Agco's Strong Quarter Adds Momentum to the Agriculture Bull Run

First, I have to admit I am spoiled as I am 'disappointed' in yesterday's 5% move in CF Industries (CF) - in my dream scenario this stock would of run to $100 going into the Fed meeting at which time I could sell a good portion and then rebuy on a pullback.

Unfortunately that doesn't look like how it is going to work out. With that said, you can't complain with a nice move like this and the stock is straight up from mid $70s in just over a week or nearly 25% gain. What can I say, when I see solar stocks which are not performing anywhere as well operationally making that sort of gain, I think CF Industries should be up much more but that's just me, and it's hard to compare manias in other sectors to reality. I remain a big time bull, but I took some off the table here in the $90s as this position was closing in on 7% of the portfolio. With a gap up in the chart it is possible CF will fall to upper $80s.

Agco (AG) reported a nice quarter and drove up my agricultural equipment pick CNH Global (CNH) yesterday, so I took a bit off the table in that name as well - nothing major, just about $5K. I have been debating adding this Agco to the portfolio for a few weeks, and after looking at the earnings report it still remains a viable candidate. However, after today's run up it trades at 23x 2008 estimates versus CNH Global's 18x for just about the same growth rate. (however these 2008 estimates are incorrect across the board).

So I will see how the stocks react on the next downturn, and if Agco provides a nice entry point, I can build a position there. Otherwise I will just add to CNH Global on future pullbacks. I still like fertilizer more than equipment as I believe its more 'protected' from any sort of global slowdown.

Some color on the Agco quarter

• Agricultural equipment distributor Agco Corp. said Tuesday its third-quarter profit surged on strong global demand for farm machinery and a lower tax rate.
• Net income for the three months ended Sept. 30 rose to $76.9 million, or 80 cents per share, compared with $5.4 million, or 6 cents per share, during the same period a year earlier. Excluding restructuring and other unusual items, the company said earnings per share rose elevenfold to 77 cents from 7 cents a year earlier.
• Analysts surveyed by Thomson Financial had been expecting earnings of 30 cents per share, on average. Those forecasts typically exclude one-time items.
• Revenue increased to $1.61 billion from $1.18 billion previously. Analysts forecast revenue of $1.37 billion, according to Thomson.
• "Robust global farm equipment markets drove strong sales growth and improved operating results in all four of our geographic segments for the third quarter," Chairman, President and Chief Executive Martin Richenhagen said in a statement.
• Lower tax rates in the United Kingdom and Germany raised Agco's earnings by about $7.4 million, or 8 cents per share.
• The company said it now expects to report 2007 profit in the range of $2.10 to $2.20 per share. In July, Agco said it expected to earn $1.55 to $1.60 per share. Analysts polled by Thomson Financial had been expecting earnings of $1.76 per share, on average.

Disclosure: Long CF Industries, CNH Global in fund; long CF Industries in personal account