historically the next two months are not kind to equity markets. Will this year be different? VIX spike and talk of bank failures… I think I would rather be on the sidelines than in a market that has bounced 50% while the circumstances have not justified that type of move, but maybe that is just me. Equities hit today; on this leg we target 975 in the S&P and 9075 in the Dow.
US dollar up 60 ticks now above the 20 day moving average and the Aussie down 160 ticks now below the 20 day moving average. RBA holds at 3.0%. See previous posts.
Oil broke the short term trendline, a trade below $68 should mean a trade lower. This bodes well for the Crude : natural gas ratio but not so good for the recent December $75/80 call spreads purchased for clients. Stay tuned. In natural gas we advised clients to buy back their November $6.50 call spreads today for $300 and to hold the $5.50 calls. Clients are down on the trade, expiration 44 days from today.
Silver and gold traded remarkably well considering all outside markets. We suggest long exposure in silver.
Sugar pared its losses closing down only 15-23 ticks. We still like being long March 10′ contracts. Agriculture puked today with a lot of red on the screen. We had already cut losses on the soybean spread from last week but today was a nail biter for those who stayed with it, as new crop gained 58′4 cents or $2920 on old crop (zsx9-zsu9). We feel a early frost scare is worth having light long exposure in grains, to date we’ve been wrong. Take profit on your October lean hogs but stay with the December for more upside. We advised clients to roll their long December live cattle/ short October live cattle into a long in February and to stay short October. With October being the front month we feel this spread will work better.
US dollar up 60 ticks now above the 20 day moving average and the Aussie down 160 ticks now below the 20 day moving average. RBA holds at 3.0%. See previous posts.
Oil broke the short term trendline, a trade below $68 should mean a trade lower. This bodes well for the Crude : natural gas ratio but not so good for the recent December $75/80 call spreads purchased for clients. Stay tuned. In natural gas we advised clients to buy back their November $6.50 call spreads today for $300 and to hold the $5.50 calls. Clients are down on the trade, expiration 44 days from today.
Silver and gold traded remarkably well considering all outside markets. We suggest long exposure in silver.
Sugar pared its losses closing down only 15-23 ticks. We still like being long March 10′ contracts. Agriculture puked today with a lot of red on the screen. We had already cut losses on the soybean spread from last week but today was a nail biter for those who stayed with it, as new crop gained 58′4 cents or $2920 on old crop (zsx9-zsu9). We feel a early frost scare is worth having light long exposure in grains, to date we’ve been wrong. Take profit on your October lean hogs but stay with the December for more upside. We advised clients to roll their long December live cattle/ short October live cattle into a long in February and to stay short October. With October being the front month we feel this spread will work better.
CF Industries Files Lawsuit
Deerfield-based CF Industries Holdings Inc. (NYSE: CF - News) filed a lawsuit against Terra Industries Inc. (NYSE: TRA - News) to force the company to convene a shareholder meeting for a business combination being pushed by CF.
Fertilizer maker Terra responded that its board has decided to hold an annual meeting on Nov. 19. The company had postponed the meeting when larger rival CF Industries launched an unsolicited bid in April this year. In its statement, CF noted that Terra's last annual general meeting (AGM) was held nearly 16 months ago and according to law, AGMs must be held on an annual basis.
Terra repeatedly rebuffed CF’s takeover bid stating that the offer substantially undervalues the company. CF’s all-stock offer for Terra Industries has expired and the company does not plan to extend the offer because of opposition from Terra's board. However, CF stated that it continues to pursue Terra.
CF is offering a 35% premium in an all-stock takeover bid. The company raised its offer this month to 0.465 shares of CF for each share of Terra, which makes and sells nitrogen products. In January, CF had made an offer valued at around $2.1 billion, raising it in March to about $2.2 billion.
