This from Mike:

It’s not the time to try to call a bottom… but it is time to plan for it.

Our favorite leading indicator of economic activity, the Baltic Dry Index, will likely be the first to signal the end of a recession. And it provides a convenient clue to one stock I believe will comeback faster than most others, once the market-wide comeback is underway.

The Baltic Dry measure shipping costs, and therefore shipping activity, and is therefore a great “boots on the ground” measure of what’s going on in the world economy. When costs are up, it benefits shipping companies. My favorite right now is Frontline (NYSE: FRO).

Frontline focuses specifically on tanker ships for transporting oil. When economic activity picks up, so will oil prices and shipping rates. And that plays right into Frontline’s hands.

The oil focus means Frontline’s recent quarters haven’t been as bad as other shippers because of oil stored offshore to take advantage of the contango situation.

Overall, the company still posted growth for 2008, but last week’s quarterly numbers were certainly lackluster. Earnings per day on a “very large crude carrier” dropped to $61,500 from $96,500 a year earlier.

Still, Frontline management seems to be making the right moves in tough times. It’s proceeding with cautious investment in new capacity, switching some of its more profitable daily arrangements to more predictable long-term contracts.

Even so, the stock is getting hammered again today, down another 4% as of this writing.

But that puts the stock price at about two times trailing earnings. And with enough cash flow to cover interest costs, I’m sure Frontline can remain a going concern through the crisis.

When spending does pick up those who buy Frontline at, or near, the market bottom will likely be the first to benefit.

Source:  Frontline (NYSE: FRO): Stock of the Day

Silver Wheaton is one of a few well-known silver plays. And I’m behind silver for a lot of reasons…

Over the last 200 years, the mean gold/silver ratio has been 31.32. Today it’s surged to 69.

A simple reversion to the mean makes a great play here. For those of you without finance books handy, it means that silver is more likely to move up to maintain the average ratio.

But that’s not all…

Silver – A Consumption Commodity

Silver isn’t just a store of value, it’s a consumption commodity.

Globally, 63% of demand for silver comes from industry or photography. Only 27% ends up in coins, medals or jewelry. Silver goes into everything from batteries to ball bearings, electronics to electroplating, and medical devices to mirrors.

Only 11% of gold demand comes from industrial uses, and the gap is widening.

Researchers find new uses for silver constantly. For example, UK researchers found that coating medical equipment in silver ions prevents infections. Coating lumber with a fine silver mist makes it resistant to mold and mildew.

As industrial consumption increases, less of each year’s production will be available for holding as a precious metal.

However, this does make silver dependent on a consumption economy… which we seem to be lacking at the moment. Silver won’t really move until we get a turnaround in the global economy. But that doesn’t mean that Silver Wheaton Corp will have to wait that long.

Source: Silver Wheaton Corp (NYSE: SLW): Stock of the Day

David Fessler from Investment U offers us his advice on the two stocks:

Cubist Proves Saving Lives Isn’t Good Enough

With the recent surge in cases of MSRA (methicillin-resistant staphyloccus aureus), or at least a surge in reporting, one would think it was good news for Cubist Pharmaceutical’s (Nasdaq: CBST).

It may have been, had Cubist not been blindsided by a business-rocking revelation Tuesday.

MRSA is a big problem. It’s a widely prevalent and pervasive bacteria found in hospital facilities, and it’s the most common cause of staph infections. Patients contract these infections from catheters, surgeries or I.V. drug needles.

As we use (some would say over-use) anti-biotics to treat infections, only the resistant germs remain. Each successive generation of bacteria are more resilient to treatment and we continually need stronger and stronger drugs to fight them.

They’re called “superbugs” in the press, but that’s not too far from the truth. We are running out of ways to treat these outbreaks. Current estimates put the annual cost of treating MRSA infections at over $10 billion dollars.

And it’s only going to get worse…

That’s why Cubist Pharmaceuticals had really hit a home run with its antibiotic Cubicin – one of the few ways left for hospitals and doctors to fight back.

Introduced in 2003, Cubicin was first prescribed as a treatment for serious skin infections caused by bacteria that invade the body during surgery. However, in 2006, the FDA approved Cubicin to treat bloodstream infections from blood-resistant staph bacteria.

Things looked good for Cubist, until this week.

Teva Pharmaceuticals Files For Generic Cubicin

An Israeli drug company, Teva Pharmaceuticals (Nasdaq: TEVA) has just filed with the FDA to start production of a generic form of Cubicin. Even though Cubist’s patents extend to 2016 and 2019.

How so? Teva contends that either Cubist’s patents were not valid in the first place, or Teva can produce a generic without infringing on those patents.Of course, Cubist intends to challenge Teva through litigation, which automatically puts Teva’s plans on hold for 30 months, according to FDA rules.

Even more of a problem, Cubicin is the one and only product that Cubist Pharmaceuticals sells. It’s all indicative of the kinds of intellectual property problems that plague pharmaceutical development.

Cubicin costs about $100 per day (depending on details), while Teva’s generic would be expected to cost much less. Of course, that’s good news for patients worried about medical bills.

But still, if Cubist, and other pharmaceuticals can’t protect the profitability of their products, then there would be no incentive to spend millions in research and development to create new products and save lives.

It’s one of those ugly problems where both sides are right… and wrong.

Using Price Controls As Alternatives

The alternatives? Price controls. Ugh. Single-payer system. Blech. Publicly-funded research. Yikes.

One of the better “outside the box” suggestions is a prize-based system. Wherein the government or well-funded charities take a necessary, but unprofitable drug needing ailment, and fund a large cash prize to be delivered to those who make the first successful cure.

