Two Cheap Commodities: Milk and Cocoa
Right now, the list of cheap commodities is pretty short.
Almost every single commodity is selling for more than it was last year. Many are selling at or near five year highs. Almost all of them are significantly more expensive than they were ten years ago - or ever.
There are a handful of exceptions, and the two I’m going to talk about today are cocoa and milk.
You’re not hearing about cocoa and milk in the mainstream media. But the same investment thesis that’s had me bullish for gold, silver, oil, corn, etc. - has me bullish for milk and cocoa.
And while cocoa and milk will NEVER be as flashy as other commodities, the fact remains that they are both cheaper than they were a year ago.
And even better, the trends for both are starting to turn around. We don’t have to pick a bottom. Both commodities bottomed in the past few months. We’re in a clear uptrend:
Hi-Tech Pharmacal, Noven Pharmaceuticals and Interactive Intelligence lead small-cap percentage gainers
Also included among the results: USEC Inc. (Nasdaq:USU), Excel Maritime Carriers Ltd. (Nasdaq:EXM), American Dairy Inc. (Nasdaq:ADY), Fuqi International Inc. (Nasdaq:FUQI), Xyratex Ltd. (Nasdaq:XRTX) and Blue Nile Inc.. (Nasdaq:NILE).
GS and BAC Pull Up Financials to Lift Markets
Stocks closed higher today as Meredith Whitney's comments on Goldman Sachs (NYSE:GS) helped to lift financials, including Bank of America (NYSE:BAC), which she indicated as being inexpensive. Previously she'd been down on financials and very accurate with her assessment concerning their exposure to sub-prime mortgages.
The Dow closed up 185 points today to end at 8,332. The Nasdaq and S&P 500 followed suit to close at 1,793 and 901, respectively.
The Russell 2000 closed at 492, up 11 points.
Small-cap stocks showed leadership behind Territorial Bancorp (Nasdaq:TBNK) of Honolulu, Hawaii, which was up 49% to close at $14.94. Shares in TBNK started trading today as part of an initial public offering with the opening price set at $10.
Other small-cap gainers include PMI Group (NYSE:PMI) up 31%; iBasis (Nasdaq:IBAS) up 28% on news that Dutch telecommunications firm Koninklijke KPN issued an offer of $1.55 per share or roughly $48.2 million to acquire 44 percent of the shares outstanding in iBasis; and American International Group (NYSE:AIG) up 24%.
Decliners were lead by China-based baby formula producer American Dairy (NYSE:ADY) down 44% after issuing news that it had reduced guidance by stating that Q2 revenue would be increase only 10% against the year-prior period.
American Dairy had previously grown by nearly 200% after the company was untainted by the scandals surrounding other Chinese dairy producers over contaminated baby formula that left six infants dead and millions of gallons of milk considered suspect and destroyed.
Other decliners include CardioNET (Nasdaq:BEAT) down 34%; Sinclair Broadcast Group (Nasdaq:SBGI) down 21%; and American Axle & Manufacturing (NYSE:AXL) down 15%.
*****A few weeks ago, Treasury Secretary Geithner had to go to China to assure our largest creditor that their investment in the U.S. dollar was safe. Now he's off to Saudi Arabia and United Arab Emirates for another round of "strong dollar" propaganda.
Of course, it's not an easy task to convince foreign governments that the U.S. wants a strong dollar when interest rates are at zero and we're selling tens of billions in Treasury bills virtually every week. You may recall Geithner's assurances elicited laughter from a group of Chinese college students when he made the strong dollar pledge there.
If college students know the score, you can bet everyone else does, too. But Treasury auctions have been met with plenty of demand, and that's a good thing.
*****Fed Chief Bernanke is expected to reveal to Congress just how he plans to reverse his stimulative monetary policy next week. The Fed has expanded the money supply by about $1 trillion, cut rates to zero and doubled the assets on its balance sheet.
