When I last commented on Sanderson Farms (SAFM) in August 2008, their CEO Joe Sanderson was praying for a miracle.

New home sales came in at 31 thousand for September which disappointed investors who had been hoping for more like 34 thousand. The market worried that the real estate market had once again fallen off a cliff as the home tax credit was ending. When the numbers came out, the homebuilders sold off brutally. I think we have to keep these numbers in "historical" perspective. This year's dismal home sales are way below just about anything that has been seen in 45 years.

Between February 1990 until October 2008, no single month came in at less 32,000. Between January 1963 to January 2008, only 18 months came at less than 32,000 and many of these occurred in the 1960s and early 1970s. This September was the worst September since 1981. From 1998 to 2007, Septembers ranged from 53,000-94,000.

Back in August, I advised investors to load up on Alcon (ACL), the eye care company because, this New Year's, Novartis (NVS) could be forced to buy all of Nestle's (NSRGY.PK) approximately 150 million at a $181 price.

In brief, Nestle's has the right as of January 1 to sell all of its 52% share of Alcon to Novartis for 20.5% above the average of the past week price to a maximum of $181. I speculated that minority shareholders could piggyback on the ride to $181.

Both molybdenum and nickel are used in the production of steel. Yet, the price of each has fared quite differently the last three months. Molybdenum has tumbled from a high of $18 to $12, hurting my previous favorite Thompson Creek (TC). In contrast, nickel has steadied at $8.69.
Why the difference in price trends? Could nickel be benefitting by strong demand? Certainly that's not the case as rising LME stocks show. In fact, nickel inventories are reaching all time highs. Stores have gone from under 10,000 to over 120,000 as production outpaces demand.
And the last three months LME inventories have shown no let up, just overflowing nickel stocks.
So why the discrepancy between nickel price and rising stocks? Why is nickel holding up while molybdenum is crashing?

I think it's due to the "animal spirits" of commodity traders who are willing to bid up nickel in the face of weak fundamentals. Future traders seem to be looking at the weakening U.S. dollar and buying every commodity in sight: copper, oil , nat gas (UNG) regardless of demand and supply. That doesn't exist in the world of moly, a mineral that lacks a futures market yet has world wide applications.

The home builders represent probably the most "humbled" group of stocks out there, a result of a housing debacle that has seen falling home prices, credit shortfalls and waves of foreclosures.

Home builders also represent some of the best "upside" in the market. The stocks have fallen hard, some trading at one fifteenth of their 2005 share prices. And those share prices have fallen so low that the thirteen "biggest" builders total collectively less than $22 billion in market cap. To put the number in perspective, 138 publicly traded companies in the U.S. trade at market caps of $22 billion or higher. Corning (GLW), Costco (COST), DirectTV (DTV), Potash (IPI), and Ford (F) each have market caps higher than the sum total of all publicly traded home builders. Add up TOL, LEN, PHM, NVR, RYL, MDC, SPF, HOV, BZH, KBH, DHI, MTH, MHO and you get the price of Ford.

Currency plays a big role in multinational companies earnings. The market right now is focusing on the weakening dollar. The plunging dollar has certainly been benefiting companies that are being paid in stronger currencies. Little attention has been paid to foreign companies that will gain profoundly over favorable forex. One of those companies is America Movil (AMX), the giant South American telco titan with 194 million subscribers. Its positioned over most of Central and South America (and also includes the U.S. with Tracfone). Over the last six months, I predicted that the Brazilian real would strengthen over the Mexican peso. I also speculated that the peso would best the U.S. dollar. I felt the big beneficiary of those forex moves would be AMX.

Those forex predictions have come to pass.

Beazer Homes (BZH), that flea-infested, bedraggled home builder dog of a stock, has not only learned to run but has left its peers in the dust since I recommended the stock on August 10 at $4 a share (article).

Less than 6 weeks later, it stands at $5.97, a fifty percent climb.

The market is finally realizing that Apple's business is best reflected by free cash flow and non-GAAP earnings; because these reflect the high growth high margin iPhone business. GAAP numbers, in contrast, miss it all. I've seen analysts one after another wake up to this story that I've been trumpeting for two years now .

