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Latest Comments6 Comments
The Agriculture Boom Goes Bust
Still, I believe, for all of the right reasons, that stocks like Mosaic, and the AG sector in general continue to offer traders and investors what may be arguably, the safest and potentially the most profitable opportunities in the current market.
Analysts should not be the catalyst for pulling the trigger on any stock, but good analysts are like trackers--they know what we are hunting for, and they know how to track the prey.
Many of the best of breed like Goldman Sachs, Credit Suisse, and even S & P continue to reiterate and/or upgrade their ratings for the AG sector and specific stocks with fantastic outlooks, buy and overweight ratings, and high great target prices on stocks such as MOS POT and others. Analysts can be a fickle group so the saving grace about most of these ratings is that they have based their analysis on solid research, fundamentals, and the fact that the dynamics of the AG sector are more straightforward than other sectors.
With most of the key statistics looking solid, and the products they produce being "Need Based" rather than discretionary, one only needs to use common sense and a Economics 101/102 analysis to arrive at a consensus that AG related goods and services will continue to be in high demand for a predictable period of time.
The supply and demand side will settle into trend cycle, but we are not at that point yet. Emerging markets are and will continue to grow and demand a greater diversification in diet, as well as more of their traditional foods. Factors like the price of oil, weather conditions, and government policies will play into the Ag sector, but once again, given the absolute need for these products, we should all take some comfort that the Agricultural “Bust” will be short lived.
On the other hand, I must emphasize that institutional investors (hedge and mutual funds, banks, etc.), may represent the most unpredictable element to for traders and analysts of AG stocks because their market power constitutes an ever present challenge to the savviest of traders.
Too often, these entities are the primary reason for unwarranted volatility as they manipulate the prices of solid stocks for their institution’s benefit alone.
The extraordinary power they have to move and/or manipulate the markets by trading stratospheric amounts of shares and their history of turning on a dime during the course of even one day is well documented.
These firms trade at levels that some governments can’t match, so I don’t consider it a stretch to compare their market moving power to those of weather events like a small hurricanes or winter storms. Needless to say, investors should always be looking over their shoulders and be aware that a hedge fund or other institution can come out of the shadows and we have to board out windows up for a stock or sector storm. The only traders that have the front on their radar are the very people that are doing these massive trades for the institutions.
It appears that the primary motivation is to control the stock as much as possible and move it in a somewhat predicable fashion that will allow them to safely double and triple dip their profits. They move into a sector or stock because of the great fundamentals, but then move the prices without regard to the fundamentals, good news, or great outlooks of the company or sector.
My bottom-line on the Ag play is that need based stocks like Mosaic that have great financials and supply and demand fundamentals other sectors would sell their in-laws for, so there is no doubt that the AGs will be able to weather the storms brought on by oil and the institutional investors and once again, move up at a rather sustained pace.
Mosaic will move back up to around $145 to $165 before September, and we could see a high (spike or otherwise) of around $180 by the end of the year. At this point, 2009 is too hard to call but there will be a new growing and thus a demand cycle for crops for both the Northern and Southern hemispheres, so I am looking for another positive year for AG stocks.
In the current markets, the Ag sector and well managed companies like Mosaic will continue to represent one of the few areas that offer us all an opportunity to sleep well knowing that the sector will be relatively stable for some time to come.
Finally, the hedge funds, other institutional investors and short-sellers know their clients want to be where the profits are. These institutions also know that their job is to do it in a manner that provides their clients with a safety edge, and there are few, if any areas that can provide both of those factors like Ag stocks.
Finally, the institutional investors know the fates of their careers are based on keeping their clients where positioned in sectors that consistently produce the highest profits and have high comfort levels in a volatile or for that matter, non-volatile markets. At this point, there is really no other place for them to go except for a quick dip, so we should all sleep better knowing that the Agriculturals will be relatively stable and wildly profitable for some time to come.
Visa Stock: Buy with Caution
I was trading Visa on day one, and overall, I continue to be bullish on the stock. However, l trend to agree with you about using caution as we move forward from the first earnings report. We simply don’t have enough history and current data to determine Visa’s market profile.
There are a host of major entities that have a lot of money riding on this horse.
The scale of the investments by sovereign funds, hedge funds, investment firms, wealthy individual investors, and major companies that may or may not be in financial stress is staggering, and many of these investors have a hair trigger.
The capacity of them to manipulate the pricing and volume, and the need for them to protect their massive investments could mean that we will see some fairly significant swings until a 3 or 4 earnings history is established.
The valid observation of the Wachovia analyst (June price increases influencing normal/average revenues), and your comments about how difficulty reporting operational performance on a trailing quarter basis go a long way to establish a cautious optimism regarding the trading ranges.
That caution cannot be addressed until we establish that history that I am talking about, and that won’t happen until we see the next two or three earning reports.
Additionally, let’s not forget the consumer side of the equation.
The companies management, consumer patterns, and overall world market volatility that the next two(2) Visa will address should be very telling as to what we can expect from Visa for the rest the year.
Given that, I expect Visa to briefly move back into the high $70’s, and then begin to establish a trading range of around $83 to $95.
There may be some spikes on the upside and downside of that range(hedge funds or economic events), but I question as to how much these huge investors are going to want to play with this stock until we get the history that we need to establish Visa’s profile.
The Global Agricultural Boom: No Bubbles Here
As a recent promoter of Ag stocks and more specifically one that was touting MOS when some others were warning of the eminent downturn in the stock and AG’s in general, I agree in principle that we really haven’t reached a bubble in the Agricultural commodities such as fertilizers.