In normal times, this would be highly inflationary. But these aren't normal times. Were it not for the Fed's action, the U.S. economy would be broken even more than it already is.
Now, normal times will return. And how the Fed plans to reel in liquidity when the economy starts to grow again is critical. The potential for runaway inflation is real, and the Fed will have to be just as diligent at fighting inflation as it was fighting deflation.
*****Goldman Sachs (NYSE:GS) received an upgrade from the very same banking analyst that predicted collapse of mortgage-backed securities, Meredith Whitney.
Upgrading Goldman is easy. The bank is practically a subsidiary of the U.S. government. But the timing is interesting, given that Goldman reports earnings before the bell tomorrow.
And speaking of earnings, this is a big week for some important companies. In addition to Goldman, we get Intel (Nasdaq:INTC) after the bell tomorrow. Thursday, we'll hear from JP Morgan (NYSE:JPM), Google (Nasdaq:GOOG) and IBM (NYSE:IBM). Then Friday, we get General Electric (NYSE:GE), Bank of America (NYSE:BAC).
Tech and financials - the anchors for the U.S. economy will be reporting this week. Investors will be watching these early earnings reports closely. Much of the rally of the past few months can be attributed to investors' faith in companies meeting Q2 earnings, even if expectations were substantially lowered. Any bad news from these bellwether companies and the market could turn. We'll be watching closely.
*****As if earnings weren't enough, there's a full slate of economic data coming out this week, too. Tuesday, it's the Producer Price Index (PPI) along with retail sales and business inventories.
Wednesday, we get the Consumer Price Index (CPI), the Empire Manufacturing Survey from New York state, capacity utilization, industrial production, crude inventories and the minutes from the last FOMC meeting.
Thursday, it's initial unemployment claims and the Philadelphia Fed.
And finally, on Friday, we get building permits and housing starts for June.
Whew! That's going to be a lot of data to review.
*****On January 15, my Top Stock Insights advisory service released its Predictions 2009 special issue. This issue was our blueprint for profits with mid- and large-cap stocks as we headed into the new year.
In that issue, I outlined the case for oil, gold, commodities and biotech/healthcare stocks. And we took 51% profits on an oil stock, 25% on a gold stock, another 25% on a commodity stock and we're still holding three biotech/healthcare double-digit winners in the portfolio.
In other words, our expectations for the year led my readers to some nice gains this year, and there's more to come...
Now, I'm all set to release an update to that special Predictions issue that will get us through the rest of this year with more solid gains. It comes out on Wednesday, and if you'd like to get my blueprint for profits for the rest of 2009, please click here. Or go to topstockinsights.com.
*****Also, if you missed TradeMaster Daily Stock Alerts technical analyst Jason Cimpl's weekly video chart analysis, here's that link again.
American Dairy, CardioNet and Grupo Radio Centro lead small-cap percentage losers
Also included among the results: Pricesmart Inc. (Nasdaq:PSMT), ChinaEdu Corp. (Nasdaq:CEDU), Starlims Technologies Ltd. (Nasdaq:LIMS), Fuqi International Inc. (Nasdaq:FUQI), Adams Resources & Energy Inc. (Nasdaq:AE) and Brightpoint Inc. (Nasdaq:CELL).
Websense, Orexigen Therapeutics and Pzena Investment Management lead small-cap percentage losers
Also included among the results: Kohlberg Capital Corp (Nasdaq:KCAP), Greenbrier Companies Inc (Nasdaq:GBX), Geokinetics Inc (Nasdaq:GOK), Olympic Steel Inc (Nasdaq:ZEUS), Startek, Inc (Nasdaq:SRT) and American Dairy Inc (Nasdaq:ADY).
KVB, SEH, and ROYL Lead Small Cap Gainers
Stocks extended their gains today with all of the major indices closing up from this morning's open. The Dow Jones Industrial average closed at 8,770.92, up 0.37%; the Nasdaq added 9.29 points to close at 1,862.37; and the S&P 500 closed up 5.74 points at 944.89 for a 0.61% gain.