CF is a holding company for CF Industries, which sells nitrogen and phosphate fertilizers. CF is itself fending off a hostile bid from larger Canadian rival Agrium Inc. (NYSE: AGU - News). CF maintains that Agrium's offer undervalues the company. CF also believes that Agrium intends to distract its hostile takeover bid for Terra.
Fertilizer maker Terra responded that its board has decided to hold an annual meeting on Nov. 19. The company had postponed the meeting when larger rival CF Industries launched an unsolicited bid in April this year. In its statement, CF noted that Terra's last annual general meeting (AGM) was held nearly 16 months ago and according to law, AGMs must be held on an annual basis.
Terra repeatedly rebuffed CF’s takeover bid stating that the offer substantially undervalues the company. CF’s all-stock offer for Terra Industries has expired and the company does not plan to extend the offer because of opposition from Terra's board. However, CF stated that it continues to pursue Terra.
CF is offering a 35% premium in an all-stock takeover bid. The company raised its offer this month to 0.465 shares of CF for each share of Terra, which makes and sells nitrogen products. In January, CF had made an offer valued at around $2.1 billion, raising it in March to about $2.2 billion.
CF is a holding company for CF Industries, which sells nitrogen and phosphate fertilizers. CF is itself fending off a hostile bid from larger Canadian rival Agrium Inc. (NYSE: AGU - News). CF maintains that Agrium's offer undervalues the company. CF also believes that Agrium intends to distract its hostile takeover bid for Terra.
Saturday, August 29, 2009
Analyst downgrades Mosaic
Analysts at UBS Investment Research on Friday downgraded its rating for The Mosaic Co. from buy to neutral, citing the rising stock price and more modest expectations for a rebound in potash demand.
New York-based UBS also cut its price target for Plymouth-based Mosaic (NYSE: MOS) to $53 per share, down from $55. The fertilizer producer’s stock closed at $51.38 on Thursday.
Analysts Don Carson and David Silver now project earnings of $3 per share for full-year fiscal 2010, down from its previous estimate of $3.15. They also reduced their full-year 2011 earnings forecast to $4.30 per share from $4.45.
In a research report, the analysts said potash supply “remains plentiful at the producer level, but we detect few signs of upward movement in potash prices in any major markets.”
They expect prices to remain stable for the next several quarters, while volume starts to recovery. “A return to meaningful producer pricing power appears at least one to two years away.”
UBS also downgraded one of Mosaic’s leading competitors, Saskatoon, Saskatchewan-based Potash Corp. of Saskatchewan Inc. (NYSE: POT), from buy to neutral.
New York-based UBS also cut its price target for Plymouth-based Mosaic (NYSE: MOS) to $53 per share, down from $55. The fertilizer producer’s stock closed at $51.38 on Thursday.
Analysts Don Carson and David Silver now project earnings of $3 per share for full-year fiscal 2010, down from its previous estimate of $3.15. They also reduced their full-year 2011 earnings forecast to $4.30 per share from $4.45.
In a research report, the analysts said potash supply “remains plentiful at the producer level, but we detect few signs of upward movement in potash prices in any major markets.”
They expect prices to remain stable for the next several quarters, while volume starts to recovery. “A return to meaningful producer pricing power appears at least one to two years away.”
UBS also downgraded one of Mosaic’s leading competitors, Saskatoon, Saskatchewan-based Potash Corp. of Saskatchewan Inc. (NYSE: POT), from buy to neutral.
Sector Snap: Fertilizer cos. drop on farmer woes
NEW YORK (AP) -- A near-record corn crop is going to cut demand for fertilizers, said a UBS analyst Friday as he downgraded two fertilizer companies, just as the government sees U.S. farmers' incomes dropping.
Related Quotes
Symbol Price Change
ADM 28.62 +0.41
AGU 48.37 +0.61
BG 68.75 +0.16
CF 82.12 -0.06
IPI 24.70 -0.17
The Agriculture Department said Thursday that farmers' net income will drop 38 percent to $54 billion this year from 2008. That's $9 billion below the average net farm income over the past 10 years.
