Monday, January 12, 2009
(Cont'd from above)...

Jim (cont'd):   

So tonight, we look at Potash (POT), the fertilizer stock with what technicians tell me is the best chart in the book… although it like all the other fertilizer names today took a beating… courtesy of a negative report on corn stocks by the USDA… here is the Potash chart… what does it say… according to one of my favorite technicians I know, Dan Fitzpatrick, at TheStreet.com, where I am chairman, he is often a guest by the way on Fast Money… Potash has bottomed… and the chart is very bullish… this is bullish… Alright, now how can you tell… between December 4th and December 17th Potash rallied by more than 60%… okay… that is a big, big move… most stocks after that kind of move, would see a pullback, alright?… that would be weakness… investors are going to ring the register.. but not Potash… it was up again… another 5%.. .since then, as of the end of last week, before giving up 11.8% in today’s trading, okay… this chart’s insight… frankly I have to tell you… that Potash shareholders are committed investors… not short time traders… at least the ones who are left… see, after this has gone down… the only ones who are left, are committed people… that is what this chart shows… and that there are buyers that are impatient enough not to wait for a pullback… they want to come in...

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What else can we learn about Potash from this chart?… the pattern of high’s and low’s have become bullish again… see after an 80% of the pullback in the second half of 2008.. people have simply stopped selling into the rallies… that tells us the buyers have gotten more aggressive… people want to own Potash stock… that is how the chart reads… according the chart the crescendo low happened on October… on October of ’07, when Potash dropped more than 10% on double the average volume... and since then the stocks has been building what is know as a committed share holder base… alright.. yes, charts can unequivocally demonstrate this pattern… and even fundamentalists must take note… because, remember, that so many other charts are measured… are chart driven… you can’t ignore what your competition or you fellow shareholders are thinking… and this tells you what they are thinking.

Now, $65 is Potash’s most recent low… so the technical thesis that the longs are increasingly eager to buy Potash… and smart money is top selling… should be confirmed if the stock stays over $65... but speaking technically if Potash pulls back to $65 and doesn’t hold that level… it literally goes thru that level… then the thesis based on the chart is wrong. See if you by the technicals you want to buy Potash as close to $65 as possible… now just so you know that my beef with the technicians is that if Potash doesn’t hold $65, that would cause you to sell it… and to me, is what you have just done is buy high and sold low… my method allows you to buy down… because if you liked it at $65... you should like it even more at $62, and $58, and $55... which is why say buy down in increments on the stocks I like in the fundamentals.

How does this hocus pocus square with the fundamentals? … Do we have reason to believe that the ag, in a particular fertilizer place have bottomed?…. and if so what should we do about it?… over the last 90 days the analysts have slashed estimates… for all the fertilizer stocks… at the end of November, Deere & Co. (DE*), Cramer fave… really down bad today, which I own for ActionAlertsPlus.com, my charitable trust… flagged the likely material contraction in machinery demand… ag machinery demand in Western Europe and Latin America in 2009... that is what took all the stocks, started to take them down… but now we see that fertilizer capacity has been reduced… they are shutting in 20% of ammonia, 30% of potash, 25% of phosphate production has been idle… that helps enormously with pricing. So now you have to go back to your economics class.. just think supply limited, demand the same, pricing goes higher… then last week Cramer fave seed maker Monsanto reported blow out numbers… and indicated that the upcoming U.S. planting season is looking good… thru the end of December pre-payments for seeds running 50% ahead of last year.. where there is seeds… there is fertilizer… plus we are still dealing with the world wide food shortage… President-elect Obama is still committed to the insane ethanol mandate.

