If it’s the worst he has ever seen — considering Dreman made his name in 1980 when he said to buy stocks in the waning months of a 17-year bear market — the markets have to be pretty bad. The pain hasn’t been across the board, as you can see in the chart above. In the first half of the year, two sectors have managed to stay in positive territory.

Utilities and banks have been the traditional “widow and orphan” stocks. In the case of utilities, they are regulated, their profits are practically set by local governments, and they pay dividends. Banks, which earned top honors as the worst-performing sector in 2008, are no longer the safe havens they once were.

With utilities standing alone as the safest stocks, I’d expect to see even more money flow into the sector over the coming months. You’re not going to double or triple your money in this sector overnight with utilities. But, you know you’ll still have your money when you wake up.

In some cases, you’ll be able to collect a big, safe and reliable dividend. In a way, utilities will pay you to wait for the markets to recover. Continue here for a list of top-yielding utility stocks.

Good investing,

Andrew Mickey

Editor, BreakAway Investor
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Source: A Bull Market that Has Beaten the Bear

But Andrew Mickey says the soaring price of natural gas will hit fertilizer manufacturing profits hard — and hurt potash stocks in the process.

In the last twelve months, two leading potash producers, The Mosaic Company (NYSE: MOS) and Potash Corp (NYSE: POT) have seen share prices rise 260% and 176% respectively.

But Andrew says expectations in the fertilizer industry are too high for the short term. The soaring price of natural gas – a key ingredient in fertilizer manufacturing – is going to take a big lump out of profits…

When it comes to commodities, sometimes one man’s ceiling is another man’s floor. The faster the price shoots up for a basic input like crude oil or natural gas, the tougher it gets for some producers to maintain profit margins. Why does this matter, you ask? Because price patterns in oil and gas can sometimes tell you when not to buy into a certain sector or group — in this case, fertilizer stocks.

The fertilizer industry uses a lot of natural gas… and I mean a lot. Fertilizer can’t be manufactured without gobs of it. According to the GAO, “Natural gas is a key feedstock in the manufacturing of nitrogen for which there is no practical substitute.”

We can see the impact of soaring natural gas prices on fertilizer costs. In the chart below, the National Agriculture Statistics Service shows us how natural gas prices can destroy profits of fertilizer producers.

In 2001, natural gas prices spiked from $4 to $10 in three months. Meanwhile, nitrogen fertilizer prices only rose from about $200 per ton to about $325 per ton.

A lot of factors play a part in a 150% move (the amount by which gas prices rose). What’s perfectly clear is that fertilizer companies paid the price. While they had to pay 150% more for one of their major inputs (natural gas), they were only able to charge about 60% more for their product. When companies are unable to pass increased costs onto consumers, their shares can experience drastic sell-offs.

The dreaded natgas spike hit fertilizer stocks in late 2000… then hit them again in 2003… and then yet again in 2005, when the hurricane season pushed natural gas prices to extremes.

Following Hurricane Katrina, the fertilizer sector was hit with a 20% sell-off. The most natural-gas-dependent producer fell 40% after Katrina made the official leap from tropical storm to hurricane.

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Priced for Perfection

Of course, we’d expect it all to be priced in by now right? After all, three times in the past decade natural gas prices soared and fertilizer companies got hit hard. And yet, in this case, history has been forgotten once again. The price of natural gas has risen 80% this year, yet fertilizer stocks are still going strong.

Expectations are high — too high. Any fertilizer company that comes up short this earnings season is going to pay a heavy price.

Potash Corp is a good example. There have been seven analyst upgrades for Potash Corp in the past month. Consensus estimates for Potash Corp’s Q2 profits were $1.98.

Now, Wall Street is expecting $3.23. That’s a 63% increase in estimates in only a month! Potash prices are up, and the long-term picture can hardly look better… But Potash Corp is now a $70 billion behemoth. Earnings rarely grow that fast when you’re that big.

Again, expectations are just too high for the near term. And natural gas prices are going to cause a lot of fertilizer stocks to miss expectations. Given current market conditions, this is no time to come up short in the earnings department.

It’s Just Business

The next big opportunity I see is going short some of the major fertilizer stocks. Soaring costs and lofty expectations are rarely a profitable combination for investors looking to buy and hold.

In my premium investment advisory, Fear & Greed, we started tracking this situation almost two weeks ago. I warned “the race to fertilizer stocks is about to take a pit stop.”

Since then, the bubble showed the first signs of popping. All of the hot fertilizer stocks we were avoiding have been hit hard. On average, they’ve fallen 15% in two weeks. But they’re starting to rebound now, and things are shaping up for another big drop. Out of fairness, I can’t reveal the three fertilizer stocks that are most dependent on natural gas (and thus likely get hit the hardest).

But I can tell you a few things… like the fact that during the Katrina aftermath, these three stocks fell 20%, 35%, and 40%.

One of the three stocks — which I originally recommended two years ago this week — is up 280% in the past year. All three had upward revisions of earnings estimates from the money chasers on Wall Street in the past four weeks.

Most importantly, we have a very near-term catalyst when all three of these fertilizer companies report earnings at the end of July.

The bottom line is this: If you’re looking at buying into fertilizer now, it’s best to wait — and you might even want to join me in going selectively short.

If history and the price of natural gas is any guide, there’s probably a much better buying opportunity for fertilizer stocks just a short distance away.

Source: Natural Gas Boom Spells Short-Term Doom for Fertilizer Stocks

Potash prices have just started to move. Last year a ton of potash cost $210. This year, it cost $625 a ton. Within the next three years, prices will average $1,350 a ton. That’s according to fertilizer industry consulting firm Fertecon.Over the long term, the picture gets even brighter. Fertecon says long-term prices for potash will more than double from here.

Potash prices are going parabolic. This commodity is different, though. Potash is vital part of fertilizer. Food demand continues to rise. Global farmland per capita is declining. The agriculture boom is still in its early phases.

At the end of the day, you can drive less to reduce exposure to high oil and gasoline prices. But can you eat less food?

The smart money is betting big on potash. Two billionaires just cut seven-figure checks on a potash upstart two weeks ago. You can learn how to invest right along with them here.

Good investing,

Andrew Mickey

Editor, Fear & Greed

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Source: Still the Big Thing in Agriculture