TwoBear, et. al. Fertilizer business looks like it's pretty stinky.
We've talked about GRO before. I own it at higher prices. Rather than just add to the position here which I had been thinking of doing, I decided I would reduce the business risk (NOT the market risk or the industry risk)a little by starting a position today in a somewhat comparable company - IMC Global (IGC). I chose IGC because it's a bigger play - geographically more diverse (which could be a plus or a minus) and having a much larger capitalization. The JR Simplot Foundation has taken a substantial position in the stock recently.
I'm one who is acting on the assumption that the fertilizer industry is cyclical, although I have no facts/figures/charts/ to support this- and that we're perhaps somewhat near a cyclical low. I offer the following long-term chart on IGL:
bigcharts.com
In my opinion, it is really not long enough to draw conclusions that are valid. But for indicative purposes, it looks like about lows every 6 years. (If past repeats, we might see a low at 10-12, down from today's 16 price,) On the other hand, every few years the stock has been about 30, and in most 12-month periods, the stock hit 20. Very dangerous assumption though to read this chart and presume there's a pattern and that the pattern will continue.
We also have the stock selling below tangible book value now (it usually sells above), and a little bit of insider buying. On the other hand we have flat sales over the past couple of years and erratic earnings. There's a change in top management- maybe they'll be able to do better for the stockholders. I notice this morning, that a larger IGL competitor, POT, is permanently closing two plants and cutting earnings estimates in half. The stock is down 4 points to about 53, which perhaps "reflects continued tough market conditions in nitrogen and weakening business trends in potash and phosphate"
I think an IGL buy now could be about a two or three year waiting game proposition. (That's not so appealing -g-.) Perhaps though with an 'escape hatch' within 12 months if the investor could again see the stock at $20.
Paul |