Dropping incomes mean farmers will have less money to spend on fertilizers.
Moreover, the U.S. government expects a record soybean crop this year and the second-biggest corn crop ever -- despite a 30-35 percent decline in shipments of potash, a key fertilizer, according to UBS analyst Don Carson.
"This makes us less confident of a complete recovery in potash consumption," he said in a research note. Potash prices have also stabilized at lower levels after India made a major purchase at $460/tonne in early July and Brazil spot sales were $525/tonne. At the time of the India buy, spot prices were between $700 and $750 per tonne. Carson doesn't expect prices to head back up soon.
He downgraded Mosaic Co. and Potash Corp. of Saskatchewan Inc. to "Neutral" from "Buy."
Mosaic shares fell $1.84, or 3.6 percent, to $49.54, while Potash dropped $2.02, or 2.1 percent, to $90.60. Other fertilizer companies were also lower. Agrium Inc. slipped 31 cents to $47.45; CF Industries Holdings fell $1.11 to $81.07; Intrepid Potash Inc. declined 40 cents to $24.47; and Terra Industries Inc. fell 41 cents to $32.66.
Other agribusiness companies were mixed. Crop producer and biofuel maker Archer Daniels Midland Co. rose 54 cents to $28.75, while Monsanto Co., the world's biggest seed company, dropped $1.82 to $82.80. Bunge Ltd., which has fertilizer, seed and consumer foods units, dipped 6 cents to $68.53.
Related Quotes
Symbol Price Change
ADM 28.62 +0.41
AGU 48.37 +0.61
BG 68.75 +0.16
CF 82.12 -0.06
IPI 24.70 -0.17
The Agriculture Department said Thursday that farmers' net income will drop 38 percent to $54 billion this year from 2008. That's $9 billion below the average net farm income over the past 10 years.
Dropping incomes mean farmers will have less money to spend on fertilizers.
Moreover, the U.S. government expects a record soybean crop this year and the second-biggest corn crop ever -- despite a 30-35 percent decline in shipments of potash, a key fertilizer, according to UBS analyst Don Carson.
"This makes us less confident of a complete recovery in potash consumption," he said in a research note. Potash prices have also stabilized at lower levels after India made a major purchase at $460/tonne in early July and Brazil spot sales were $525/tonne. At the time of the India buy, spot prices were between $700 and $750 per tonne. Carson doesn't expect prices to head back up soon.
He downgraded Mosaic Co. and Potash Corp. of Saskatchewan Inc. to "Neutral" from "Buy."
Mosaic shares fell $1.84, or 3.6 percent, to $49.54, while Potash dropped $2.02, or 2.1 percent, to $90.60. Other fertilizer companies were also lower. Agrium Inc. slipped 31 cents to $47.45; CF Industries Holdings fell $1.11 to $81.07; Intrepid Potash Inc. declined 40 cents to $24.47; and Terra Industries Inc. fell 41 cents to $32.66.
Other agribusiness companies were mixed. Crop producer and biofuel maker Archer Daniels Midland Co. rose 54 cents to $28.75, while Monsanto Co., the world's biggest seed company, dropped $1.82 to $82.80. Bunge Ltd., which has fertilizer, seed and consumer foods units, dipped 6 cents to $68.53.
Monday, August 24, 2009
Buy Puts for Potash
BUY LOW AND SELL HIGH is the most basic investment advice, and yet most people have a hard time following it.
When stock prices are high, investors like to chase stocks higher, paying top dollar for what they perceive as an opportunity to make top dollar on a high-flying stock.
When prices are falling, investors have a hard time admitting that the stock they thought was a high-flyer is now a dud. Few investors have the discipline to admit a mistake and lock in a loss by selling.
But here's an opportunity for investors comfortable with options trading to use the tricks of the pros. Barclay's Capital told clients this morning that shares of Potash (POT) are richly valued compared to agricultural commodity prices as well as to potash, a type of salt that is used as fertilizer to improve water retention and crop yields.
