Very perceptive post on AGCO/NH, and I also applaud the poster who had the confidence to post GAI - that looks absolutely ghastly, which often is the key to a spectacular investment.
Agco vs. New Holland. I've owned both of them institutionally. Agco was my biggest mistake. The story looked so good a year ago at 31. Now their balance sheet is a mess. They release earnings on Friday I believe. Wall Street is going to be looking at the earnings number and the forecast. Ignore them. Look at the balance sheet. If free cash flow is negative, stay away. If free cash flow is positive (i.e., inventories down, receivables down), then I think you may have a winner here. New Holland is a much more conservative investment, in my view.
The catalyst for the ag stocks is a hypothetical, because the corn is still in the ground. An August drought in the midwest would blow out the bear case by raising corn prices and controlling inventories. So if you own these stocks, and this is ironic, what you want to see is brown corn in Iowa and Nebraska (Texas is already in a drought but the state's production of crops is irrelevant). I have no idea whether this will happen or not, but you are playing a probability game with these stocks as long as the corn is in the ground.
Jim |
