We had the internet bubble and the real estate bubble and now, there is the ethanol bubble. Recently, I ran some numbers on ethanol and to my amazement realized that it is – too use a catch phrase from the environmental world -- not sustainable. Turning food into fuel is just plain silly; and when oil prices come down the ethanol bubble could pop big.
I ran did a little research and found some numbers:
47% of the Mexician' diet is corn
it takes 2.4 pounds of corn a day to feed a hungry person
it takes 22 pounds of corn to make one gallon of ethanol
there are 42 gallons of refined gas in one barrel of oil
Now, a little basic math can be very enlightening. To replace one barrel of oil, it takes 42 gallons of ethanol or (42x22)=924 pounds of corn. That is enough corn to feed one hungry person for (924/2.4) 385 days – a little more than one year.
When natural disasters happen, there are always some companies that can turn the circumstances in their favor. Recent downpours in the Midwest provided such an opportunity as they came not only with high damages for people in the area, but also with floods for crop production, causing even higher agricultural commodity prices. The rise in corn and soybeans prices could easily lead to an increased demand for seeds, agricultural equipment, and fertilizers. BusinessWeeksuggests some big names to invest in that could offer us the advantages we are looking for.
One such company is Archer Daniels Midland (NYSE: ADM), which could also benefit from higher ethanol prices, after purchasing seven businesses in 2007. Bunge Limited (NYSE: BG) is also amid possible winners, having forecast better-than-expected fertilizer earnings. Shell eggs producer Cal-Maine Foods (NASDAQ: CALM) is also on the selected list; the company saw its shares climb 15% year to date, and has just revealed a new dividend payout policy.
Another important name is Mosaic Co. (NYSE: MOS), whose stock prices have surged 70% so far this year. BusinessWeek cites Mosaic as being able to benefit from higher prices for fertilizer and potash. Following the same logic, the article points out potash provider Potash Corp. of Saskatchewan (NYSE: POT) and fertilizer distributor CF Industries Holdings (NYSE: CF), which should be able to take advantage of the weak dollar and higher sales prices.
MOST NOTEWORTHY: Anheuser-Busch, Brasil Telecom and Finisar were today's noteworthy downgrades:
UBS downgraded Anheuser-Busch (NYSE: BUD) to Neutral from Buy citing the InBev unsolicited bid.
JP Morgan cut Brasil Telecom (NYSE: BRP) to Underweight from Neutral on concerns over the merger with Telemar.
Piper downgraded Finisar (NASDAQ: FNSR) to Neutral from Buy following strong Q4 results, as they believe the company's acquisition of Optium creates substantial integration risk.
OTHER DOWNGRADES:
Merrill cut Weyerhaeuser (NYSE: WY) to Neutral from Buy.
PDL BioPharma (NASDAQ: PDLI) was downgraded to Neutral from Outperform at Credit Suisse.
Wachovia downgraded McClatchy News (NYSE: MNI) to Underperform from Market Perform.
Archer Daniels (NYSE: ADM) was downgraded to Equal Weight from Overweight at Morgan Stanley.
I have not decided who I am voting for yet. Or maybe it would be more accurate to say I have decided on multiple occasions only to become undecided again. While some will see me as fickle, or worse, others may be in the same boat.
I am also continuing to think about what difference any of the candidates can make on the economy, and based on these musings, where to invest. My current belief is that none of them will have a profound impact on our economy.
There are no financial wizards among them. Here is the shocker though: I like all three candidates, or at least can find some good in each of them. Each of them is a fighter, and I believe each one of them brings certain skill sets to the job. There are also things about each candidate that are inescapably negative. Clinton has so much baggage, Zsa Zsa Gabor would be jealous. Obama does not have the experience and he has a degree of arrogance (right sweetie); McCain is an old stick-in-the-mud who, as a long-time senator, has spent more hours with lobbyists than almost anybody, though he is pretending otherwise.
Where does this leave me from an investment perspective? My first choice, for stability with moderate growth and dividends, remains the defense sector. I wrote Defense sector rolls over S&P 500 for 8th straight year a while back and I still think that it is the most secure. Here's why:
A) None of the candidates will want to appear soft on defense when we are at war, and all three have made threatening remarks in some country's direction to make sure the electorate knows that.
B) The War in Afghanistan and Iraq rages on, and even the most optimist view is that a draw-down will take years.
TheStreet.com's Jim Cramer says lots of companies now thrive with crude up here.