Venu Krishna, a Barclay's derivatives strategist, recommends shorting Potash stock, or buying puts on the stock. The firm likes December 90 puts.
The stock was recently about $98, up more than 100% from its 52-week low of $47.54.
At the same time -- and this part of the trade is best left alone if you don't identify yourself as a trader on your tax returns - - pairing the trade with a ratio of long soybean futures and Standard & Poor's 500 Index.
The layered trade is so complicated and capital intensive that it can be completed by only a few people on Wall Street. We mention the trade in its entirety only to reveal the institutional footprints in the market.
According to Barclay's, potash, the commodity, is expensive based on its historical relationship with corn and soybean prices, and also to its peers. Meanwhile, July potash inventories were 127% higher than the five year average.
"Due to its higher cost, potash demand is suffering much more than other fertilizers as farmers try to reduce cost," Krishna said.
Major emerging markets, including India and China, negotiate fertilizer prices. India got a 26% price cut from Potash in July. India will pay $460 a ton for its annual potash needs, compared to $600 a ton in the previous year. India negotiated its rate when the spot price was $700.
China is currently having discussions with major producers. Traders will find it hard to ignore prices that are so much lower than in the commodities market.
Despite this overhang, Krishna says Potash trades at a 16.5 multiple of forward enterprise value/EBITDA, or earnings before interest taxes depreciation and amortization, compared with about 10 for its peers...barrons online
When stock prices are high, investors like to chase stocks higher, paying top dollar for what they perceive as an opportunity to make top dollar on a high-flying stock.
When prices are falling, investors have a hard time admitting that the stock they thought was a high-flyer is now a dud. Few investors have the discipline to admit a mistake and lock in a loss by selling.
But here's an opportunity for investors comfortable with options trading to use the tricks of the pros. Barclay's Capital told clients this morning that shares of Potash (POT) are richly valued compared to agricultural commodity prices as well as to potash, a type of salt that is used as fertilizer to improve water retention and crop yields.
Venu Krishna, a Barclay's derivatives strategist, recommends shorting Potash stock, or buying puts on the stock. The firm likes December 90 puts.
The stock was recently about $98, up more than 100% from its 52-week low of $47.54.
At the same time -- and this part of the trade is best left alone if you don't identify yourself as a trader on your tax returns - - pairing the trade with a ratio of long soybean futures and Standard & Poor's 500 Index.
The layered trade is so complicated and capital intensive that it can be completed by only a few people on Wall Street. We mention the trade in its entirety only to reveal the institutional footprints in the market.
According to Barclay's, potash, the commodity, is expensive based on its historical relationship with corn and soybean prices, and also to its peers. Meanwhile, July potash inventories were 127% higher than the five year average.
"Due to its higher cost, potash demand is suffering much more than other fertilizers as farmers try to reduce cost," Krishna said.
Major emerging markets, including India and China, negotiate fertilizer prices. India got a 26% price cut from Potash in July. India will pay $460 a ton for its annual potash needs, compared to $600 a ton in the previous year. India negotiated its rate when the spot price was $700.
China is currently having discussions with major producers. Traders will find it hard to ignore prices that are so much lower than in the commodities market.
Despite this overhang, Krishna says Potash trades at a 16.5 multiple of forward enterprise value/EBITDA, or earnings before interest taxes depreciation and amortization, compared with about 10 for its peers...barrons online
CF Extends Terra Deadline
CF Industries Holdings (NYSE: CF - News) announced today that it has extended the expiration date of its exchange offer for all of the outstanding shares of Terra Industries (NYSE: TRA - News) common stock until Aug. 31. The offer was scheduled to expire at 5:00 p.m. Eastern time on Aug. 21.
