Steel, Coal and Agriculture Plays Turning Over 8 comments
-
Font Size:
-
Print
- TweetThis
The hottest segments of the market over the last quarter have been commodity related names, specially coal stocks, steel stocks and agricultural names. Stocks like US Steel (X) had gone from under $100 just earlier this year to over $190 - until this week when all these hot stocks have turned over. Potash (POT), Mosaic (MOS), Walter Industries (WLT), Alpha Natural Resources (ANR), Cleveland Cliffs (CLF), CVRD (RIO) were all down 5%-15% just yesterday, and as much as 25% over the last week.
There are two main things happening - one is sector rotation, but then where are people putting their money? It's a good question, and I believe the answer is cash. There was no sector that was up yesterday. The other thing is redemptions - funds that have owned these stocks above sold them heavily to take profits.
I don't think the pull back is over and while I am not shorting any of these names, I believe you can probably buy them lower.
At some point later this summer, maybe sooner than later, the market will sell off much more sharply and I expect panic sellers to come in and dump everything. That is the point where one needs to load up. Until then, sell into rallies and start collecting cash.
Full Disclosure: I own POT, X and RIO but my position can change anytime without notice.
Related Articles
|



























This article has 8 comments:
the main idea is that individual investors dont have to act like institutional investors and this market and may be better holding cash than trying to beat the market.
www.greenfaucet.com/sh...
I think this is the time to sell our commodity stocks and commodities in in agriculture. energy and industrial materials.
The point is, with central banks tightening, I think investors are starting to discount a synchronized global slowdown. All the high fliers mentioned are economically senstive, so they are getting wacked. If a sharp global slowdown does materialize, those stocks will be toxic even though they look "cheap" on '09 earnings estimates.
I'm no farmer, but it would seem to me that there will not be any quick turn-around for the mid-west farmers this year. And in fact, I haven't heard anything about the issue yet. But think about it. Farm homes and barns are gone. Tractors, planting and harvesting equipment is gone. Roads and infrastructure is gone. Rails and barges that work the Mississippi are gone (Look at KEX and ACLI for intercoastal barges and CSX for rail problems.) The soil is sodden and needs to dry out. People (workers, owners and various support staff) have been displaced for the season. I just don't see a quick turn-around in farming in this area... I'm sure it will pick up next year. I haven't read anything about replanting yet, but have read about the remainder of the problems.
Having said that, I'm not sure that this small loss (in the scheme of things) will affect the rest of the world's usage.
It would seem to me a better play on this disaster would be infrastructure, modular home builders, local vehicle, equipment and banks - as all of the above need to be replaced and banking will need to furnish loans. (Just my take).
Thx jegan ;-)
During the last commodity bull market & high inflation period in the 1970’s, equities materially underperformed farmland. Western Canadian farmland went from around $100/acre to $550/acre (550% total return and 176% in inflation adjusted terms), cash held in a money market account barely kept ahead of inflation (6% inflation adjusted return) and the S&P 500 index returned less than 2% per year (a loss of almost 50% in inflation in adjusted terms)
I believe the world is still in the early stages of this current commodity bull market. When agriculture commodities prices are compared against their previous inflation adjusted highs they are significantly discounted implying scope for further increases:
Corn is US$ 5/bushel currently compared to US$16/bushel in 1974,
Wheat is US$ 7/bushel currently compared to US$27/bushel in 1974
Canadian farmland is C$ 660/acre currently compared to C$1,100/acre in 1981