You’ve no doubt heard about the wildfires ravaging
Russia‘s countryside. These fires have
seriously impacted Russia‘s wheat
harvest, and have sent wheat prices soaring around the world.
This morning, mining company BHP Billiton (NYSE:BHP) offered $39 billion, or $130 a
share for the world’s largest fertilizer company, Potash Corp of
The significance of this deal is clear. Lower crop yields
increases the demand for fertilizer. Russia‘s wildfires have brought this
point to an immediate catalyst for fertilizer prices. But the underlying
issues of agriculture have made fertilizer stocks a growing sector for the
last few years.
The global population is expected to hit 9.1 billion in
2050, up from 6.8 billion today. That means more food and more fertilizer.
And more expensive fertilizer.
This is what you call a no-brainer: fertilizer companies are
facing a supply/demand situation that will be bullish for years. That’s why
Potash Corp rejected BHP BIlliton’s buyout offer. The
stock is currently up greater than the 20% BHP Billiton offered because investors expect the offer to increase.
You couldplay this
bullish news with some of the fertilizer standards, like Mosaic (NYSE:MOS) or
But don’t overlook the Chinese fertilizer companies. From a
valuation perspective, the Chinese fertilizer companies are incredibly cheap,
trading with P/Es under 15. And the need for fertilizer, especially organic
fertilizer is pronounced in China.
TradeMaster Jason Cimpl
has been recommending two Chinese organic fertilizer
companies to his readers for the last two weeks. One has a forward P/E of 7
and is growing earnings at 45% year over year.
General Motors may
exit bankruptcy with an IPO this week. The car company, which is still mostly
owned by the U.S. Treasury, is expected to pull down $12 – $16 billion from
As it now stands, it will be the usual suspects (Goldman
Sachs, JP Morgan, Morgan Stanley) bringing the newly issued GM shares to
market. And you know how IPOs work: the stock will be available first to the
most valued clients at these investment banks.
And while it looks as though the fees for the GM IPO will be
substantially lower than a traditional IPO, it’s still not likely that you
will be able to get your hands on any new GM shares until they hit the
Now, the reason I bring this up, is that GM was bailed out
by taxpayer money, as were the investment banks. And it is GM and the
investment banks that will benefit the most from this deal.
As it now stands, the Treasury can only expect to get paid
back. And the average taxpayer will be left completely in the lurch, even
though it was our money that made this possible.
I want to hear how you feel about this. Are you angry that
you’re not getting a couple shares of GM in your tax return? Or do you think
the GM IPO is being conducted as it should be, with the banks and the company
making the most money?
Please, let me know how you feel about the GM IPO at
I want to add that
GM stock is likely a very good buy after the new shares start trading. The
company should be lean and mean after bankruptcy proceedings. And sometimes,
investors remain skeptical about a company that’s been in bankruptcy and that
might keep a lid on shares as they hit the market.
Today is the big
day for economic data this week. Industrial production for July came in 1%
higher, which is good. New housing starts for July was up, but less than
expected and building permits fell more than expected. Finally, prices at the
wholesale level, PPI, was up 0.2%.
This data is not great. But it’s not a disaster, either.
Especially the industrial production number.
The market is likely to respond well to these numbers. But
that’s as much a function of oversold conditions and a weak U.S. dollar as it
is renewed hope that the recovery is on track.
We’ve seensome real
sharp swings in sentiment lately. When the Dow Industrial were recently
trading above 10,700, news that China wasn’t growing as fast as hoped, the
Fed didn’t know what to do and continued weakness in the U.S. job market was
treated with a near panic sell-off. I started seeing headlines pondering the
potential for a stock market crash.
But now that the Dow has sold off to more “acceptable”
levels, bad economic news, like weaker than expected new home starts, is
being shrugged off. Two weeks ago, this data would have been treated as a
This is the way it goes in a range bound market.
Excluding a couple outliers, the Dow Industrials has traded
between 10,000 and 10,700 all year. Once the Dow hits the upper end of this
range, any weak data sparks a panic. Then, once it retreats to the low end of
the range, investors start ignoring bad news and stocks rally.
For the individual investor, Don’t get caught up in the hype
when the market is hitting the upper end of its range. And don’t get scared
out by the “panic” as stocks seek out the low end of the range. Rather, buy
the dips and take some profits on the rallies.