Since January this year, the Illinois-based fertilizer company has been wooing its Iowa-based rival Terra in an all-stock deal for a total of $2.1 billion. Under the original proposal, each common share of Terra would have been entitled to receive 0.4235 shares of CF. However, Terra rejected the offer for the second consecutive time on Mar. 5, saying it undervalued the company.
In response, CF increased its offer price on March 9, to $2.77 billion based on $27.50 for each Terra share and again on March 23, to $3.07 billion based on $30.50 each by agreeing both times to an exchange ratio of not less than 0.4129 and not more than 0.4539 of each of CF’s share.
The third offer of $30.50 per Terra share was a premium of over 85% to Terra’s stock price before CF made the original offer on Jan. 15. Terra, however, again rejected CF’s offer the next day, citing the same reason of undervaluation.
In the beginning of August, CF sweetened the deal by raising the fixed exchange ratio to 0.465 shares of CF Industries for each Terra common share. This would bring about $1 billion in cash to shareholders of the combined company after the proposed deal closes. It would also distribute 5 million contingent future shares to CF stockholders. The contingent shares would be converted into CF stock if the stock trades at more than $115 per share over a certain period after the completion of the potential transaction.
As of Aug. 20, about 11.5 million shares of Terra common stock had been tendered into the exchange offer. CF anticipates the proposed bid to produce annual cost savings of $105 million–$135 million.
We recommend the shares of CF as Neutral.
Since January this year, the Illinois-based fertilizer company has been wooing its Iowa-based rival Terra in an all-stock deal for a total of $2.1 billion. Under the original proposal, each common share of Terra would have been entitled to receive 0.4235 shares of CF. However, Terra rejected the offer for the second consecutive time on Mar. 5, saying it undervalued the company.
In response, CF increased its offer price on March 9, to $2.77 billion based on $27.50 for each Terra share and again on March 23, to $3.07 billion based on $30.50 each by agreeing both times to an exchange ratio of not less than 0.4129 and not more than 0.4539 of each of CF’s share.
The third offer of $30.50 per Terra share was a premium of over 85% to Terra’s stock price before CF made the original offer on Jan. 15. Terra, however, again rejected CF’s offer the next day, citing the same reason of undervaluation.
In the beginning of August, CF sweetened the deal by raising the fixed exchange ratio to 0.465 shares of CF Industries for each Terra common share. This would bring about $1 billion in cash to shareholders of the combined company after the proposed deal closes. It would also distribute 5 million contingent future shares to CF stockholders. The contingent shares would be converted into CF stock if the stock trades at more than $115 per share over a certain period after the completion of the potential transaction.
As of Aug. 20, about 11.5 million shares of Terra common stock had been tendered into the exchange offer. CF anticipates the proposed bid to produce annual cost savings of $105 million–$135 million.
We recommend the shares of CF as Neutral.
Thursday, August 20, 2009
Monsanto Fights Back
There's mud getting slung down on the farm. Monsanto (NYSE: MON) and DuPont (NYSE: DD) have escalated their squabble over DuPont's license of Monsanto's Roundup Ready gene.
Monsanto gave DuPont a license to use the technology but doesn't want its competitor to combine the trait with a similar gene developed by DuPont. That's understandable, considering that the combined seed would likely result in crops superior to Roundup Ready alone. DuPont cried foul, claiming Monsanto has a monopoly. Monsanto went to court last May, but the war of words has just begun.
Monsanto's CEO Hugh Grant reportedly sent a letter to DuPont Chairman Charles Holliday Jr. this week characterizing DuPont's allegations that Monsanto has a monopoly as "misleading to the public and a serious breach of business ethics far beyond honest competitor behavior." Them's fightin' words.
Monsanto is upset that DuPont is supporting organizations that are attacking Monsanto. It's is kind of an easy target, and even some of my fellow Fools aren't too fond of the company.
I'm not convinced that Monsanto is to blame here, though. It's not like Monsanto isn't capable of getting along with its rivals. It's developing a new corn combining its traits with those of Dow Chemical (NYSE: DOW). Monsanto has also swapped licenses with Syngenta (NYSE: SYT) and has a deal with BASF to discover new traits.