The small-cap stock bellwether index, the Russell 2000, was up 1.05% to close at 529.23.
Leading small-cap leading gainers today was KV Pharma (NYSE:KVB) which closed up 49.39% to $3.95 on news that it had settled its OxyContin dispute with Purdue Pharma. Other small-cap gainers include Spartech Corp. (NYSE:SEH), up 37.15%; Royale Energy (Nasdaq:ROYL) up 30.36% to close at $3.65; and a leader from yesterday, Corel Corp. (Nasdaq:CREL) up 22.5%.
Small-cap decliners were lead by Shanghai-based Linktone (Nasdaq:LTON) down 17.36% on unaudited Q1 results showing revenues at $14.8 million compared to $19.4 million for Q4, net income from continuing operations of $0.1 million compared to $1.1 million from Q4, net income of $0.3 million versus $0.6 in Q4.
Setting a new 52-week high today was American Dairy (NYSE:ADY), closing at $43.38. American Dairy produces and distributes milk powder, soybean milk powder, and related dairy products in China. American Dairy had been trading between $10 and $18 for much of 2009 until May 15 when it surged to $28.48 and continued on to $35.08 by May 19, pulling back, then steadily moving up again. After the closing bell on May 14 American Dairy announced Q1 2009 versus Q1 2008 sales increase of 191%, income from continuing operations increase of 523%, and net income up 282%.
*****The International Energy Agency (IEA) reported that demand for oil is picking up. Instead of the 3% drop in demand, the IEA says that it now expects demand to be off a whopping - drumroll please - 2.9%. Sheesh.
When you're talking about 83.5 million barrels a day, a one-tenth of a percent revision should not be headline news. Somebody owes me an apology.
But seriously, I think it's pretty much understood that any statistic thrown out there by some agency or department is subject to revision. In fact, I get suspicious when numbers don't get revised…
*****Economics is the study of a human system of production and consumption of goods. And because it's a human system, there must always be some margin for error.
Especially at this stage of the recession/recovery, numbers are going to swing wildly. Retail sales, foreclosures, payrolls, it doesn't matter - the headline number will get revised.
Of course, this is what makes investing interesting. The data can only take you so far. And if one relies solely on economic data for buy and sell signals, poor results are inevitable.
*****As you know, I was quick to jump on oil stocks at the start of the current rally. Oil was trading around $40 a barrel when I recommended three small oil stocks in my SmallCapInvestor PRO advisory service and also recommended Graham Corp (AMEX:GHM) here to Daily Profit readers.
Obviously, investor sentiment toward oil has changed dramatically since I first started pushing oil stocks. That's what happens when an asset doubles in price in just a few months.
In fact, the bullish sentiment behind oil and oil stocks is so extreme that I've told SmallCapInvestor PRO to sell one oil stock and take the 142% gains we had off the table. Oil prices are due for a big correction, and there's no way I'm going to lose such a nice gain.
I'll be buying back oil stocks sometime this summer. And if you missed the big gains in oil this time around, don't worry, you'll get another chance. I'll cover oil consistently here in Daily Profit. And you can also get my stock recommendations on the next sector to run up, China, for SmallCapInvestor PRO HERE. So far this year, SmallCapInvestor PRO members are averaging 43% gains per recommendation.
*****I have one more announcement today. Jason Cimpl, the technical analyst for TradeMaster Daily Stock Alerts has graciously offered to start sharing his weekly forecasts with Daily Profit readers on Fridays. So tomorrow, you should get your first video chart analysis from Jason.
He's done a great job of keeping his readers in profitable trades during this rally. And his insights into what's driving stock prices and where they are likely to head next should prove a worthy addition to this letter.
Superconductor Technologies, Saffron Fund, and Acacia Research-Acacia Technologies among 52-week highs
Also included among the results: Tasty Baking Co. (Nasdaq:TSTY), Broadpoint Gleacher Securities Group Inc. (Nasdaq:BPSG), American Dairy Inc. (Nasdaq:ADY), AboveNet Inc. (Nasdaq:ABVT), Changyou.com Ltd. (Nasdaq:CYOU) and Wonder Auto Technology Inc. (Nasdaq:WATG).
