Click chart to enlargeAbove is a chart of POT. In case you're wondering, its current price is 193.8701, lol.
If you were buying 200 billion shares, that .0001 might matter. At any rate, this post is primarily in response to someone's question about POT going sideways through the bottom of its channel. POT got so far ahead of itself, that it isn't in danger of falling to the bottom of its channel. The stocks that sell off the least when the market goes down are the ones that go up the most when the market eventually turns higher. It's called relative strength, and is the single most important quality a stock can have. If there were only one bit of publicly available information you could have upon which to base a stock purchase, relative strength would be the one to choose. Relative strength immediately tells you whether or not smart money is accumulating or distributing.
POT fits the criteria for a model stock. Barring any major problem with commodities, this is a stock you want to be buying on dips, particulary if you can hold onto it for 6 months or more.
Considering the state of the market, POT is holding up extremely well. Rather than look at how much it's fallen from its highs, look at its price from two months ago. It traded at 136 in March. Here we are, two months later, at 193. It would be nice to get it back at the bottom of the channel at 170, but we'll be adding little by little ahead of that milestone.
12 comments:
Short comment on your interesting discussion about fire wood and on ags: It's not always only real demand, that pulls prices up. Unfortunately, it's difficult to measure, how much the financial industry is attributing to the price run - for example, for heating oil or fertilizers.
Metals, ags, oil, gold - beware of the bubble:
"In fact, the mutual fund industry has rolled out 52 new exchange traded funds that invest in diversified commodities, energy or precious metals in the past 12 months, according to industry tracker Morningstar.
That's rarely a good sign: Fund companies are notorious for rolling out many sector funds at the top of a bubble. By the time fund companies identify a trend, put together a fund and get approval from the Securities and Exchange Commission to sell shares, the trend is often on its last legs. For example, the fund industry rolled out dozens of new Internet and technology funds in 1999 — just before the tech bubble collapsed."
This is the complete article:
http://www.usatoday.com/money/markets/2008-05-21-commodities-bubble-2_N.htm?csp=N008
newfrankyboy
You have a following on our trading floor now:)...Snot has entered Smith Barney!
LOL
Appreciate the warning on a potential ag bubble. A question though. How do ag stocks compare with dot.com stocks in 1999 in parallels such as P/E? Isn't there a huge difference? Weren't most dot.com stocks that crashed P/E of 100 to 200 while ag stocks are more like 19 or 20, the P/E of MOO?
Lets not forget that dot.com stocks were in large part bogus to begin with. They were all brand new companies that had never realy sold anything. Remember the sock puppet?? Those companies had never made a dime. They were concepts with a business plan. They were not huge mineral mines or John Deere,,,,,,,you can not compare the two. IMHO
I completely agree: There is substance behind the commodities and the ags.
But there is also substance behind the solars - that is a longterm megatrend. Nevertheless, the solars corrected strongly in January.
What the article points to, are the mechanisms of the finance market. Yes, there is huge demand for commodities everywhere in the world. Especially the BRIC-states consume more and more.
But: How much is just fake demand from the financial industry (futures trading)? Plus, if all these mentioned funds stack ag-stocks, they pull up the share price. That's worth remembering.
newfrankyboy
The fertilizer cartel is alive and kicking.
From the Wall Street Journal:
<< In the U.S., Potash Corp. and Mosaic are the sole surviving members of a phosphate export cartel called the Phosphate Chemicals Association. Under a 90-year-old law designed to promote American exports, the companies are allowed to legally market and sell their product overseas as a single entity at a price set in consultation with one another. Similarly, Canada has Canpotex, and Russia has Belarus Potash Co., another export cartel. >>
You can add German Kali & Salz and Israeli Chemical to that group. Together with America, Canada and Russia, this is a pretty strong oligopoly. Who should pressure them to lower prices?
Here is the full article:
http://online.wsj.com/article/SB121184502828121269.html?mod=hpp_us_whats_news
newfrankyboy
Speaking of products that fall into the agricultural group, What's going on with the price of grass seed, and the companies who produce and market it? I went to get some awhile back, and it seemed the prices were astronomical. Maybe it's just me and the fact it had been a few years since I bought any. But it seems the cost of everything agricultural is shooting upward. The garden plants (vegetable) I bought this year seemed awfully expensive as well.
I'm really glad I got into composting a few years back, and am not spending any money on fertilizer these days, since it's starting to be priced as a luxury item.
Ohhhh, on the wood - we got our first couple of loads over the weekend, and have begun splitting it. It's going great so far! Already have more lined up too. Woodheat.org is such a great sight. I've had a real education this past week.
Snot,
do you think MOS broke its uptrend channel? On the last run-up it did not get up to previous high and now it penetrate way below its 50 SMA. Rather different from POT.
I am interested in your opinion on it (and overall ag sector).
Andy
I'm guessing that MOS is benefitting less from the weak dollar, compared to POT.
Here is a post from a long on the POT Yahoo message board. Sentiment is pretty divided on which way POT will go. What do people think of his arguments based on fundamentals?
80% earnings growth this year. 30% growth projected for next year. These projections are on the old-side -- do not include impact of major price increases. If we make $10/share this year (easy), the stock is trading at 18x forward earnings. Stats from most recent quarter (per Yahoo) reveal exceptional growth and profitability.
Profit Margin (ttm): 26.86%
Operating Margin (ttm): 35.95%
Return on Assets (ttm): 13.72%
Return on Equity (ttm): 28.47%
Qtrly Revenue Growth (yoy): 68.50%
Qtrly Earnings Growth (yoy): 185.90%
Overall, a superior investment opportunity....
A following at Smith Barney... awesome! Did some buying today. Not calling a bottom, but definitely a good time to start layering into the Ag names.
I am getting a pretty clear signal that POT is going to head lower over the next few days. My target is 179. I bought at 196, 192, and 188, and had enough set aside to average down further if it kept falling. But now I am thinking it may be best to sell out completely and try to catch it at 180.
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