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September's Worst Performers And Why
It was the best September in 71 years: the S&P 500 managed to gain 8.7%. Yet, some industry's stocks managed to end the month in the red, while others barely managed to keep their head above water. That isn't a big deal, save one problem - such weakness (especially when the overall tide is so bullish) can be annoyingly persistent.
Given the risk at hand, it may be worth exploring September's worst laggards, and why they were at the bottom of the pile.
IN PICTURES: 9 Simple Investing Ratios You Need To Know
Fertilizer Stinks ... No Bull
With its loss of 5.2% for the month, the fertilizer and agricultural chemical group was September's absolute worst among the market's 200+ industry groupings. You can thank Potash Corp. ofSaskatchewan
What happened? Part of the problem was that some of these stocks were alarmingly overbought at the time. That problem was solved - the hard way. That's not the only impediment in play though; others need to be understood on a case-by-case basis.
Same Problem, Different Reasons
Take Monsanto for instance. Though it was already sliding early in the month, MON really started to crumble a week ago when its SmartStax corn seed failed to yield - in harvests so far - the kinds of crops it was supposed to. Since farming is as much an art as it as a science, there may be other factors to blame for a disappointing yield. However, Monsanto is understandably sweating preliminary results.
Potash shares, on the other hand, dwindled as the company stepped up the fight against the brewing BHP Billiton (NYSE:BHP) bid to take over the company.
While it looked pretty much like a done deal at the time, the longer the debate lasts, the more likely it is investors orCanada
The most alarming thing investors need to think about at this point is that rather than just up the bid, BHP responded in kind to Potash's legality and reasonable-price arguments. Moreover, while there's been some talk that another suitor might step in with a better bid (China's Sinochem has been named as a possible buyer) after a month and a half of no other real interest, Potash owners may need to accept the reality that $145-ish per share is as good as it's going to get.
Other notable losers include American Vanguard (NYSE:AVD), andChina
Why the dip into the red ink for these two stocks? That's just it - there's no clear reason either of them have been sinking since early August. Perhaps that's the most troubling part of all for both of them - they're sinking just because they're unwanted. Bad news is quickly forgotten; bad karma is tougher to shrug off.
Outlook
To be fair, it's not like the value isn't there. Many of these stocks are sporting trailing P/E ratios in the teens, and most of them are even cheaper on a forward-looking basis. Yongye, for instance, is currently priced at 4.7 times net year's expected earnings. That's a bargain by any standards. And Monsanto - despite the black eye of SmartStax - is still plausibly expected to earn $2.84 in fiscal 2011. That translates into a projected P/E of 16.76. Not bad. Not great, but not bad. (For related reading, see The P/E Ratio: A Good Market-Timing Indicator.)
In fact, by most measures, the group as a whole is attractive on paper. Unfortunately, that's not always enough.
If it were just one problem or another, the fertilizer stocks may be able to thrive despite it. When you add poor crop yields from a key product to a takeover bid that has gotten ugly, and then factor in how two stocks are sinking just because they are, you create an environment where even the smallest of problems are treated like huge landmines. And, none of them are overlooked.
Worse, the group's tide can infect even the stocks that don't deserve to be dragged down.
The Bottom Line
It looks like agricultural chemical stocks still haven't overcome yesteryear's bad will. As such, we may need to demote these stocks back to the watch list until the psychological mojo improves. That could be another quarter.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
Given the risk at hand, it may be worth exploring September's worst laggards, and why they were at the bottom of the pile.
IN PICTURES: 9 Simple Investing Ratios You Need To Know
Fertilizer Stinks ... No Bull
With its loss of 5.2% for the month, the fertilizer and agricultural chemical group was September's absolute worst among the market's 200+ industry groupings. You can thank Potash Corp. of
What happened? Part of the problem was that some of these stocks were alarmingly overbought at the time. That problem was solved - the hard way. That's not the only impediment in play though; others need to be understood on a case-by-case basis.
Same Problem, Different Reasons
Take Monsanto for instance. Though it was already sliding early in the month, MON really started to crumble a week ago when its SmartStax corn seed failed to yield - in harvests so far - the kinds of crops it was supposed to. Since farming is as much an art as it as a science, there may be other factors to blame for a disappointing yield. However, Monsanto is understandably sweating preliminary results.
Potash shares, on the other hand, dwindled as the company stepped up the fight against the brewing BHP Billiton (NYSE:BHP) bid to take over the company.
While it looked pretty much like a done deal at the time, the longer the debate lasts, the more likely it is investors or
Other notable losers include American Vanguard (NYSE:AVD), and
Why the dip into the red ink for these two stocks? That's just it - there's no clear reason either of them have been sinking since early August. Perhaps that's the most troubling part of all for both of them - they're sinking just because they're unwanted. Bad news is quickly forgotten; bad karma is tougher to shrug off.
Outlook
To be fair, it's not like the value isn't there. Many of these stocks are sporting trailing P/E ratios in the teens, and most of them are even cheaper on a forward-looking basis. Yongye, for instance, is currently priced at 4.7 times net year's expected earnings. That's a bargain by any standards. And Monsanto - despite the black eye of SmartStax - is still plausibly expected to earn $2.84 in fiscal 2011. That translates into a projected P/E of 16.76. Not bad. Not great, but not bad. (For related reading, see The P/E Ratio: A Good Market-Timing Indicator.)
In fact, by most measures, the group as a whole is attractive on paper. Unfortunately, that's not always enough.
If it were just one problem or another, the fertilizer stocks may be able to thrive despite it. When you add poor crop yields from a key product to a takeover bid that has gotten ugly, and then factor in how two stocks are sinking just because they are, you create an environment where even the smallest of problems are treated like huge landmines. And, none of them are overlooked.
Worse, the group's tide can infect even the stocks that don't deserve to be dragged down.
The Bottom Line
It looks like agricultural chemical stocks still haven't overcome yesteryear's bad will. As such, we may need to demote these stocks back to the watch list until the psychological mojo improves. That could be another quarter.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
James Brumley
James Brumley is a freelance writer and registered investment advisor. He began his career as a broker with a major Wall Street firm, where fundamentals and long-term holding periods were core strategies. After that, he switched gears completely, becoming an analyst at a short-term trading newsletter that focused on technical analysis. He now manages client money using the best of both philosophies. His company, Bluegrass Portfolio Management, offers investors an opportunity to reap superior returns with minimized risk.
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