Do you remember the food and commodity bubble? Sure you do. It wasn't that long ago. The rise of India and China was inexorable, and the supply of food in general and meat in particular was never going to keep up with demand. As a result, a formerly-sleepy outfit known as Potash Corporation (POT) of Saskatchewan did a Nortel and briefly became the most valuable company in Canada.
In three-and-a-half months, the company has gone from the most valuable in Canada - worth $77-billion at its apex - to losing its place in the top 10, standing at [Thursday's] close at No. 11, worth $31-billion.
Since then, POT has fallen further still, from $93.51 to $86.86, although it does look as though the carnage has slowed down a little. Meanwhile, its fellow fertilizer company Mosaic is now trading below $34 a share, down from a high of $163 in June.
Now that's what I call a bursting bubble. But the poor in India and China are still becoming middle class, there's still enormous demand for fertilizer -- and the actual price of fertilizer is still, for the time being, high. As a result, John Burbank of Passport Capital made a strong case for MOS at the Value Investing Congress yesterday: what used to be a momentum stock has, in the space of a single quarter, become a deep-value stock. After all, it's not like these are dot-coms without earnings: all of these companies are enormously profitable.
If it's true, as analyst Terence Ortslan is quoted saying, that "nothing has changed fundamentally," then now could be a great time to buy all those commodity stocks which looked ridiculously overpriced a few months ago even though the long-term fundamentals seemed compelling. Vale, for instance, closed at $12.48 a share today, down a whopping 14% on the day and down 72% from its May high.
Of course, percentage-off-highs is a really, really stupid basis on which to buy anything. Stocks should be valued based on their future earnings, not on their past stock prices. But if you're really looking for bargains these days, I suspect you're much more likely to find them in the wreckage of the commodity stocks than you are in the financials.
This article has 7 comments:
We are in deep water and fast currents but it is partly illusion. The Credit Suisse Chart of Mortgage Resets shows the flight plan. Right now every day is worse than yesterday and the water goes down into the stygian dark depths. But the water is not as deep as it seems. The flight plan says we are almost halfway through this Fall Nightmare. The Market Crash scheduled for August 14 took until the end of September to happen; it will all be better than expected because the chaos was held off by the strength of the overall economy for a lot longer than the Fates expected. The Powers-That-Be are working hard at doing their thing. Two more weeks to November; then we will not be safe quite yet but there will be some sense of solid bottom and we will be able to begin resuming breathing.
There may or may not be a Christmas gift, but certainly a Chinese (Lunar) New Year's gift. The flight plan says by then it will be back to much like this past mid-summer with no more mountains to cross. If the big boys will just behave for awhile, it will be a rough road for a very long time but it will be over. Now and for the next week or two is probably the best time for (us) little guys to glom onto some cheap (affordable) stuff before the stock prices turn into helium balloons again.
This whole commodities bubble and subsequent burst has to be one of the most insane things I've ever seen in the market. In a period of roughly 8-10 months, we've seen stocks with 3 to 6-fold increases in prices followed by an almost equally dramatic fall. Yet, there have not been very many dramatic changes in regards to fundamentals.
This market feels more like the market from the 19th Century where boom and bust cycles would hardly be a year apart.
This crash was brought on something else. I suspect market manipulation of a high order --hedge fund mischief, short selling sleaze, fake pronouncements by by fat cats looking to clean up at the top and the bottom.
This wasn't about worthless overpriced stocks reaching their true value (as in the Dot Com Bubble) -- it was about good stocks being driven into the ground by sleazy manipulative crooks.
I read you often enough to know you don't believe that commodities was a bubble. You're just baiting the hook.
Good comments
When stocks like Monsanto can fall and other blue chips when they are perfectly healthy companies by ANY standards, the btm. line is PANIC, PANIC, PANIC being the main reason for everything going down.