I am very conflicted on these fertilizer names - they are ridiculously cheap on fundamentals but that has not stopped a relentless sell off. As I said a week and a half ago you now need to treat this group like financials, because the quant hedge funds do. [Cramer - Quants and their Machines] They get sold off relentlessly and then one day they turn on a dime - they get run up by the same quant hedge funds and then once the algorithms are done with their work, they move on to the next field like the locusts they are, leaving the stock for dead in its wake. That is a very a sad statement on the affairs of the market. I look at Mosaic (MOS) I see a stock that will be making $14 EPS in the year ending May 2009. That is a forward PE of 7.5 - for 100%+ growth.
But I have to sell it because HAL 9000 and friends will drive it to a 5 PE? Or 3? Can this really be all this market is about? If so, I say it's all pathetic. The growth in this name even if "global demand destruction" cuts its growth in half to 2/3rd is 30%. (I didn't know food was so "elastic" in demand, but that's the current theory) Or let's get crazy and say it turns from a 100% grower to a 15% grower, I'm still paying a PEG (PE to Growth) ratio of 0.5 at 15% growth. 1 is considered "fair value". Yet I should not pay "up" at 7.5 forward earnings for that? Most banks who have terrible prospects the next 3-4 years trade at higher multiples. The ones that still have earnings to speak of.
Again, I won't lie and say this makes any sense. It makes none. But I'm going to assume the stock breaks down after this bounce and falls lower as its trailing to the 200 day moving average ($105s). I hope I'm wrong as a matter of fact. For now I'm cutting this position back from 2.7% of fund to 1.5%. Every nerve ending in my body says this is "wrong" to do because it makes zero sense. But fundamentals mean nothing. Maybe we'll be lucky and we can get a forward PE ratio similar to say Wells Fargo (WFC) - hey 10x the growth for less multiple - and the stock can rally to $125 which is the 50 day moving average before being bludgeoned.
I don't know when sense returns to the market, but until it does we're sticking with the game plan, even if it could cause us to miss out on great fundamentals. Maybe this stock formed a double bottom with its mid March low of $90 and it booms from here. Since very little makes sense I'm just going the cautious route. Frankly I'm doing things that make little sense from a fundamental point of view - this is one of them.
Long Mosaic in fund and personal account
Did you like this article?
's
