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A Few of My Favorite Things: FCStone, Monsanto...


The key to profits is how one trades, not how often.


Warmest – literally – greetings from Lugano, Switzerland, where the temperature is trying to edge above 100 degrees and I have a sweaty "no position" in A/C units. As I try to catch up with the last three weeks of happenings in the markets - before embarking on a further month hiatus - a few randoms on what's jumping out of my screens:

  • My sheets have benefited greatly from my day-to-day absence, which feels good for the wallet, bruising to the ego, and certainly reinforces the mantra that the key to profits is how one trades, not how often.

  • Fave FCStone (FCSX) reported numbers consistent with the lifeblood of its business, i.e. volatility in the commodity markets, and the stock continues its wild swings. The big news for me was the rollout of options on this name, which, with volatilities in the 80s, offer a bevy of hedging and speculative opportunities. I have chosen to "press my long" with a cap at $85, while buying insurance between $60 and $45, as a I continue to see very high risks and rewards for the near future.

  • What could be a long term investment idea from the old country (Italy) comes from my many trip-breaks at Autogrill's (AGL IM) highway "truck stops", which have better food than most Whole Foods Stores (WFMI) and crowds out the door. Yes, I know most of Europe travels in July and August, but I have been there other months as well, and the food is not any worse. The difference between now and a few years back is that the stores seem to have undergone a dramatic improvement in cleanliness and service, and there is no denying that travelers from all over the new and expanded EU are adding to the traffic. The caveats? The stock is expensive and the company is majority-controlled (57%) by the Benetton family, a group with an anecdotal history of doing very well for itself.

  • My "pleasure" reading for the last three weeks consisted mainly of lengthy Morgan Stanley (MS) reports. The coverage of Monsanto (MON) was particularly interesting. The positive story envisioned by the analysts in older research notes is clearly unfolding as well, if not better, than forecast. The stock has not been overlooked either, having moved $10 in just over a month. The dilemma here is the valuation, 38x forward estimates, and the sustainability of the agricultural boom. I am inclined to rationalize my long by looking at cash flow multiples meaningfully lower than the P/E, a PEG of 1.3, and the potential upside from the acquisition of Delta & Pine Land, which makes MON pretty much the only way to play cotton away from the commodity. I am not sure if Prof. Limantour has commented on cotton recently, by I recall it being one of her favorites at the beginning of the year. (Other oft-mentioned plays in this group include Bunge (BG), Archer Daniel Midlands (ADM), and the less well-known Saskatchewan Wheat Pool (SWP CN, on the Toronto Exchange).

  • Long-time Minyans know my belief that despite all the headlines, the housing implosion we are seeing today is but the tip of the iceberg. But long-time Minyans also know that I was a "mere 2-3" years early in my predictions. Hence, in an effort to remain "fair and balanced", I urge everyone to read this weekend's "Thoughts From The Frontline" for a simple but very thorough analysis of the going-ons in the CDS/CDO markets, and how beneath the waves things might be calmer than they appear, at least for now. With that said, BankUnited Financials (BKUNA), which has already warned, and the S&P Homies ETF (XHB) remain my only two narrow-focus shorts.

  • And finally, infrastructure plays from McDermott (MDR), to General Electric (GE), to Kurita Water (6370 JP) continue to reflect the renaissance of the world's energy production systems. That said, rebalancing of weighty positions is never a bad idea, and I shed my Foster Wheeler (FWLT) long in the hope of buying it back closer to $100, with the usual caveat that "hope" is rarely a tradable thesis.

I hope this finds you all well, and to "see" you all when I get back on the saddle on August 21!

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Positions in MDR, GE, Kurita, BKUNA, XHB, MON, BG, ADM, SWP CN, FCSX
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