So, we have a technical case for the fertilizer stocks, and a fundamental case… so, do I buy Potash?…

No, no...  Because, you see, if you like Potash, you should love Terra Nitrogen Company, L.P. (TNH)… which we recommended at $87.87 back on November 3rd… we have a 12.4% gain since then…

Unlike Potash which has a meager dividend… essentially all of Terra Nitrogen’s operating cash flow is cash fluid… cumulative, because it is a fertilizer limited partnership… it is a distribution… now that doesn’t mean necessarily it is safe… prices go down a lot… but this one has given us, of course, it is an estimated notoriously B.I.G. juicy yield of 15%… Word Up Magazine, I subscribed to that this weekend..

Alright, now anyway it has a 15% yield… fertilizer is a stinky business. .. but the yield makes Terra Nitrogen more reliable more than any other names… that is why it was down only 5% today while the rest of the fertilizer stocks off between 10 and 16%… TNH has the most exposure to corn, that requires more than double the amount of fertilizer to needed to grow wheat… thanks to the ethanol mandate, it is more profitable for farmers to grow corn and then sell it… so it an be turned it into fuel… nobody but farmers in Iowa and Illinois want it… Cramer cracked corn, and you should care enough to buy TNH… plus nitrogen fertilizer producers like TNH benefit from the incredible decline in natural gas… that is the number one cost, by the way, of producing fertilizer… so with natural gas just off it’s 52 week low… Terra Nitrogen is going to be saving a lot of money.

Here is the bottom line…

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The Bottom Line!:     The technical’s say that fertilizer’s a win… okay… they are saying that this holds… that is not enough for me… even though the fundamentals… after declining for a long time… that is still not enough for me… and Potash (POT) may have the best chart… but that’s not enough for me… we think Terra Nitrogen Company, L.P. (TNH) is the best fertilizer stock… because we favor big distributions and dividends… and today’s decline gives you chance to get in at a good price… especially if the pullback continues… and you get to buy more at higher yield on the way down.

[verbatim recap]

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Jim went on after this segment to take questions from callers, and responded with his comments...

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Q:    We need your barometer on the markets. When will fundamental analysis return as investment strategy?

Jim:    Not until we return to the levels where we are really inexpensive on 2009 earnings… which is not here… I have said over and over again… if you are not buying higher… you know, stocks that are protected by accidentally high yields… and all those stocks that shot up too much… or you are not buying recession resistant… you are not going to make money. You are just going to lose money… 2009 is just like 2008... there are no miracles at work here. The options of buying corporate bonds, municipal bonds they are all superior to stocks… I know that someone who is a stock guy is not supposed to be saying this stuff… but I am not about recommending stocks if there is other alternatives that are better… which is why, either high dividend or recessions resistant… or everything else… I’ll take it or leave it.

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Q:    I want to know what the future might be for Mosaic (MOS) maybe a year from now. And what, 2 or 3 quarters of 2009, what Mosaic might do or when the commodities might make a come back by the end of the year. I have a couple thousand shares of Mosaic, my break even is $38, I just wanted to know what your outlook?

Jim:    I am not… I am not a bull on Mosaic… I need dividend protection and Mosaic doesn’t have it… I understand that technically Mosaic looks strong.. but I would sell Mosaic… if you need to have exposure to this group, I would buy Terra Nitrogen Company, L.P. (TNH)… it is not my favorite group even though the technicians have proclaimed it their favorite group… I need dividend protection, I have said over and over again, without dividend protection… I am not going to be able to survive this very difficult choppy market.

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Q:    Why is your show not reminding people of the alternatives, the intelligent alternatives of corn?   Why do we need corn? We don’t. What are the intelligent alternatives?   Some companies that produce this kind of stuff. That is what we need to know. Alternatives to corn?


Jim:    Alternatives to corn are going to be… you are still going to have to go and get Monsanto (MON) because Monsanto’s got seeds to everything.. .including alternatives to corn. So I would say that Monsanto on a very big pullback makes the most sense, in order to have alternatives to corn.

Interesting question. We have got some thoughtful people trying to be able to think bigger… and I like that. Technicals versus fundamentals… Potash (POT) has the good chart… but Terra Nitrogen Company, L.P. (TNH) is the better buy.

[verbatim recap]

[end of segment]

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