Click chart to enlarge The chart above shows a chart moving from Stage 1 (sideways consolidation at the bottom, to Stage 2 (uptrend). It's a chart of CF Industries. Although this is exactly what the breakout marking the end of Stage 1 would typically look like, this may not be one of those times. Agrium placed a hostile takeover bid for CF Industries, causing the stock to spike.
Either way, it's still important to note that the fertilizer stocks are faring better than the broader market (demonstrating excellent relative strength). The takeover attempt is yet another healthy sign for the sector. First, it tells us that AGU has quite a bit of cash. Not bad, given the times. Second, it tells us that insiders see value in their competitor's stock price. What better vote of confidence than a vote from insiders themselves about what their stocks are worth? We normally only find out what the insiders knew after it's too late. Their vote to attempt to buy a fertilizer stock at this time suggests that they are fairly valued factoring in every metric including whatever corruption only insiders are typically privvy to. It's an inside peek into the health of these companies, both for CF and AGU.
26 comments:
Based on your recommendation to avoid single stocks in this economy, would MOO be a better choice here, then? It contains DE and others, which are not in as good a shape as the fertilizers. Is there another ETF of just ferts? The top ten holdings of MOO comprising 66% are as follows, for everyone's convenience:
ARCHER DANIELS MDLND ADM 9.2
BUNGE LTD BG 3.96
DEERE CO DE 7.43
IOI N/A 4.23
Komatsu Ltd. N/A 5.16
MONSANTO COMPANY MON 9.43
POTASH CP SASKATCHEW POT 4.9
SYNGENTA AG ADS SYT 10.26
MOSAIC COMPANY (THE) MOS 4.62
Wilmar F34.SI 7.26
A chart of MOO:
MOO
Joe
AGU is down and CF is up. Why?
Snot is bullish on Ferts? I thought they were going to $0?
Because ferts are commodities. With the trillions dollars printed out of thin air coming onshore, the value of the dollar will be trimmed considerably, hence the take-off of the ferts, oil and most of the commodities.
JMO
He said they were going to zero because they were stage 4. Now is saying they are pulling out of stage 4. Get the picture? Maybe in a few months time it will be happy days again riding the sine wave of the POT and MOS channel.
Based on Stan Weinstein's book CF is not yet in stage 2, because the stock's price is under the _declining_ 150/200SMA.
By the way in a bear market noone should go long on any stock instead short.
Sniff, sniff. What is that I smell? Oh, it is my portfolio. Man, it really stinks.
A Few Points
1. I really like your blog. Excellent insight. I agree on the fertilizer strength, and learned quite a bit from your assertion earlier regarding MOS as it broke its trend line this year that stocks are intrinsically worth almost zero. There is some value in dividends and recoverable book but the rest is all about people's belief that price will go up
2. Gary the Chimp: maybe give him stop losses to prevent large losses on trend reversals?
3. The market
Take a look at stocks vs gold... and you will see the market DID peak in 2000... if you exclude the credit expansion bubble/housing sink.
However, I do not think this is a consolidation phase... we never saw a 50% drop in one year in the past... that being said no markets go straight down...
In the past consolidation I mean
How much more damage needs to be meted out before the Obama administration gets the message that the market needs the f*$%ing bank bailout details?!?!? If Geithner doesn't get his head out of the sand (or wherever it really is) next week the DOW could see a closing number starting with a "5" exactly 168 hours from now.
Joe
I'll try to take a stab at answering your question. First, I wouldn't go long on any stock out there, period. I think we are in a period where stock fundamentals don't matter much compared to the macro factors surrounding everything. The tide will raise or lower all ships. Stock price is, in the end, nothing more than perceived value. Second, using the notion that since people have to eat, buying ag related would be a good bet, I think there are some caveats. I manage a farm of a couple hundred acres arable. For the past couple of years I have initiated a progressive strategy of using less fertilizer, no pesticides/herbicides with the goal of being free of all chemical substances in two more years. The only substance I'll use will be lime. Many farmers are going this route. This trend of commercial organic farming is gaining traction, and, I believe, will continue at an accellerated rate. You may want to factor that into your decision tree. Third, after observing what the Obama admin. is offering, I think we are headed for a very serious downturn ahead. This is not the forum to nit-pick geopolitical policy, so I'll just leave it at that. Face it, most Americans are bankrupt, or nearly so, and the gov. is surely bankrupt, and must borrow massively to stay afloat. We used to think the day of reckoning would come with our grandkids, but I think the timetable has been moved forward to the very near future. My own personal trading strategy will continue to be to short the market in narrow time frames.
