More Pain for Petrohawk - Cramer's Lightning Round (7/7/08)

Stocks discussed in the lightning round session of Jim Cramer’s Mad Money TV program, Monday July 7.

Bullish calls:

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Procter & Gamble (PG): "Proctor has a big week last week, but I've been concerned about raw costs. I'd rather be in biotech for now, but for an 18-month horizon, I'm not backing away."

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Bearish calls:

Mosaic (MOS): "You have to be careful here. That sector got overheated. I don't want people to get burned. I am not going to recommend the fertilizer stocks here. " United States Steel (X): "Listen to me, I think the cyclicals are falling out of fashion. I want to be on the sidelines in steel for the next few days until the trends are known." Bank of New York Mellon (BK): "I am not recommending any financials on this show. I reiterate that I'm not a buyer of any financial stocks." Petrohawk Energy (HK): "There is still more pain to come with this one. We need to wait a little bit before we can pull the trigger again."

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Comments

[David White]

The MOS statement today indicated that MOS management thinks this little summer lull in fertilizer prices is the calm before the perfect storm (i.e. a huge rise in prices). Q3 and Q4 do tend to be the strongest quarters for Ag, so this tends to be believable. Perhaps people should not be selling their Ag stocks now, after they have already declined significantly from their recent highs. Now may well be the best near term buying opprotunity. Of course you have to balance that with the reality that the markets are all generally headed downward at the moment. Still if you are thinking long term, this may be close to the bottom (or at the bottom) in these stocks. They all seem to be saying that they will have great earnings (i.e. beat analysts estimates). I don't knwo the answer to this conundrum. A good rule of thumb is to take only those risks that you feel comfortable with. Good Luck. I still think MOS and POT are great stocks. I am sure they will turn upward for even bigger profits eventually. I am just not exactly sure when. I does seem that commodity prices on grains cannot go down too far though. People worldwide are still demanding more and more food. This doesn't seem likely to change anytime soon. The demand only seems likely to get stronger. I can see why the CEO's of the Ag companies are so optimistic. Will Ag find a bottom this week? Next? Surely it must be sometime soon. These stocks are doing to well to tank like bad ones.

[David White]

It may be nearing a turning point for Ag stocks. Potash One was upgraded to a higher one year price target today by Jennings. This bodes well for the sector. MOS certainly has some great results coming down the pike. It looks like POT also is positioning itself very well.

[David White]

I should explain my theory more thoroughly. Simply if a micro cap stock like Potash One can be upgraded in the face of this downtrend, MOS and POT cannot be far behind. This may be a good buy price.

[David White]

From DJ: "I think we are still in a commodity supercycle," said Neil Michael, head of quantitative strategies at SPA ETFs. More specifically he seemed to think the sell off in fertilizer stocks was unusual given their current story. He specifically cited Intrepid Potash as being more than 25% off its most recent high. Of course, there are likely some better bargain out there than IPI. POT and MOS both seem to be very solid. They have average analyst ratings of less than 2. They have FPE's of less than 12. MOS was listed today as 9.6 on Yahoo. It is slated to quintuple its earnings this year (only triple next year), and the numbers may be even better than that given the Ag CEOs comments lately on such shows as Fast Money. POT had an FPE of 10.35 on Yahoo. It is slated to more than triple this year with about a double next year. How good can a story get? Usually a stock which can double to triple every year can sustain a PE around 100. MOS has a PE of about 38. POT has a PE of about 45. Probably both of these numbers are slightly lower after today's action. MOS particulary seems a very attractive valuation for this "strong Ag story" and its strong performance (and predictions). It sounds like the people controlling the "big money" are starting to think about getting back into these stocks. If this happens soon, which sounds likely, these stocks should move up quickly for a week or two.

[David White]

Without stretching things too far, both of these stocks could probably support an FPE of 20. This is a conservative figure. Based on that they fundamentally each have room to about double.

[David White]

The huge move in oil futures downward by about $10/barrel over the last two days is the perfect scenario for this market to move up in relief. The Ag stocks, even though they are commodity stocks, should be leaders in that move upward. I note grains are down today. Still that temporary price lull by grains should not block a move upward by market leaders in a market all of the Ag CEO's seem to think will remain hot for the foreseeable future. Also Q3 and Q4 are generally the excellent quarters for Ag stocks. The Ag CEO's were positively giddy about their performance prospects. It doesn't look like there is any hidden bad news in this sector.

[helplessobserver]

All this commodity boom is unsustainable. Rewind to the 1980s when PhiBro Brothers and Englehard Mineral dominated the markets. Englehard took everything from Bunker Hunt, PhiBro took over Solomon Brokerage. Diamond Shamrock Drilling surged on exploratory wells on the North Slope. All are gone now except Englehard. Economies thrive on industrial production, not on commodities bubbles. Such wll be the case this time.