Who ever saw a large market cap company nearly double its FCF and non-GAAP year over year as analysts and bloggers put "sells" on the company? Apple (AAPL) accomplished this feat in the middle of the largest recession/depression since the '30s. It shows the power of hysteria in taking down Apple from 200 to 78 (through investors listening to "The Theater of the Absurd") while ignoring the company's explosive growth. Word of caution: the naysayers are still out there.

The Baltic Dry Index is closely followed as an indicator of global economic activity with good reason; it captures the movement of iron, coal, and grains across oceans. For some reason, another index, the Baltic Dirty Tanker Index is ignored. This index maps the prices for shipping crude oil (think FRO, NAT, TK). I introduced this index earlier this year when it was at 485. I predicted the index would rise. It did to 720 before crashing down to a low of 469 where it is today.

Today I'm highlighting the index as a means of gauging the demand and supply of oil. Clearly the index is heavily influenced by the number of ships competing for transporting oil. However, the number of vessels doesn't change drastically month to month. Therefore, the index gives a rough idea of what the oil market is doing absent speculative pressures.

Keeping track of dates is important: birthdays, anniversaries, graduations, income tax deadlines. Miss the date and you're toast; get it right and you're safe. In the stock market, sometimes just remembering one important date is all that it takes to make a lot of money. For instance, one particular stock becomes a great deal more valuable on New Year's 2010. I wrote that date down on April 7, 2008 and it's now time to tell you to check out Alcon (ACL), the Swiss eye care company.

Remember that Nestle (NSRGY.PK) once owned 77% of Alcon. Back in April 2008, Novartis (NVS) agreed to buy 25% of Alcon from Nestle for $143 per share. Novartis and Nestle struck a deal as to how to dispose of Nestle's remaining 52% of Alcon. Starting on New Year's Day 2009 until July 31, 2011, Novartis has the right to buy those remaining Alcon shares from Nestle at $181. On the other hand, Nestle has the option of selling those shares for $181 a share or for 20.5% above the market price of Alcon covering the preceding week (whichever is less). Right now Alcon trades at $132. If this was New Year's, Nestle could force Novartis to buy its shares at about $159. As the months go by, Novartis must be hoping that shares will not reach $144 or they will be forced to eat the deal at $181, or $28 billion. It's going to get pretty tense around Novartis come 2010.

Sometimes it's best not to buy the top-quality companies. This is one of those times when the worst stock can outpace its peers. It's hard for me to give up on buying companies with the best fundamentals. That's my training. But that's not where the action is. This is a market that loves "junk".

Look at retail. Take the Buckle (BKE) and Chico's (CHS). Back in February, you would have read that BKE had 14% same store sales while CHS's were -13%. So, if you'd bought BKE rather than "dud" CHS, would you have been pleased with the result? No way, CHS tripled in value while BKE underperformed gaining 22%.

This week the Treasury plans on auctioning a record $115 billion in longer maturity bonds and TIPS, including two, five and seven year notes. Ninety billion of bills will also be sold.

click to enlarge Should you get in?

Apple (AAPL) has a $143 billion market cap, a number that has been roaring up as the company delivers sensational quarters in arguably the most difficult economic environment since the 1930s. In contrast, Microsoft (MSFT), after a truly dismal earnings report, dropped a whopping $20 billion in one day to tumble to a $208 billion cap. To put that tumble in perspective, only about 140 publicly traded companies have $20 billion or more in cap, 7100 don't.

Should the market caps of the two companies be reversed? Does Apple deserve a $208 billion cap while Microsoft settle for a further $55 billion haircut?

When I last posted on Thompson Creek (TC) on May 7, it was trading at $7.59. This pure play molybdenum miner is currently valued at $14.57, almost double. It has outperformed the SPX and its index XME. Is it time to ring the register?