Disclosure: Have purchased tons and tons of fertilizer over many years. Bought a Kubota tractor in April '08 to replace an old Ford. Owned DE for much of '08, along with POT, MOS.
Anon 1,
sb is right, avoid individual stocks in a bear market. MOO is a better option, but even there, you have to be careful. These stocks have done a great job of holding their value over the past few months, which hopefully is a sign that investors are starting to see value in some places. But that can all change with one bad earnings report. The fert sector can be rocked by one unexpected report, much like what happened to drybulk. If you want to buy fertilizer stocks, then buy MOO, but sell prior to POT, MOS, MON, CF, AGU earnings and repurchase again afterwards. You may be uninvested for 2 weeks out of each quarter, but it could save you. If a report comes out that is unexpectedly bad, don't repurchase them.
Fertie Lizer,
It's true of all M&A activity. The company being bought goes up and the company doing the buying goes down. In this case, CF surged and AGU dropped. It's a shot in the arm for CF because AGU offered more than the market price for the company. AGU went down because they are spending (gambling) on something that may or may not pan out. There's a lot of uncertainty for AGU shareholders now. Will the new, larger company be able to manage itself, or will it be too big to run efficiently? It will take a few quarters to find out.
Anon 4, we didn't say they're in stage 2. The chart of CF is what you would see when a stock breaks out of Stage 1 and enters Stage 2, but this chart is just showing M&A activity, nothing more. If the acquisition goes through, CF will no longer trade, making its stage irrelevant.
"Happy Days" for MOS and POT? We're far from regaining the confidence levels we had in 2006, early 2007. We wouldn't be looking for a sustained uptrend for anything just yet. Not with the Dow flirting with breaking below 7,000.
Rosesryellow2,
Thanks for the kind words. There's no question this is beyond your average market correction. So much so that it's forcing many seniors back to work. They represent the fastest growing group among jobseekers.
Part of this crisis of confidence stems from a broken indicator... the Dow. The Dow captivates people. It makes headlines, and no matter how inaccurate an indicator it is, it still is the benchmark that determines how people feel we're doing. So we're stuck with a benchmark that heavily tied to bankrupt financial companies... great! Had the Dow not made new lows first, the S&P may have been able to avoid doing so. Of course now when the Dow breaks 7,000, people are going to freak out and sell their tech shares too. So then the Nasdaq will make new lows, and so on and so forth. Thanks Citigroup!
SteveW,
That number starting with a "5", would that be 500?
sb, are you short now, trying to play the "below 7,000" psychological breakdown and plunge into freefall scenario?
sbbuilder,
Thanks for the answer. MOO is how I traded the fertilizer companies in 2007 and 2008. I sold my last bit of it when POT reported in August, 2008, as the CC was in process.
BTW, I own a Kubota too, a 1986 or so little job with a mower underneath. I need to get some lime for our pasture, but haven't had the time and will have to borrow the equipment. I have two energy efficient manure spreaders, though -- one Arabian gelding and one Appaloosa mare. :)
Joe
Snot
Currently I have no positions. I don't like to gamble. Instead, I wait patiently until the market signals a short term trend, then jump in. The play I made in Dec. which was to hold onto QID longer term was a real boo-boo. Sure, the Nas went down eventually, but too slowly. (BTW, recently finished my taxes and determined that for '08, I made a grand total of $210. I had to laugh. Estimating that I spent easily 200 hours over the year following/studying/buying/selling, that makes for a rather poor return for labor spent.) I started following this blog about a month too late. Had I had a better understanding of channels, ascending and descending triangles and the like, I would have finished the year in the clover.