Small caps lead the pack
The Russell 2000 (NYSE: IWM) led the pack with the major U.S. indices posting solid gains as investors disregarded mixed earnings news and a decline in housing. The small-cap index added 13.79 points, or 2%, to 702.39. The Dow Jones Industrial Average (INDU) climbed 176.72 points, or 1.45%, to 12,383.89.
On a year-to-date basis, the Russell 2000 has let go 8.31%, while the Dow has let go 6.64% and the S&P 500 has shed 7.79%.
Small-cap stocks began the week with a strong showing despite beginning the session in negative territory following mixed earnings news from major corporate players.
McDonald’s Corp. (NYSE: MCD) reported that sales at restaurants open at least 13 months were unchanged in December, disappointing analysts expecting a rise.
“While severe winter weather throughout the month and softer consumer spending resulted in December U.S. comparable sales being flat, we remain confident in our U.S. business,” said CEO Jim Skinner in a statement.
The result brought out the bears, as consumer spending comprises about 70% of gross domestic product and a decline will surely be bad news for the economy. Previously, retailers had also reported weak December sales, raising the fear that American consumers are pulling back.
However, the fast food chain operator also announced that its net income for the three months ended Dec. 31 increased to $1.27 billion, or $1.06 per share, compared with $1.24 billion, or $1 per share, a year earlier.
A bad day for Russell 2000
The Russell 2000 (NYSE: IWM) fell today as economic worries and concerns about the U.S. housing sector took to the forefront. The small-cap index dropped 14.87 points, or 1.97%, to 739.06. The Dow Jones Industrial Average (INDU) let go 172.65 points, or 1.29%, to 13,167.20.
On a year-to-date basis, the Russell 2000 is down 6.14%, while the Dow has gained 5.55% and the S&P 500 has advanced 2.07%.
The U.S. housing sector continues to agonize financial institutions with bets on securities backed by subprime mortgages and will probably continue reporting losses; the overall economic situation is not rosy.
That’s what we found out today, so it’s no doubt the bears dominated trading.
Stocks fell out of the opening on news that Citigroup Inc. (NYSE: C) announced has lowered its ratings on nine U.S. banks. The New York-based company, the largest U.S. bank, said that it expects those banks to see more losses stemming from the purchase of securities backed by subprime mortgage loans.
Home prices began to stagnate in the second half of 2006, leading to a wave of foreclosures and delinquencies as cash-strapped borrowers were unable to pay their mortgages. The squeeze was hardest on those with poor credit histories who took advantage of lax lending standards and secured loans that quickly overwhelmed their ability to make payments.
The housing situation is not getting any better.
The National Association of Homebuilders reported that builder confidence in the market for new single-family homes remained at a record low for a third consecutive month in December. The NAHB/Wells Fargo Housing Market Index stayed at 19 this month, its lowest level since the measure was introduced in 1985.
Small caps aching
The Russell 2000 (NYSE: IWM) and the other major U.S. indices are falling on news that U.S. home builder confidence remains low. At 2:58 p.m. ET, the small-cap index was down 10.06 points, or 1.33%, to 743.87. The Dow Jones Industrial Average (INDU) had retreated 159.08 points, or 1.19%, to 13,180.77.
The bears have been running the show today, ever since Citigroup Inc. (NYSE: C) announced before the start of trading that it has lowered its ratings on nine U.S. banks. The New York-based company, the largest U.S. bank, said that it expects those banks to see more losses stemming from the purchase of securities backed by subprime mortgage loans.
The financial sector has been bleeding in the wake of the meltdown in the subprime sector, which started this summer. Home prices began to stagnate in the second half of 2006, leading to a wave of foreclosures and delinquencies as cash-strapped borrowers were unable to pay their mortgages.