It seems to me that the patent holder should be able to license -- or not -- the technology to whatever companies it wants and be able to limit the scope of those partnerships. No one seems to be complaining that Pfizer (NYSE: PFE) combined its Lipitor drug with a high blood pressure drug to make Caduet, but it hasn't licensed the blockbuster drug to any of its competitors that I know of..Brian Orelli
Monsanto gave DuPont a license to use the technology but doesn't want its competitor to combine the trait with a similar gene developed by DuPont. That's understandable, considering that the combined seed would likely result in crops superior to Roundup Ready alone. DuPont cried foul, claiming Monsanto has a monopoly. Monsanto went to court last May, but the war of words has just begun.
Monsanto's CEO Hugh Grant reportedly sent a letter to DuPont Chairman Charles Holliday Jr. this week characterizing DuPont's allegations that Monsanto has a monopoly as "misleading to the public and a serious breach of business ethics far beyond honest competitor behavior." Them's fightin' words.
Monsanto is upset that DuPont is supporting organizations that are attacking Monsanto. It's is kind of an easy target, and even some of my fellow Fools aren't too fond of the company.
I'm not convinced that Monsanto is to blame here, though. It's not like Monsanto isn't capable of getting along with its rivals. It's developing a new corn combining its traits with those of Dow Chemical (NYSE: DOW). Monsanto has also swapped licenses with Syngenta (NYSE: SYT) and has a deal with BASF to discover new traits.
It seems to me that the patent holder should be able to license -- or not -- the technology to whatever companies it wants and be able to limit the scope of those partnerships. No one seems to be complaining that Pfizer (NYSE: PFE) combined its Lipitor drug with a high blood pressure drug to make Caduet, but it hasn't licensed the blockbuster drug to any of its competitors that I know of..Brian Orelli
Wednesday, August 19, 2009
Deere outlook overshadows Q3 beat; shares fall
* Fiscal 3rd qtr better than expected
* Full-year forecast implies disappointing 4th qtr
* Shares down more than 3.5 pct (Recasts; adds details from conference call, updates shares)
By James B. Kelleher
CHICAGO, Aug 19 (Reuters) - Deere & Co (DE.N) warned on Wednesday that it would barely break even in the current quarter as continued weakness in its construction equipment business and sharp drops in overseas demand for farm equipment forced it to cut production by a third.
The news sent its shares down more than 3.5 percent.
The warning came as Deere reported a higher-than-expected third-quarter profit as better-than-expected performance in its core agriculture machinery business, as well as its in-house finance arm, helped to offset sluggish sales in construction and forestry equipment.
The world's largest maker of tractors and harvesters, which said it was taking "pretty significant shutdowns" during the quarter in anticipation of lower demand next year, reported a third-quarter profit of $420 million, or 99 cents a share, down from $575.2 million, or $1.32 a share, last year. Sales fell 24 percent to $5.89 billion.
Analysts, on average, had expected the company to report a profit of 56 cents per share on sales of $5.27 billion.
Analyst Eli Lustgarten of Longbow Research called the results "a clean beat," although 20 cents of the earnings came from nonoperating items, including a lower tax rate.
Moline, Illinois-based Deere reiterated its forecast for a full-year net profit of "approximately $1.1 billion."
Since Deere has already reported earnings of $1.1 billion for the first nine months of the year, the guidance implied a break-even or possibly even a marginally unprofitable fiscal fourth quarter.
"They're burying the fourth quarter with these production cuts," Lustgarten said. "And so their guidance is for a marginally break-even quarter."
During a conference call to discuss the earnings, Deere said the production cuts would result in one-third fewer production days during the quarter.
Because the fixed costs associated with those idled plants would not go away during the shutdowns, analysts warned, however, the company's actions were likely to pressure margins in the current quarter.
