Cramer Last Night -- Pretty Specific

Remember, Cramer's buy recommendations do not do as well as his sell recommendations. Also he advises scaling, i.e. buy 20 shares of POT today, 20 more when it's 5 points lower, etc.







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Wednesday, July 29, 2009

Jim'srating onthis stock
STOCKSYMBOL
Closingprice thatday
Full Company Name
POT
92.08
Potash (POT)

[Beginning of Cramer's verbatim comments for this segment...]Jim: China is in charge… China’s is the prism for which you have to look at this entire stock market… the Chinese, they hold the market… they have got the cards…. if you look at today’s sell off, Dow down 25 points, S&P down 4... nothing at all makes sense… thru the prism of America… the hardest hit stocks.. I am talking about like Freeport-McMoran, BHP Billiton, Caterpillar, Joy Global, Bucyrus, Norfolk Southern… they are all cyclical companies… that we know reported better than expected number, or at least in line…these are companies that the market loved a week ago…. if you were to look at America, this move would seriously confuse you… I mean what the heck is going on… why are stocks that were lauded for doing better than expected now getting pummeled… what is that all about.

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But you have to remember that America is no longer sitting on top of the world… all of the stocks that I mentioned… they are dependent on China… and they are getting crushed because the market now believes that China no longer needs anything from the rest of the world… China is full up… that is what everyone was saying behind the scenes today… and what was the tell… something that even I never saw coming… two straight weeks of copper inventory increases, where it is kept the repository is in London… for me, that was the signal that China is kaput for now… I mean, that is the reason why Shanghai’s market took a 7% plunge last night… and took our machinery and raw material companies down with it.Two straight weeks of copper inventory builds in London… leads to a huge sell off in China which then crushes cyclical stocks in America… is that crazy?… no, I am not crazy… maybe a little over reaction… but this is the new world… the new world order… where we used to be China… and China is now us… do you know that a dozen years ago China used about 10% of the worlds copper… and we used 30%… do you know that it is exactly reversed now… they use 30%, and we use 10%… and since copper is used in all kinds of construction and infrastructure, none of which we are doing, a decrease in demand from the Communist Chinese is pretty bad news… especially for American companies that need China much more than they need the good old USA… when it comes to economic growth…we used to be the top dog… but now the dog is China… and we are just its little tail that it can wag all it wants.When we awaited the results of the dead auction today… we needed to know that the Chinese liked it… when we speak of free trade, the question is… will it upset the Chinese… we are like Britain in 1946... and China is America… I thought hard where we still have a say… where we still have a choice when it comes to China… and I was struck about something that my daughter said to me on Sunday… Dad, chicken fried rice or moo-shu pork… we are lucky if they throw in the extra hoisen.That is the reason why everyone is now convinced that the commodity trade is dead… I did not care much for that story anyway… you know that I am not a big believer in commodity trade… I like technology, I like healthcare, I like the banks… but this new atmosphere has created a new opportunity… investors are now selling commodity stocks hand over fist… many of which do not deserve to be sold… because they are not even that exposed to China… but they all trade together.So, let me give you the one that I like the most… and this is new for me, I hinted on it last night, it was picked up by a lot of websites… most of which are designed to follow my every single move that I make… which I find to be actually compulsive, if not crazy… [Ed. note: Hey! We're not crazy, we're simply Cramericans through and through!]And it is… Potash (POT)… uh, Potash is back… after a downgrade 60 points ago… Potash the fertilizer company that delivered one of the best quarters that I have seen this reporting period.. it was down $1.28 today… because of the Chinese commodity sell off… even though it is far less levered to China than most of the commodity plays… including, definitely copper… do you know that the peoples republic makes up only 12% of its sales… the demand for fertilizer is much more geographically diverse… but it trades with China.In fact, fertilizer in general and Potash specifically… represents the one commodity that China does not control… despite the sympathetic decline that the fertilizer stocks experienced today… the long term thesis here behind Potash, my first fertilizer recommendation since I took TNH and made that a dividend play, rather than focus on Potash, or Mosaic, or Agrium… is that the rising population levels, not just in China, but across the globe… requiring more food… along with