Oil's not a tax on everything -- it's a tax on the consumer. That's what I come down to when I see the charts this weekend and ponder what's happening in so much of industrial America.
Company after company that I examine -- the new techs, as I call them -- actually benefit from higher oil prices. Or they can pass them on with ease, because of the worldwide demand being so strong.
Take all of the companies involved with making a Boeing (NYSE: BA) (Cramer's Take): Boeing itself, Alcoa (NYSE: AA) (Cramer's Take), Honeywell (NYSE: HON) (Cramer's Take) and Precision Castparts (NYSE: PCP) (Cramer's Take) being good examples. Each of these is necessary because the new Dreamliner burns lots less fuel, and with fuel the biggest airline cost, it stands to reason that higher energy prices make the plane more desirable even at a higher price point.
Merck & Co. (NYSE: MRK) shares are dropping over 8% in premarket trading after it said its cholesterol pill Cordaptive failed to win approval from the U.S. Food and Drug Administration, less than a week after it was recommended for marketing in the European Union. While Merck intends to submit more data to the FDA, it is unclear it will succeed given even some European doctors said more research is needed on one of the drug's main components safety.
Who said higher oil prices aren't good? If you ask Royal Dutch Shell (NYSE: RDS.A) and BP (NYSE: BP), high oil prices are fantastic as the two oil giants beat forecasts when posting quarterly earnings Tuesday, reporting that net income, excluding unrealized gains from changes in inventory values, rose 12% to a record $7.8 billion and 48% to $6.6 billion respectively. Shell shares are climbing 5.7% in premarket trading and BP's over 4.8% as it seems investors think oil above $100 a barrel is here to stay.
Archer Daniels Midland Co. (NYSE: ADM), the world's largest grain processor, said third-quarter profit rose 42% to $517 million or 80 cents per share, topping analyst estimates of 69 cents per share, as it traded more grains and crushed more soybeans. Sales climbed 64% to $18.7 billion. Seems that being in agriculture lately is a positive and ADM shares are rising 3.75% in premarket trading.
Analysts surveyed by Thomson Financial expect Countrywide Financial (NYSE: CFC) to post a much smaller profit for the first quarter, while Archer Daniels Midland (NYSE: ADM) is expected to report a profit gain. Both companies are scheduled to report results Tuesday morning.
Countrywide Financial is expected to earn two cents per share, which is down 97% from the same period in 2007 when it earned 72 cents per share, but that swings from a loss of 79 cents per share in the most recent quarter. However, the company tended to fall short of earnings estimates even before the credit crunch set in; that fourth-quarter loss of 79 missed estimates by 163%.
Formerly one of the top residential mortgage lenders, California-based Countrywide Financial is being bought out by Bank of America (NYSE: BAC). In the past year, Countrywide's revenues were $24 billion, and its net income is in the red to the tune of $703.5 million. Not surprisingly, the consensus recommendation of analysts remains to hold CFC.
The stock has fallen 84.9% in the past year and closed Monday at $5.83.
Next week is sure to be filled with fun and volatile market conditions. The highlight will be the Fed decision on key rates, due on Wednesday, April 30, following a two-day meeting. Anytime the Fed has the floor, the markets listen. Tuesday and Wednesday will be filled with speculation up until the time of the announcement of a cut or pause.
There are many possible outcomes for this meeting, as we have seen a substantial change in investor sentiment regarding the potential need for further rate cuts. The buzz on the street is for a cut of 25 basis points and then a wait-and-see attitude from there. I think that is the most likely direction.
There has been a great deal of concern that all the recent rate cuts have not provided the benefit to consumers the economy needs. Clearly, there is a fatty clog within our financial circulatory system. Traditionally, the Fed likes to see how its actions trickle into the economy before it continues too far down one path, which would argue for a pause now. Plus, the Fed does not want to run out of ammunition by cutting rates too far too fast. But there is no question that we are dealing with a more aggressive Fed than we have seen in decades, so I think we will see another small rate cut.
Readers of this space know that one of my preferred sectors is agriculture due to the boom in food consumption created by emerging market economic growth. Real incomes are rising in nations in Asia, Latin America and the Middle East, and with it, per capita food consumption is increasing, a trend that benefits Archer Daniels Midland.
Archer Daniels Midland (NYSE: ADM) is one of the world's largest processors of oilseeds, corn and wheat.
The frenzy that accompanied the financial world's realization that bio could represent a renewable energy form, for some energy users, appears to be tapering (thankfully). Still, although the bloom is off the biofuel rose, the key driver here remains in-place: commodities for food use. Demand for wheat, corn, soybean and other food basics is likely to remain strong through at least the end of 2009, propelled by the aforementioned emerging market growth.
