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TheStreet.com's Jim Cramer says the writing's on the wall, so position yourself accordingly. If the ethanol mandate is scratched, what will that do to Potash (NYSE: POT) (Cramer's Take) and Mosaic (NYSE: MOS) (Cramer's Take) and Agrium (NYSE: AGU) (Cramer's Take)?
Here's the answer every hedge fund knows: It will not let you raise numbers in the out years.
Right now there is a tremendous struggle going on about near-term and far-term earnings growth and what we can expect to see. Everyone knows when Mosaic and Potash report next week that the numbers will be beaten and the estimates raised.
Everyone knows that the numbers will be far better than whatever drove Bank of America (NYSE: BAC) (Cramer's Take) up 80% in less than a fortnight, that doubled Wachovia (NYSE: WB) (Cramer's Take).
But so what? If you scrap the ethanol mandate or if people even think that it will be scrapped, you will see grains collapse just as quickly as oil collapsed when we found a level we didn't need it -- remember, we don't "need" ethanol, but it is mandated.
That means the stocks could get killed despite rising estimates. And, heaven forbid, if they don't rise enough, they will be killed anyway. Any miss and they will be cut in half.
Now, we know that they are no longer at their highs so the risk-reward has gotten better. But 216% and 153% -- that's how much Mosaic and Potash are up in the last year -- that's enough.
I think these stocks are too darned hard here. I think that the headlines for ethanol are all going to be bad. I think that the politicians who sold us out on this fuel know it. I think the politicians who listen to consumers' gripes know it.
I think the mandate's doomed.
If that's the case, the out-year numbers for MOS and POT just got a whole lot worse.
And the out-year numbers for BAC and WB look a whole lot better.
So I would anticipate that and ring the register today.
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RELATED LINKS:
Mad About Options: Mosaic's Growth Stunted
Bank Rally Doesn't Add Up
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Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer had no positions in the stocks mentioned.
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Reader Comments (Page 1 of 1)
7-24-2008 @ 9:44AM
Gismo said...
Jim, I can't see the ethanol mandate collapsing any time soon. We've got oil prices shooting through the roof and even if we increase domestic production in the Gulf and in Alaska (a tall task in this political climate), it'll take years to affect the price. So, ethanol is going to become an increasingly important part of our energy policy as it should be -- it's a clean, renewable and efficient energy source that is home-grown. I say ramp up the ethanol production!
7-24-2008 @ 11:54AM
Roger said...
The mandate is not going away. Senators in the farm belt will be tarred and feathered before that happens. Farmers post ethanol mandate are finally making big money and will use some of it through PAC's to ensure the mandate stays. This isn't a Democrat or Republican issue this is a Farm Belt issue and you simply will not get reelected if you vote to end the mandate. PS not only the farmers but downstream chemical companies and fertilizer companies benefit from the ethanol mandate and the communities that receive their tax base from them.
7-24-2008 @ 12:37PM
Beltway Greg said...
What happened to $300+? You should really stop making ridiculous long-term predictions. And if you do, quantify them. Give a rough probability. The CEO said that ethanol accounts for something like 5% of their profit/production. Even if the ethanol mandate goes away, and I'd much rather enrich a farmer in Iowa than the Saudi Royal family. I don't hold this stock long-term but day trade the heck out of it. All of these amazing long-term price forecasts cause buyers to return to it day after day regardless
of the drop. It's like one of those sand filled punching bags that everyone had as a kid.
Beltway Greg
7-24-2008 @ 4:27PM
James (JD) said...
It's probably because Cramer just got on the SHORT bus with a lot of his friends at GS and is in line to make a fortune off the attacking of the AG sector. He's all wrong here, AGU for example is a very safe stock long-term, it is a Canadian-based company with a product that is absolutely required by the world. Even if the US economy continues its fall (almost guaranteed) , AGU and AG in general should hang on and keep profiting while other sectors slip.
7-30-2008 @ 3:36PM
sparkie said...
what happen cramer you were recommending to stay away from MOS ,POT. one day before the MOS report you said stay away from it . i wonder how one can make money if he listens to you
8-10-2008 @ 12:09PM
ragingbullish said...
http://money.cnn.com/2008/08/07/news/economy/ethanol/?postversion=2008080715
As you can see from this link, you are were again Cramer! You need to eat your words and go back to being bullish on AG stocks. The ethanol mandate will only increase- tough problems call for tough policies. Wait until he tells you to see the bank stocks he just told you to buy in a month. You flip flop more than a politician.