I Eat Bear

I said I would try to be a frequent blogger, and already I find myself behind. All I can say is I will try to do better.

Today, a brief discussion on DE (John Deere) and POT (Potash). In short, I favor both stocks right now. Here are some of the reasons. First, I am a great believer in fundamentals. Coming out of a bear market, all stocks are broken, but not all companies behind the stocks are. That is the case of DE and POT right now. It is a plain simple truth that people and animals need to eat. To do that, they need the fertilizers produced by POT and the equipment produced by DE.
No, they are not the only suppliers of these items, just the best ones. I look at the charts on these, and it corresponds almost exactly the the credit crisis. Prior to the credit crisis, both companies were doing extremely well. DE even had a stock split just over a year ago, due almost entirely to a huge stock price run up in the months before. Post split, the stock price faltered, and I find that is not uncommon. Not fell so much mind you, just failed to continue gains. Enough so, that I had to remove DE from my portfolio, as too many companies were outperfoming it. But, DE is an extremely well managed company. And, based on chart patterns, I see no better time than to be buying DE stock. Neither DE or POT has much of a dividend, and POT has a rather minimal one, putting both of thses stocks in the growth stock arena. POT is also a well run company with the largest market share of potash supplies in the world. PE's on both stocks have been beaten down lately. I like what I see in forward PE's better in DE than in POT right now, as POT has a forward PE less than it's current PE, and DE is about equal. Then again, I favor the chart on POT perfomance. Despite both stocks having made a fall in the last 6 months, the chart on POT is still in an upward trend for the entire year, and it is still outperforming the market as a whole, and by a significant margin. The charts also suggest this is an excellent time to buy both stocks, as they are at near lows. Could they drop lower? Yes, I think they could. But, to do that, they would be right along with just about every other top stock. I don't think there is much risk in either stock right now. DE had an earnings miss recently. Virtually every company in business longer than a year has had those. It is just a short term miss of a companies earnings compared to what analysts want and expect. Likely, both the company, and the analysts are at fault there.

I suppose the answer to whether to invest in these companies comes down to how you want to manage your portfolio, and your personal goals. If you are a long term investor and plan a buy and hold, DE and POT are going to be some of the best stocks available for the next five years at least, as far as I can tell. If you have to have quick gains, I would avoid DE here, and would be very cautious about POT.

Why be so negative about short term on these stocks? Simple. Until the government does something to monitor/regulate short selling, there is no safe stock anywhere. And, turbulent markets will force financial and investment companies to rob profits/value from virtually every stock. No, I do not think they will be immune from this. I do think they will fare better than most.

I can foresee that DE will have a stock price over $120 by the end of 2010, and POT should be well over $300 per share in the same time frame. And, I think I am being conservative in my estimates. I could see maybe a 15-20% gain in DE within a year, and look for a 25-40% gain in POT within a year.

Full disclosure, I own POT, and it is down since I bought it. That does not mean I plan to sell it. I do not own DE, and it is on my buy list. Both have been in my lab portfolio, and POT continues to be one of the top performers there. DE may be added again, when and if, it starts to make stock price gains, which are outperfoming the market. It has not done so recently, and it was removed from my lab portfolio some months ago.

In short, I am a long term investor, and favor the buy and hold. I think theses are two excellent stocks for that strategy. Like so many of us, I have limited resources. As such, I have an immediate buy on POT, and DE is kind of on my wish list.

Comments: View Comments |  Thursday August 14, 2008