Most analysts see accelerating earnings growth on strong corn and soybean demand, with pricing power. Further, given the vagaries of the energy business, it's worth underscoring that ADM is foremost a large, vertically-integrated food commodity company (wheat, corn, soybeans). The Reuters F2008/F2009 EPS consensus estimates for ADM are $2.84/$3.24.
The risks? Declining disposable income is expected to pressure U.S. consumer food budgets in 2008, and analysts expect a slowdown in U.S. revenue from food sources, something that will hurt ADM's domestic results, offset by a superior international performance.
The First Call mean rating for ADM is: Buy [10 firms]. Mean 2008 target: $48 [high: $60, low: $39].
Stock Analysis: Archer Daniels Midland is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than two years should be rewarded from ADM's shares. I'd consider a Sell / Stop Loss at $31.
Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.
Archer-Daniels-Midland Co. (NYSE: ADM) shares are rising today helped by higher soybean futures. Soy is getting a boost from higher energy prices including crude oil prices. Alternative energy interests are also getting a lift from an energy bill that was passed by the US House limiting subsidies on oil companies. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on ADM.
After hitting a one-year low of $31.28 in August, the stock hit a one-year high of $47.33 in December. ADM opened this morning at $44.99. So far today the stock has hit a low of $44.99 and a high of $46.95. As of 11:15, ADM is trading at $46.05, up 82 cents (1.8%). The chart for ADM looks bullish but deteriorating slightly, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider an April bull-put credit spread below the $40 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. This particular trade will make a 6.4% return in just two months as long as ADM is above $40 at April expiration. ADM would have to fall by more than 13% before we would start to lose money.
ADM hasn't been below $40 since December and has shown support around $45 recently. This trade could be risky if the demand for alternative fuels slows, but even if that happens, this position could be protected by the support the stock might find around $40, where the stock bounced in January.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in ADM.
While Michelle Obama's rather outlandish comment hasn't gotten a lot of mainstream media play, I would like to present two American stocks that even she would be proud of.
Michelle Obama said, "for the first time in my adult lifetime, I am really proud of my country." Now Michelle hasn't exactly led a life of your typical third world citizen. She graduated from Princeton University and Harvard Law School. While America may not be perfect, it is by far and away the greatest nation on earth. If she was so anti-U.S. for the last 25 years, why did she bother staying? The fact that millions of people are trying to enter the U.S. every year means something. You don't see people crowding into boats to be smuggled into Cuba (enjoy your retirement, Fidel).
I will not go into all the things that we can be proud of as Americans that have occurred over the last 25 years. What I will do is present two great U.S. companies that will make you proud. They have not only created products that have been an enormous help to people around the world, but also make for potentially intriguing investments.
We had the internet bubble and the real estate bubble and now, there is the ethanol bubble. Recently, I ran some numbers on ethanol and to my amazement realized that it is – too use a catch phrase from the environmental world -- not sustainable. Turning food into fuel is just plain silly; and when oil prices come down the ethanol bubble could pop big.
When natural disasters happen, there are always some companies that can turn the circumstances in their favor. Recent downpours in the Midwest provided such an opportunity as they came not only with high damages for people in the area, but also with floods for crop production, causing even higher agricultural commodity prices. The rise in corn and soybeans prices could easily lead to an increased demand for seeds, agricultural equipment, and fertilizers. BusinessWeek 
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I have not decided who I am voting for yet. Or maybe it would be more accurate to say I have decided on multiple occasions only to become undecided again. While some will see me as fickle, or worse, others may be in the same boat.
Here are some highlights from this past week's 
Countrywide Financial is expected to earn two cents per share, which is down 97% from the same period in 2007 when it earned 72 cents per share, but that swings from a loss of 79 cents per share in the most recent quarter. However, the company tended to 
Next week is sure to be filled with fun and volatile market conditions. The highlight will be the Fed decision on key rates, due on Wednesday, April 30, following a two-day meeting. Anytime the Fed has the floor, the markets listen. Tuesday and Wednesday will be filled with speculation up until the time of the announcement of a cut or pause.
While Michelle Obama's rather outlandish comment hasn't gotten a lot of mainstream media play, I would like to present two American stocks that even she would be proud of.
Alcoa's Q2 2008 earnings transcript
Anheuser-Busch (BUD) sues InBev, what's next?
Wal-Mart might help your portfolio during the recession