Analysts had expected Deere to report a fourth-quarter profit of 33 cents a share, according to Reuters Estimates.
Deere also cut its forecast for corn prices for the 2009-2010 crop year to $3.40 a bushel, down from a previous forecast of $3.80. That is up from its current price of about $3.12 a bushel, but down 59 percent from the record highs touched last summer.
Since farm equipment purchases are highly correlated with crop prices and the cash receipts they represent, that was likely to translate into less demand for the tractors and harvesters produced by Deere and its top rivals, Fiat Spa (FIA.MI) subsidiary CNH Global NV (CNH.N) and Agco Corp (AGCO.N).
With demand from farmers easing, that puts added pressure on Deere's construction and forestry unit, which competes with Caterpillar Inc (CAT.N), Komatsu Ltd (6301.T) and Terex Corp (TEX.N) and has seen demand drop sharply as a result of the worldwide downturn in building.
Deere shares were down about 3.7 percent, or $1.72, at $43.37 in late morning New York Stock Exchange trading. (
* Full-year forecast implies disappointing 4th qtr
* Shares down more than 3.5 pct (Recasts; adds details from conference call, updates shares)
By James B. Kelleher
CHICAGO, Aug 19 (Reuters) - Deere & Co (DE.N) warned on Wednesday that it would barely break even in the current quarter as continued weakness in its construction equipment business and sharp drops in overseas demand for farm equipment forced it to cut production by a third.
The news sent its shares down more than 3.5 percent.
The warning came as Deere reported a higher-than-expected third-quarter profit as better-than-expected performance in its core agriculture machinery business, as well as its in-house finance arm, helped to offset sluggish sales in construction and forestry equipment.
The world's largest maker of tractors and harvesters, which said it was taking "pretty significant shutdowns" during the quarter in anticipation of lower demand next year, reported a third-quarter profit of $420 million, or 99 cents a share, down from $575.2 million, or $1.32 a share, last year. Sales fell 24 percent to $5.89 billion.
Analysts, on average, had expected the company to report a profit of 56 cents per share on sales of $5.27 billion.
Analyst Eli Lustgarten of Longbow Research called the results "a clean beat," although 20 cents of the earnings came from nonoperating items, including a lower tax rate.
Moline, Illinois-based Deere reiterated its forecast for a full-year net profit of "approximately $1.1 billion."
Since Deere has already reported earnings of $1.1 billion for the first nine months of the year, the guidance implied a break-even or possibly even a marginally unprofitable fiscal fourth quarter.
"They're burying the fourth quarter with these production cuts," Lustgarten said. "And so their guidance is for a marginally break-even quarter."
During a conference call to discuss the earnings, Deere said the production cuts would result in one-third fewer production days during the quarter.
Because the fixed costs associated with those idled plants would not go away during the shutdowns, analysts warned, however, the company's actions were likely to pressure margins in the current quarter.
Analysts had expected Deere to report a fourth-quarter profit of 33 cents a share, according to Reuters Estimates.
Deere also cut its forecast for corn prices for the 2009-2010 crop year to $3.40 a bushel, down from a previous forecast of $3.80. That is up from its current price of about $3.12 a bushel, but down 59 percent from the record highs touched last summer.
Since farm equipment purchases are highly correlated with crop prices and the cash receipts they represent, that was likely to translate into less demand for the tractors and harvesters produced by Deere and its top rivals, Fiat Spa (FIA.MI) subsidiary CNH Global NV (CNH.N) and Agco Corp (AGCO.N).
With demand from farmers easing, that puts added pressure on Deere's construction and forestry unit, which competes with Caterpillar Inc (CAT.N), Komatsu Ltd (6301.T) and Terex Corp (TEX.N) and has seen demand drop sharply as a result of the worldwide downturn in building.
Deere shares were down about 3.7 percent, or $1.72, at $43.37 in late morning New York Stock Exchange trading. (
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