rising income levels in developing nations… which we will soon be considered… because it increases demand for better food, like meat and live stock… they need to be fed… creating even more demand.These are trends that I do not think will go away… regardless of what China does… but the stocks trade with China… farmers have the incentive to make land more productive… and that means using more fertilizer… that said, the reason that I told you to stay away from these stocks… because the fertilizer stocks have been horrible…. horrible… mostly because farmers held off on buying fertilizer because of economic uncertainty… this year we have seen an unprecedented 40% decline in global demand for potash fertilizer… a stunning figure… but it should be self correcting next year… simply because soil can go, with reduced fertilizer, only for about 12 to 18 months… before its productivity is substantially reduced… something that gentleman farmer Cramer should know… but I just spray Miracle-Gro on my rapidly reddening beef steak tomatoes.Low demand now has set the ground work for a massive increase in demand in 2010... and while potash prices have fallen… India just announced potash settlements of $460 per metric ton, that is the measurement that they use, that is the metric… now it is down from $650... something that should lead prices across the globe to reset lower.. but that is why the stock is down… the contract broke the impasse that was keeping the demand for potash down… buyers have now declared that they need to resume purchasing potash… and more importantly, the deferrals of potash purchases over the past year, have increased a massive void in the supply chain that will have to be filled… this is the restocking that we saw in semi conductors that we saw at the beginning of the year… remember all commodities do have similar destock, restock…
...that is why Potash (POT) believes that at last, the great fertilizer depression is over… and I am with Potash on this one.The Brazilians are now getting very active… they are seeing markets around the world starting to pick up… why Potash and not another fertilizer play, you ask… Mosaic, Agrium… first Potash sells all three main crop nutrients… potash, phosphates, and nitrogen… it is a one stop fertilizer stop… the whole foods of fertilizer… it is best of breed in fertilizer, superior cash flow, and net income… great position in the market for potash… given that it is incredibly difficult to build new plants… they cost about a billion and a half dollars… minimum… nobody has got that kind of credit anymore to build a plant… so as demand comes roaring back taking prices with it… Potash will not have to deal with pesky new competitors… and like I said before, the company told what was possibly the best story that I have heard this earnings season on its conference call.. I rate it in the top 5 conference calls that I have been on in the last 3 weeks.At the time, all of these go-go momentum managers were chasing it higher… now because the market is coming down, you have got a chance to buy it more cheaply… the great Chinese commodity sell off has created an amazing opportunity for us… one caveat, I do expect Potash (POT) to keep going down… it is a $91 stock… it has a lot of room… it does not have dividend protection… I cannot tell you where I think the bottom will be… but that is exactly what we want to see when we are trying to buy a stock… its merchandise is getting cheaper and cheaper… the way to play this one is to buy it in increments… so let’s say that you want 100 share, I would buy 20 tomorrow, then wait for Potash to come down 5 points… yes, 5 from where you bought that 20... buy your next 20... then buy 20 more shares after the next 5 points… and so on, that is called scaling in… I teach it in Jim Cramer's Real Money, the books… scaling in is the way to do it with a wild stock like this.We hate to chase stocks on this show… we hate to force trades… but we love a stock like Potash with a great long term story, that we can accumulate as it goes lower… use the now cooling market to your favor and get the best basis… your ultimate stock, the basis, imaginable… worst that happens, it starts going higher after your first 20, and you do not have enough on… my definition of a high quality problem.The bottom line…
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The Bottom Line!: Everything commodities is being sold off like mad since the market seems to think that China no wants to buy anything else from the rest of the world… all because there were two weeks where copper inventories in London went up… I know that this sounds so silly… but it is what happened… and I have got to give you the skinny about what is really happening… China is in charge of the stocks… and most of the companies, but not the fertilizer plays, where Potash pretty much called a bottom on its conference call is my favorite… if you want to declare independence from China… I think that you should take a look Potash (POT).




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Market Results today:
Dow: - 26
Nasdaq: - 8
S&P 500: - 4

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