Wednesday, January 23, 2008

Bookkeeping: Closing Last of CNH Global (CNH)

I am going to close the last tiny amount of CNH Global (CNH) I own, 25 shares. Thanks to booking some gains along the way up and holding very little at this point, I am leaving this position with a $1800 gain. I started the position in early October, and most of my buys were in the mid $50s to low $60s. Most of my sells were in the mid $50s to mid $60s, so we haven't had much gain in these shares, but coming into earnings I held very little. At this point any scrap of gain is a victory with the market emotional action. If I had a larger position I'd wait for some bounce to sell but with only $1500 or so in the name I am just going to scurry off...

I wrote yesterday

Fund holding CNH Global (CNH) - this is an agricultural equipment name who I've dropped the exposure to quite a bit. Based on what I see on this earnings call, I will make a decision whether to keep holding or not. Going for it is the exposure to big ticket agriculture equipment - think Deere (DE). On the negative side it has a construction business and it is based on Europe; with a strong Euro I am worried about some degradation of exports. This is one benefit Deere (DE) has - with the Fed trashing our dollar to bail out the banking system Deere's products only get cheaper by the month. So this is one I am keeping a close eye on.

After rising 10% yesterday the stock is down 18% today on earnings, so erasing yesterday's gains plus some. Right now, there is nothing a company can say that will make the market happy. It looks like they missed the quarter vs analyst expectations, but even with the stock at cheap valuation the market continues to sell off everything.

2007 total earnings are $2.36
2008 guidance is now $3.30 to $3.60

So if they reach the low end of 08 guidance that is 39% earnings growth, and if they reach the high end it's 53% earnings growth. For a stock currently trading at $50 or a PE ratio (on trailing earnings mind you) of 21. Forward multiple is a range of 14 to 15x earnings. But right now the market could care less. I'm going to simply focus on the fertilizer names at this point even if I find CNH Global (CNH) to be a heck of a value - valuation at this point is meaningless to the market. I do still have Agco (AG) but at this point, if probably is a candidate to sell as well since we can build a bear case for anything at this point on future slowdowns. It appears holding anything into earnings right now is simply a fools game since if you say anything negative you get trashed, and if you say anything positive you are doubted and will get trashed. Hard to win from the long side.

CNH Global is 2/3 agricultural equipment, and 1/3 construction - obviously I own it for the agricultural portion. Here are some comments from their earnings report in terms of 2008 guidance on the farm equipment side.

CNH expects U.S. net farm income in 2008 to be near the record levels of 2007, bolstered by high corn, wheat, soybean, cotton and sugar prices. For the full year, CNH expects North American industry retail sales of over-40 horsepower tractors to be up 5 to 10%, compared with 2007, with sales of over-140 horsepower tractors up about 10%. CNH expects industry retail unit sales of combines in North America to be up 5 to 10% compared with 2007. CNH expects industry retail unit sales of under-40 horsepower tractors, which are more closely aligned with residential construction and overall GDP, to be flat to down 5 %, with the total North American industry flat.

Outside of North America, for the full year, CNH expects industry retail unit sales of tractors to be flat to up slightly, compared with 2007, with industry sales in the Latin American market up 5 to 10%. CNH expects tractor industry unit sales in Western Europe to be flat and in Rest-of-World markets to be flat to up 5% from 2007 levels.

CNH expects the worldwide industry unit retail sales of over-40 horsepower and total agricultural tractors to be up slightly compared with 2007. CNH expects combine sales to be up 20 - 25% compared with 2007, and up in every major market.

Long Agco in fund; no personal position

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