The six reasons to continue buying TC still hold true:

I recommended America Movil (AMX) on April 7, when it was trading at $29 because I postulated that favorable forex would drive earnings. The company had been killed by the weak peso. I predicted that the real and peso would strengthen over the U.S. dollar bringing in great earnings for the company. After all, the fundamentals of the company were sound: a growing base of mobile subscribers and an excellent balance sheet. It was the "geography" of the company, the unfavorable forex, that was harming its profits. AMX reported a strong quarter two days ago largely on the basis of the resurgence of the peso bringing in an extra 4.8 billion pesos, or $362 million. The stock is now trading at $43.90.

Below is a synopsis of how the three currencies: the real, peso, and dollar have traded.

UUP tracks the value of the U.S. dollar versus a basket of six currencies: the yen, euro, British pound, Swedish krona, Swiss franc, and Canadian dollar.UDN is short the basket of those currencies. One would expect that UUP would move inversely to some degree as each of the six other currencies changed.

However, because UUP and UDN are valued against six independent currencies, those movements would be a cumulative result of the rise and fall of the total basket. Logically, it would be unlikely that UUP or UDN would exactly follow one of the basket currencies.

The technicals started to break down three weeks ago. Now the "panic" has begun to set in (nightmares of early March - do we revisit those lows?) Now, everyone has decided what was great in early June is surely going bankrupt. We're seeing a run to Treasuries (oh, those wonderful safe yields. Would anyone really like to hold 20 year Treasuries to maturity at those rates?).

Are we back? Copper seems to think so.

Copper has had a major move up from its lows of six months ago. Crucial to that move have been falling copper stores. LME is the largest copper market in the world. Its stores have been steadily dropping which have supported copper price.

Banks were taken to the woodshed because they were overleveraged. Simply put, they took on way too much risk with weak underlying capital and assets. Some non-financial companies are also lacking necessary fiscal responsibility. Many of America's "blue chip" companies have scary balance sheets. Over the years, they have been living on "robust" cash flow while ignoring their balance sheets. It would seem that whenever possible they gobble up companies but lose sight of maintaining equity.

1. Verizon (VZ): At first glance, equity doesn't look bad at $42 billion. However, factoring out a whopping $100 billion in goodwill and other intangibles, investors are left with a $58 billion equity deficit. Their $47 billion in long term debt looks formidable. Cash flow dominates this company: operating cash came in at $27 billion for 2008 and $6 billion last quarter but, between acquisitions, capex, and dividends, that money gets eaten away. Please, management, build some tangible equity.
2. Macy's (M): Its $4.6 billion in equity gets swept away by the remaining $4.5 billion in goodwill and other intangibles left on its balance sheet (Macy's marked down two quarters ago about $5 billion in goodwill). The company has $8.7 billion in debt. True, the company made strides in reducing their debt last $800 million Q1 2009. Then, it had been an even more egregious $9.7 billion. This is a company that has been overly dependent on its cash flow at the expense of its balance sheets. It overpaid for Filene's, Marshall Field's and the rest of May's Department Stores. Can it tighten its belt and continue to pay down a debt that is twice its market cap? Will it resort to secondary stock offerings to manage debt? Will cash flow hold up in a tough retail environment? Will Macy's continue to pay down debt? With a total of 155 million square feet of space, Macy's is almost a third the size of Manhattan. Can Macy's continue to expand in the face of so little tangible equity and so much debt? My message to management: trim footage, cut costs and put every bit of cash into paying off debt.
3. Boeing (BA): The company has a negative 662 million equity position. Factor out goodwill and other intangibles and that figure drops to a negative $6.9 billion. tangible equity. Debt is something it definitely has: $8.7 billion in long term debt. The company has been stressed in its cash flow. In previous years, its cash flow could be used to pay down debt. With its recent strike and production woes, that cash flow has been hobbled. Last quarter, Boeing borrowed another $1.85 billion Unfortunately for Boeing, this money is already spoken for: $1.22 billion in dividends, $493 million in interest from its old debt, and $108 million in interest on the new bonds. Even with the new cash, Boeing is stuck in a hole. I would suggest Boeing cut its dividend, something the company can ill afford.

Mature publicly traded companies need to pay close attention to their balance sheets and build tangible equity.