Speaking of the housing sector, the picture remains dire.
Builder confidence in the market for new single-family homes remained at a record low for a third consecutive month in December, according to the National Association of Homebuilders after the start of trading.
The NAHB/Wells Fargo Housing Market Index stayed at 19 this month, its lowest level since the measure was introduced in 1985. Readings below 50 indicate that more builders view market conditions as poor rather than favorable.
Russell 2000 falls
The Russell 2000 (NYSE: IWM) and the other major U.S. indices are in negative territory on more credit worries
At 11:06 a.m. ET, the small-cap index was off 4.68 points, or 0.62%, to 749.25. The Dow Jones Industrial Average (INDU) had dropped 47.23 points, or 0.35%, to 13,292.62.
Citigroup Inc. (NYSE: C), the largest bank in the United States, woke up the bears before the start of trading when it announced that it has lowered its ratings on nine U.S. banks. The New York-based company said that it expects those banks to see more losses stemming from the purchase of securities backed by subprime mortgage loans.
In economic news, the U.S. Commerce Department reported before the start of trading that third-quarter current account deficit fell to $178.5 billion from a downwardly revised $188.9 billion in the second quarter.
American Dairy lower on downbeat Barron's article
Shares of American Dairy (NYSE: ADY) are losing ground this morning after Barron’s said shares of the dairy products producer could keep falling amid questions surrounding the company's auditor and its business prospects.
According to the article, questions about the independence of the company's audits could complicate its search for additional funds, which it will need to fend off deep-pocketed competitors.
Shares of American Dairy (ADY) skidded 13.68%, or $1.94, to $12.06 at 9:51 a.m. ET. Shares of American Dairy have been trading in the range of $11.06 to $26.00 for the past 52 weeks.
Inflation jumps, small caps fall
The Russell 2000 (NYSE: IWM) fell today on news that U.S. inflation increased more than expected in November. The small-cap index dropped 15.53 points, or 2.02%, to 753.93. The Dow Jones Industrial Average (INDU) lost 178.11 points, or 1.32%, to 13,339.85.
On a year-to-date basis, the Russell 2000 is down 4.25%, while the Dow has gained 6.94% and the S&P 500 has advanced 3.62%.
The consumer price index increased 0.8% in November, according to the U.S. Labor Department. That’s the biggest climb in more than two years and above economists’ projected rise of 0.6%.
Prices were up in every single category, with energy and transportation costs leading the way, posting increases of 5.7% and 2.9%, respectively.
Consumer prices moved up 0.3% in October.
During the first eleven months of 2007, the consumer price index rose at an annual rate of 4.2%, compared with an increase of 2.5% for all of 2006.
The core consumer price index, which factors out the cost of food and energy, gained 0.3% in November. The forecast called for an increase of 0.2%.
Small caps up on credit relief
The Russell 2000 (NYSE: IWM) posted gains today as some of the world’s most influential central banks announced a plan to ease the credit squeeze. The small-cap index rose 5.44 points, or 0.71%, to 771.71. The Dow Jones Industrial Average (INDU) advanced 41.13 points, or 0.31%, to 13,473.90.
On a year-to-date basis, the Russell 2000 is down 2%, while the Dow has added 8.01% and the S&P 500 has climbed 4.94%.
The bulls ran the show today as investors cheered news that the U.S. Federal Reserve and four other major central banks will inject billions into global money markets to boost bank lending.
The Fed will allow depository institutions to receive billions in short-term funds at rates below the ones it normally charges for loans. Similar initiatives were announced by the central banks of Canada, England, Switzerland and the European Union.
The Fed also set that it has created “swap” lines with the European Central Bank and the Swiss National Bank, for $20 billion and $4 billion respectively. That allows the two banks to make dollar loans in their jurisdictions. Previously, foreign central banks were unable to inject funds in anything other than their own currency.
