Wall St. Cheat Sheet proudly introduces our second staff writer David Gibbs. David has passion for stocks, the NY Yankees, and U of Michgan football. He holds an History degree from the University of Michigan and is in his last term of a dual JD/MBA program at Fordham University.
Not long ago, before the dark days of the economic fallout, the increasing needs of the growing populations of the developing world were the name of the game. Indeed, for a time, we saw fertilizer and seeds become sexier stories than semiconductors and smart phones. However, as Newton would have it, for every great commodities boom, there must be an equal and opposite bust.
Cautious optimism has firmly taken hold of Wall Street. The US Dollar seems poised for a period of long-term weakness, and those once-sexy agriculture names may be primed for a renewed period of strength.
Last week, The Mosaic Company (MOS) reported their quarterly profits had fallen 92% year-over-year on 66% lower revenue. Still, shares traded up 4% the next day. This may not be unlike much of the financial sector, which rallied sharply off of huge losses last quarter due to a more positive outlook on the future.
Additionally, shares of Potash Corp. of Saskatchewan (POT), another the ringleader of the sector, cut earnings estimates back on Sept. 21. However, after a moderate sell-off, shares have begun to rally.
If dollar weakness persists and news from developing nations continues to grow more positive, we may be primed for a nice end of year rally throughout the sector. Moreover, these formerly hot Ag names are not nearly as frothy as their financial and tech sector brethren.
For instance, while POT and MOS are up 36% and 26%, respectively off their March lows, the duo has been left in the dust by companies like AAPL (up 129%), GOOG (up 78%), GS (up 91%) and C (up 349%). As a result, money managers who did not participate in the rally in those uber-popular names may turn to MOS and POT because they can more easily justify starting a new position rather than chasing the over-heated runners.
The big day to watch out for is 10/22 when POT will release its numbers before the market opens. Though, as was the case for MOS, the numbers themselves are sure to be lower compared to last year, the importance of the report will come via guidance for 2010 and beyond.
Still, significant interim risks exist. Stocks like POT and MOS are sure to participate in any major sell-off if the vaunted correction ever does in fact come. Also, any short-term dollar strength will act to push the sector down as we saw last Friday following Ben Bernanke’s comments regarding potential for tightening fed policy. Until then, keep your eyes peeled and your noses pinched because these fertilizer names may be about to come back in a big way.