Major ag equipment player Deere (DE) - I don't own the equipment stocks anymore; at some point the rising cost of steel, petrol products and the like will be hurting the bottom line unless they can pass all the costs along to farmers - over the next year if inflation does not abate this is the type of company who could see profit margins squeezed simply from the constant increase in input costs.
Here are the results - looks like a good call with the stock down 8%. Sometimes a rising tide (agriculture boom) does lift all boats. But sometimes you need to think farther ahead than that - as Wayne Gretzky says - don't be where the puck is, be where it's going to be. ("I skate to where the puck is going to be, not to where it has been.")
- Deere & Co., the world's biggest maker of farm machinery, said Wednesday its second-quarter profit rose 22 percent, propelled by lofty crop prices that stoked global demand for its farm equipment despite a faltering U.S. economy.
- But the Moline, Ill.-based company warned that rising costs of such raw materials as steel could cut into its earnings over coming months, sending its shares down 8 percent in morning trading. Deere also said it was seeing spot parts shortages "cropping up."
- Deere said sales rose to $8.1 billion from $6.9 billion a year ago. The company said its sales outside North America soared 46 percent during the quarter, dwarfing the 6 percent jump of its sales in the U.S. and Canada. (sounds familiar)
- But Mack told analysts that the cost of raw materials were "racing ahead well beyond what we anticipated," and shortages of various parts and components "are cropping up from time to time" despite suppliers' best efforts.
No position
2 comments:
Question on POT: Does the declining volume of POT since April worry you?
Nope
the only worry for me is ethanol and not for fundamental reasons but for "perception" reasons - when the day comes (and I do believe it will but probably in 2009-2010) that corn ethanol gets kaboshed these stocks could see 30-35% haircuts as people overreact. But maybe I am too hopeful and its possible that the farm vote is more important than morals and corn ethanol never gets squashed
when stocks pull back you want to see them do it on declining volume, not bigger volume.
MOS and POT are building some beautiful bases. They have had huge moves - they need to digest - I believe they are setting up for another very large leg up sometime in 2nd half 2008. Stocks cannot go up week after week after week - they need to digest, before going again. The pullback has been very minor in fact, and I was hoping for more. Still hoping for lower prices to rebuild positions. But the fundamentals are just too strong it appears for a serious pullback of 15-25% like I wish.
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