Liquidity boosts lifts small caps
The Russell 2000 (NYSE: IWM) is posting solid gains on news that central banks around the world are pumping cash into money markets. At 2:33 p.m. ET, the small-cap index was up 7.04 points, or 0.92%, to 773.31. The Dow Jones Industrial Average (INDU) had added 67.14 points, or 0.50%, to 13,499.91.
Small-cap stocks are going strong following news before the start of trading that the U.S. Federal Reserve and four other major central banks are joining hands to inject billions into global money markets to boost liquidity and spur lending.
The U.S. central bank will create a Term Auction Facility program to auction term funds to depository institutions against collateral that can be used to secure loans, according to its statement.
The program will provide banks in good financial condition with billions in short-term funds. The loans will be at rates below the rate charged on direct loans from the Fed to banks but will still be backed by the same type of collateral obligations.
A number of major banks have reduced the flow of credit to businesses and consumers following the meltdown in the subprime mortgage market, which left many financial institutions with billions in losses as foreclosures and loan delinquencies made securities backed by subprime mortgages essentially worthless.
American Dairy shares skid on SEC investigation
Shares of American Dairy, Inc. (NYSE: ADY) are being pummeled to a new 52-week low today after the distributor of milk powder and soybean products in China announced late Tuesday that the Securities and Exchange Commission has launched an informal investigation against the small cap concerning entities and individuals who provided accounting or certain advisory services to the firm.
As a result of the investigation, the San Marino, Calif.-based company has decided to terminate its current public accounting firm Murrell, Hall, McIntosh & Co. American Dairy said it had previously planned to change accounting firms by May 1, 2008, as stipulated within the company’s financing indenture; but has expedited that process due to the SEC investigation.
Shares of American Dairy careened 22.5%, or $4.08, to $14.02 at 12:47 p.m. ET. Shares of American Dairy have been trading in the range of $14.77 to $26 for the past 52 weeks.
“Overhang [on the stock] has already begun,” Susquehanna Financial analyst Hao Hong said in a phone interview today. “People are concerned about the scope of the investigation. I think the overhang can only be cleared up when we can see positive news development.”
Hong says there are three positives going for the company that should alleviate concern, including the termination of what the analyst calls “an incompetent auditor,” a strong fourth quarter ahead and the fact that the stock is now cheaply valued at roughly six to seven times earnings, given that the stock is trading lower on the investigation news.
American Dairy misses Q3 estimates, raises '07 revenue guidance
American Dairy, Inc. (NYSE: ADY), a producer and distributor of milk powder and soybean products in China, reported third-quarter results below a sole analyst’s estimate, but raised its revenue guidance above analysts’ estimates.
For the three months ended Sept. 30, the San Marino, Calif.-based company recorded net income of $2.3 million, or $0.13 per share, below the $0.15 an analyst polled by Thomson Financial was projecting. The small cap earned $5.5 million, or $0.32 per share, in the same period last year. Excluding non-cash interest expenses of $4.2 million in the third quarter, net income would have been $6.5 million, or approximately $0.37 per diluted share.
Interest expense increased to $4.4 million in the third quarter of 2007 from $212,206 in the third quarter of 2006 mainly due to $4.2 million for the non-cash accrual of redemption premiums on convertible bonds issued in June of 2007.
Revenues were $41.2 million, below the $42.34 million an analyst polled by Thomson Financial was forecasting. The current quarter revenues were up 26% from $32.6 million in the third quarter of 2006.
The company attributed its revenue growth to increased popularity of its Feihe brand in China, stating that its total sales volume increased year-over-year to roughly 8.4 million kilograms, compared with 7.6 million kilograms in the third quarter of 2006.
American Dairy added that it is not specifying per product sales volume at the present time due to “unforeseen accounting delays.”
For the full year of 2007, the company raised its full-year revenue guidance. American Dairy said it expects to generate revenue of at least $160 million in 2007, up from prior guidance of $150 million. The mean estimate of two analysts surveyed by Thomson Financial was for revenues of $157.37 million.