However, on the flip side of these trades, I do believe that we are now in uncharted territory for many of the Ag’s and that it is time to back off until the stocks come off of the highs created by investment entities and investors looking for some safe trades.
As I have stated in the recent past, I see no end to the demand for more food and more varieties is obvious and it is obvious that the demand will continue because of the transitions of 2nd and 3rd world countries to the next level of world economic markets. Supply and Demand is the key factor is fairly easy to measure in these sectors.
The dark side of these trades is that the rapid and quantum leaps of most of the fertilizer stocks have reached uncharted and potentially dangerous territory for the individual investor. Modern investment history really doesn’t provide us with many benchmarks or historical measurements to determine where many of these stocks should be priced. We are just know beginning to see the bigger picture related to Agricultures, so we are in a sense, just know beginning to learn where the realistic ranges are for pricing these stocks for the volatile demands of the 21st Century.
Major weather events, government policies, alternatives, and the ability to meet the demands of the markets play into these trades, and the tendency for the Dark Side of the Force (hedge funds) to manipulate the trades to their advantage. Hedge funds are a viable element of market dynamics and can play a positive role.
Still, they are increasingly creating their own alternate market and trading realities that is analogous to Bipolar (if, or/or, or/and, uh, umm,&*^%&*$, what, where, when, how, who, help me), and Multiple personality markets. I don’t mean to be insensitive to people that have multiple or bipolar problems. The conditions are serious and I wish all of them the best, but let’s be honest, it is not a stretch to compare hedge funds and some other large investment entities do exhibit business personalities that can only be described as investors that live in altered states.
Here is my bottom line call on these stocks…
Most (not all, but most) of the Ag/Fertilizer stocks are past their realistic highs by 8% to 15%+. Every day most of them go up, add the additional increments to their overpriced percentages. The hedge funds will send in their shock troops, and the stocks will take a dive. Hopefully, they will find their realistic price ranges, but the hedge funds and other large investment entities will continue to use their considerable influence to move the markets in what is sometimes, an unreasonable and irrational manner.
My advice, take a quality moment to look at your positions, and make a quality decision on how much, is too much because at some point, the bipolar and multiple personality hedgers are going to need to adjust or come off their meds and we know that the Hedge Empires always Strike Back.
Potash as Ash Can
Whether the volatility is because of Jekyll and Hyde hedge fund managers, or knee jerk reactions to crop news, government regulations, etc, the song remains that same that the facts remain that second and third world countries are rapidly repositioning and moving into the first world economic markets, and continuing to grow and expand their dietary choices. In some cases, the current and future demand is staggering in terms of scale, and even historically.
Emerging markets, emerging =More money=More Demand for More Food=More demand for More Crops=More AG Sector involvement=More Profits.
The best things about this is that not only go people have the opportunity to grow healthier, but that they absolutely have to have the products that the agricultural sector produces to do so.
Since these are really “must haves, or need based” products, even with the volatility, there is a significant amount of safety in them that most other sectors simply cannot offer.
Contrast the AG plays with the AAPL, RIMM, Dell, or IBM; the Financials, or even the big guys like GE, SI, and PG, and the differences become obvious. People can hold on to their old computers and cell phones until the next great innovation or until the economy gets better, and the GE or SI plays are rather safe, but rather slow moving. We have seen that other commodities that are tied to less “Need based elements,” can loose their future rather quickly (copper, gold, oil, natural gas), so I just keep coming back to how appealing the Ag sector looks now, and for the foreseeable future.
The view that there may be some wild and/or incremental swings is true. Yet the AG sector can be a great place for swing and day traders, and, if they have the fortitude, longer term investors that keep their eye on the bouncing ball. So, as you indicated, it has been, and may continue to be a wild ride, but compared to the other resent past, present, and near future choices, this is one play that I don’t want to miss.
Why I'm Buying More Mosaic Ahead of Earnings
The increase in soybean planting doesn’t give me a nervous tick or a hedge fund Jekyll and Hyde mood. The smart agricultural trades and will be sweet spots for some time to come.
Speaking of the hedge funds, make no mistake about it, they cast the largest shadow in these plays are undoubtedly the primary movers and shakers of this sector.
Short sellers try their best to talk virtually every sector and stock down to manipulate the markets. They love MOS, MON, POT, and many of the others in this sector because they know that they have a great future and can move the stocks down because they know the supply and demand facts are just that, “Facts” that for the foreseeable future cannot be disputed.
There is a quantum shift in the ability of second and third world countries to provide a wider range of foods for their people, and the future of the emerging markets is just that, “Emerging,” and utilizing their natural and human resources to become a force in the world economy.
However, let's not forget the huge deal (350,000 metric tons) with India and price increase (raised to $355 per metric tons) from the prior year contract. Keeping it simple, very few industries have a future like agricultural based products?
The other element is that yes, soybeans are being planted at a higher rate in this new growing season, but overall, demand for corn and other crops requiring nitrogen based products is up and growing.
It is not a stretch to see a fairly consistent trading range for MOS in between $105 to $125 for the rest of this year. Ups and downs are inevitable with any stock, but the agricultural related trades are one of the few areas that can provide you with the assurance that what goes down, must come up because more and more people are eating more and expanding their dietary choices.
Why I Am Cutting Back on Commodities
Having made my basic point, it is clear to me that this is basically a great time to be in Agricultural stocks and the near and two year horizon looks very favorable and relatively predictable for the industry. The investment and market dynamics of metals commodities with agricultural commodities are quite different, and one’s investment strategy should reflect those differences. The Bottom Line is that there are a host of Agricultural related stocks that offer great safety and great upside, for near term and long term investors.
Mvestments