By balancing the prize, the cost of R&D, and the revenues that could be made on an affordably priced drug, it could be the most cost effective means of providing incentives to provide a public good.

But somehow, I don’t see such progressive thinking passing through the U.S. legislative system.

I’d love to see comments on successful reform of the pharmaceutical industry.

In any case, investment in Cubist has now become a binary pass-or-fail proposition. If Cubist wins, shares will surge. If Teva wins, Cubist is likely a penny stock.

But at least we’ve got something to cure an infection.

Source: Cubist Pharmaceutical’s (CBST): Stock of the Day

This from Investment U:

You might think you’re properly invested in oil, but you could be wrong.

Despite reaching lows since 2004, the long-term outlook for oil is still up. Maybe not $147 a barrel like the old days (i.e. six months ago), but because of supply, demand, turmoil in the Middle East, and the fact that we will eventually resume worldwide economic growth, oil prices have only one way to go.

If you think you’ve positioned yourself according, or if you’re thinking about a new investment in oil… tread carefully. Here’s why:

I covered a situation last week call contango. It’s a feature of futures markets where you can buy oil cheap right now and lock in a contract to sell it in the future for a higher price. Normally, the difference between those prices is so close to the cost of storing the oil that it’s not a profitable trade.

But right now, we’re in a state of super-contango. Prices are way out of whack. And commodity investors are storing oil everywhere they can to earn the excess profits. (For a more detailed description, see contango.)

Contango is big news now. But some of the “traditional” oil investments that are being tossed around aren’t what they seem to be. In fact, if you skipped some very fine print, you could have set yourself up for a huge disappointment.

So let’s clear that up… and pad our pockets with a little extra in the process.

You’re Not Buying What You Think You’re Buying

When we broke the news on contango, we suggested looking at some oil storage providers, explorers and drillers. And that hasn’t changed. Looking around, there are a number of “oil investments” that look promising.

One would think the quickest way to invest in rising oil prices would be to simply buy shares of an oil-based ETF, like United States Oil (NYSE: USO). These oil ETFs are very popular – USO trades over 34 million shares per day.

But not so fast.

These funds don’t buy and sell oil for profit. They trade futures contracts on oil. And while there are a few ways to do that – some good, some bad – they may not be the best way to take advantage of contango. Let me explain.

USO buys a contract for oil for the very next month. Before it expires, they sell it off and buy one for the next month. In a contango situation the returns will indisputably be lower. (Conversely, during the opposite of contango, “backwardation,” the fund returns will be higher).

USO makes no secret of this. They print it in their risk disclosures that contango is not good for their fund.

And they are not alone. The iPath GSCI Crude Oil ETN (NYSE: OIL) and the Powershares DB Crude Oil ETN (NYSE:OLO) use the same methodologies. (Though OLO actively manages its roll forward strategy to reduce losses.)

But don’t give up on investing in oil.

Every Problem Has a Solution

In fact, the same manager that runs the USO fund runs another, custom designed to benefit from situations like this. It’s called the United States 12 Month Oil Fund (NYSE:USL). It uses a 12-month average of futures prices that will lessen the losses caused by a contango market.

Here’s the interesting thing. Oil markets usually exhibit a small amount of contango, it’s a natural result of price fluctuations. But its opposite, backwardation, is the rarity. So even if we were in a normal oil situation, wouldn’t the 12 Month Fund be better?

In fact, wouldn’t it make sense all the time? It would seem to be so.

Obviously, oil prices have been down… but you’d have fared significantly better investing in USL. Reading the fine print on an ETF isn’t the most entertaining way to spend your day, but it’s certainly worth a near 15% difference in performance.

If we were to enter a backwardation period, USO would then outperform. But since backwardation is so rare… you can expect USL will outperform consistently over the short and long term.

Source: The Wrong Way to Profit From Oil

This from Investment U:

What do a Wall Street analyst and a corn farmer have in common?  They both know that fertilizer prices have fallen off of a cliff.

Last year, a big increase in the demand for nitrogen-based fertilizers led the price of fertilizer and the value of the companies that make it, to triple-digit gains.

But when the commodities market cooled, fertilizers were no exception. Since then, the prices of fertilizer – and the companies that produce them – have dropped straight back to Earth.

Take a look…

That’s why CF Industries’ (NYSE:CF) recent announcement made such big news. Amid collapsing share prices and notoriously tight credit for mergers and acquisitions, CF Industries announced Friday an offer to buy out smaller-player Terra Industries (NYSE: TRA).

Terra Industries popped 27% on the news, and CF Industries rose 2.73%.  Normally, a buyer taking on a pile of debt to finance a deal that may or may not work out will see a little bit of a decline.

But two things are at play here:

1) The market thinks this is a good fit.

CF Industries expects to save $100 million over two years by combining forces. That’s nothing to sneeze at for a company that would have combined revenues just over $6 billion. This puts CF in position to maintain a much more competitive position over bigger players like Potash Corp. (NYSE: POT) and Terra Nitrogen (NYSE: TNH).

2) The future for fertilizer will be like the past.

Unfortunately, food production is going to be a major global problem for the next few decades. It will quite possibly be the biggest problem our species will ever face. And one of the only ways currently available to increase production is to load up on powerful nitrogen fertilizers. And since supply is finite, long-term prices have only one way to go.

Fortunately for CF Industries and other fertilizer companies, this spells profits. And for CF, the purchase of Terra Industries has likely improved their position to compete in that niche.

Source:  Stock of the Day: CF Industries (NYSE: CF)