Now that 'we' own a sizeable chunk of Citi, can we re-name it 'The People's Bank of Citi'? The media is making it sound like the taxpayers now own pieces of all sorts of banking firms. We probably do, whether we like it or not. Question: would any of you go out and willingly buy shares of C or BAC? Of course not. So in a way, the government has made us partners, a classic shotgun wedding.
I want a divorce.
sb, couldn't agree more. We want no part of BAC or C, but are being forced via tax dollars to buy a large number of the shares. How many? Figuring it is taking the government $15B a month to keep Citi afloat, and that there are approx 200M taxpayers, each of us is spending $75 a month, or $900 a year... and that's just on Citi!
At $1.50 a share, we're each purchasing 600 shares a year. The only caveat is that none of us will ever actually receive the shares. That's the part that baffles us about the whole thing. If we're buying them, why aren't they delivering them?
By the way, congratulations on your profit in 2008. All kidding aside, you've outperformed the most brilliant minds in the industry... the whole point behind Nick Darvas's book. Way to go!
Sb, another note...
Your hours of involvement in the market of course has other dividends. When you show up to meet a client, perhaps a financier him/herself, and you talk about more than just 2x4's and plywood, it pays off in spades. Compared to the competition (those hacks) the client's decision, hopefully, is to hire the intelligent guy because that translates to a better product.
AIG gets another 30B. I think the total now is around 180B. This time, the gov gets some equity too. But who cares? My own analysis is that this downward trend is accellerating, and that these moves by the Fed are making it worse. I think they realize that they may be trapped into chasing a bad bet, but now have no other choice. 1.7T national debt for just one fiscal year? Who are we kidding? Oh, and lets throw on another 600B+ over ten years for health care reform as a 'down payment'. WHO IS GOING TO PAY? PLEASE, REALLY, WHO IS GOING TO PAY? Now Obama says that the 'rich' must pay an even greater burden of the taxes. Folks, I have no faith in this system any longer. Or precious little. Let's call a spade a spade and just call it a rush to Socialism. Every dollar that comes from the Government has a string attached to it. At the other end is personal freedom. The more money you accept from the gov. the less personal freedom you have. At least that's this persons opinion. I believe that in taking these huge, incomprehensibly large sums, we are giving away our freedoms.
End of short rant.
Discl: no positions currently, but I anticipate buying some sort of short soon. I'll be sure to post it here.
Snotwheel,
I remember your
1. adoration of AG stocks (they are "generals")
2. bashing, comparing them to CROX and predictions they will trade around 5 USD levels
Please be a bit more consistent in your statements, yet I know predictions are difficult.
akeygon: I think you should understand the theory behind those statements.
sb, couldn't agree more. Chasing a bad bet is exactly what they're doing. It is accelerating, and Dow 5,000 is really looking like it may be a reality. We may add a short for protection. We've been in a bad bet for too long now, never thinking the market would drop into the 6,000's. Guess the whole idea is to expect the unexpected with the stock market, but who could have guessed we'd see the 6,000's when we were just at 14,000 in late 07?
They say the stock market is 6 months ahead of the economy. If that's the case, can you imagine the number of foreclosures and small business closings still ahead of us?
Akeygon,
Ag stocks are not the generals. They WERE the generals. They were the last uptrending sector after all others had begun to break down. When they finally broke, the whole market caved. It happens that way every time. We once had a love affair with POT, MOS, CF and AGU, but ran the other way when they broke out of trend.
At that point, the safest mentality to adopt is to see them as going the way of CROX. This mentality protects you from seeing them as being 'cheap' at each $5 interval as they fell all the way from 240 to 50. Now that they've stabilized, for now, you can dip your toe in again. Just realize, they may resume their slide. If so, we'll be comparing them to CROX again in an effort to protect you from buying them as they each slide to $5 a share.
In other words, individual stocks don't have bottoms in bear markets regardless of p/e. There are just way too many outstanding shares for any single share to have any real value. Perceived value (relative value) is all stocks really have. If you want tangible value, buy real estate. Unlike stocks, it has a floor, barring nuclear fallout. Currently, 97.3% of our investments are in real estate, 1.8% in cash, and .9% in stocks. Despite this blog being mostly about the stock market, we have very little respect for it.
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