POT has been a solid performer this year also, as you can see from the chart below. This company is experiencing solid stock price appreciation because of its #1 global market share position for fertilizers and other agricultural chemicals. From their company report last year, the company expected sales and demand to steadily rise throughout the next year.
The reason for this is because the world is experiencing a food shortage. Food stocks are at low levels and commodity prices are going up. The USA has been experiencing an agricultural boom for the last several years, which is why we see stocks like POT, Mosaic Co. (MOS), and Deere & Co. (DE) rising at a steady pace. Food is likely to keep going up in price due to the population growth of the world. Developing countries like China and Mexico needing more feed for their food production, such as corn.
Corn is very interesting, because its price inflation was affected by the ethanol craze. Corn is also used in almost every facet of food production in the world economy and has an astounding effect on our food prices. In a Wall Street Journal article I read several months ago, a research agency established that price of basic foods like milk and bread have gone up roughly 20% this year compared to last, due to increased commodity prices of corn, which affected the prices of wheat, soy, and sugar.
Depleting food stocks (shortage) = higher food prices (law of demand; excess demand would raise prices) = more food production by businesses (farms) = more expansion in the agriculture sector = more sales of fertilizer, other chemicals, and farm machinery
Explanation of technicals from my chart:
- We see a pretty much perfect ascending channel for this stock since June, only getting a bit wider in recent times due to the market turmoil. The stock is getting buying support at the 50-day moving average as well.
- As you can see, the stock recently broke through a resistance point with just half the volume (for Monday's half-session). This could lead to interesting events tomorrow, during a full session.
- The MACD has made a sharp jump upwards in a bullish cross-over (or rather just receiving support, as you can see, the 12-day moving average never crossed too far below the 26-day).
- Several things I am concerned about though: 1) the RSI is moving sharply towards the overbought area. This could trigger selling and an overall rest of the stock's ascent, which would be supported by 2) the stock price is about to get near the upper trend line of its ascending channel and could experience resistance and cause some selling.
- The ascending channel of this stock is so prevalent that I am willing to stick to counting on resistance occurring around the upper trend line.
- However, this company is very strong fundamentally with 67% EPS growth last quarter, expected 49% EPS growth in Q4 and last quarter sales up by 36% (from the same quarter last year). This means that the stock isn't incapable of making a trajectory change in its ascending channel. If that happens, expect to see heavy volume and a break above that channel. You might want to try some right here, wait until the stock bounces off the bottom trend line, or does a partial retracement.
I think this company is more of a buy-and-hold type investment for at least a year, but could be good short-term as well, depending on what happens when that upper trend line is hit. If you are looking for a more diversified approach to this agriculture boom, I would recommend taking a look at the Market Vectors Global Agribusiness ETF (MOO). It contains POT, MOS, DE, and a few other related companies. MOO has hit record highs during the last trading session, but is dangerously above the upper bollinger band, which could mean some selling at this point. A good entry would be after it develops a new consolidation base.
$138.83 (12/26/07)
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