When it comes to commodities, despite the trade war, China is the country you must focus on. Meanwhi...
6 Agricultural Names to Feed the World
07/28/2011 8:00 am EST
Ramesh Gulati is eyeing companies equipped to meet infrastructure needs in the agricultural sector. In today's interview, he also tells Kate Stalter about some energy names to watch, and shares his views on how to use caution when going long or short on commodities ETFs.
Kate Stalter: We are talking today with Ramesh Gulati of Gulati Asset Management, and that company is located in Providence and in Vero Beach, Florida. Thank you so much, Ramesh, for joining us today.
Ramesh Gulati: Thank you Kate, I appreciate the opportunity.
Kate Stalter: Give us your take on the current market conditions, and anything that you believe individual investors should be aware of right now.
Ramesh Gulati: Let me give a quick disclaimer and disclosure, just so compliance is happy. Everyone please understand that Gulati Assessment Management takes no responsibility for any trading actions due to this discussion in this interview, and I recommend people talk to their own financial advisor.
Also, myself, my firm, and my clients may or may not have a position, either long or short, in any of the stocks discussed today. So, now that compliance is happy, let’s move ahead.
In regards to current marketing conditions, obviously everyone sees that the debt-ceiling talks have been going back and forth and whipsawing the market in some crazy way.
I believe they are really playing chicken, but they are playing with a loaded gun. If for some reason we do default on August 2, 2011, all bets are off. It will lead to global market turmoil.
We could possibly lose our AAA credit ratings for the first time in history. At that point, I would suggest everyone get to cash, at least for the short term. But right now, the way I am looking at the market, the markets don’t believe that is going to happen, and I don’t believe that is going to happen either, Kate.
Going forward with overall market conditions for the longer term, I see that we have basically been in a range for the past, I would say year-to-date. So for the past six or seven months the S&P being, probably between 1,260 and 1,360, so that is about an 8% range. The Nasdaq has been in about a 9% range between 2,625 and 2,860.
I like to call it Satan’s bottom: When we hit 666, on October of 2009, everyone thought we were in hell, so I like to quote the phrase "Satan’s bottom." But we have doubled off that, which I think is really huge, and we are actually back in the Nasdaq to where we were before the crash, back in 2007.
So people have to realize we have come a long way pretty quickly. I think the reason why we have come that way, you know, I tell clients that we are on somewhat of a “sugar high.”
The government has dropped rates to almost zero, they are printing money, buying our own debt. Corporations have become so lean and efficient, they have fired all the dead weight or the fat, and now they are making money hand over fist. They have learned that they do not really need to hire a lot of these people back and they are creating so much money.
It has become such a dichotomy between the corporations that have a lot of money, and the individual guy on the street that doesn’t have a job, and the government that is possibly going to default.
So going forward in investing, you have to be careful because at some point this “sugar high” has got to come to an end. The way I talk with clients is, I think buy and hold is dead.
If you look back a little bit longer, actually 14 years or so, the S&P range has been between 700 and 1,500, so about 114% range or so. The Nasdaq ranged between 1,400 and 2,800, so about 100% range, but if you just took your money and put it in some type of index fund, other than dividends, you would be basically where you were 14 years ago.
I don’t know about you, but I know my clients wouldn’t be happy if they had the same amount of money they had 14 years ago. So, the way I look at it for individuals, how to trade this market is: You need to do that. You need to trade. You can’t get married to stocks.
I tell clients, when you have some winners, let them ride. Increase your stops all along the way, and when you have some losers, cut them off quick. Don’t get sunk into something.
So, I always tell clients, you got to buy stuff when things or ugly, and sell it when they are beautiful and then you know you can always get it back. If it starts to run and you say, “Oh well, I lost that 30% or 40% that I could have made,” no one ever went broke making a profit.
So don’t worry about the money you didn’t make, just be happy with the money you did make.
Kate Stalter: In these current market conditions that you are describing, what do you see as showing strength?|pagebreak|
Ramesh Gulati: The stuff that is showing strength, or the stuff that I like? Because a lot of the stuff that is actually showing strength, I think is a bit crazy, and maybe we can get into that a little bit later.
But the things that I do like are: If you look at global markets, some of the countries like China, India, and Brazil. In all these types of markets, you have people that used to ride bicycles and now they are becoming a little bit more middle class.
They are making a little bit more money, so they don’t want to ride bicycles anymore. They want to ride scooters. So, the things that go into industrialization are commodities. You look at the stuff that goes into a scooter: Lead, copper, rubber, gasoline from oil.
We’ve been in a bull market for commodities so far, but I think we are probably about seven or eight years into a thirteen-year cycle, and obviously commodities move around very quickly, so you never really want to buy them at the top. But I do like those areas.
If you look at an individual in China that basically used to eat rice, now they have got some money and they want to eat meat. What goes into meat? You look at grains. You need a lot more grain to feed a cow or a pig or animals.
So if you look at the next derivative trade and you bring it backwards, you look at stuff like the agricultural stocks and fertilizers. You look at something like Terra Nitrogen (TNH). That stock went from $70 to $160 in a year with great yields.
Or something like a Mosaic (MOS) or a Potash (POT). These are all fertilizer stocks, so that when we have less rain and less acreage, you have to get the most yield out of your crop, fertilizers are what does it.
Something like a CF Industries (CF) has done really well. Take it a step further and you look at some of the seed names like a Monsanto (MON) or Syngenta (SYT). These are companies where you have to look and see: What do people need? They need to eat.
Kind of that simple. I like a lot of the agriculturals. There is another one, Bunge (BG), that does very well. They are in soy beans. If you look at anything on the back of your label, you know soy is in everything.
I like stuff like oil services. You know oil is getting harder and harder to get. All of the easy oil has been taken, so it is more and more difficult to get oil, and as much as people look at green energy and things like solar and wind, those are all great things.
But realistically I am never going to be seeing those things actually make large amounts of electricity. The only things that can make large amounts of electricity are things like oil, coal, natural gas and nuclear. Those are the things that make large amounts of electricity, and that is really what is necessary to go forward.
So oil-services names. One people probably have not heard very much of is a company like Core Labs (CLB). That company has gone from $25 to $115. Companies like FMC Technologies (FTI), has gone from $12 to $46.
There is a little company by the name of Mitcham Industries (MIND) going from $6 to $20. But it so difficult to be able to get the oil from down at the bottom of the ocean or from out of sand, and these technologies are growing everyday. So those are some of the stuff that I like.
I like drillers. A company like Diamond Offshore (DO) or a Transocean (RIG). Transocean was involved in the BP (BP) accident, but I mean they are still an excellent company. People sometimes throw them under the bus, but they are the ones getting the oil from a couple of miles down below the sea.
I had spoken about nuclear a little while ago, and after the Japanese earthquake and tsunami and the nuclear disaster, nuclear just got thrown away. Everyone got afraid of nuclear.
Back in the 1970s and Three Mile Island, everyone got afraid of nuclear, but realistically nuclear is an amazing technology that can create awesome amounts of power with very little emissions or any emissions, and when done properly, it is an amazing technology.
So you look at uranium, something minor like a Cameco (CCJ) or like a BHP Billiton (BHP). People don’t realize with BHP Billiton they get a lot of uranium. They are one of the major uranium producers in the world. So I do like the miners, like that.
There is a company by the name of Shaw Group (SHAW). They have gotten destroyed recently and they have excellent technologies for nuclear. There is a great minor down in Peru, Southern Copper (SCCO). They have great yields and they produce a lot of cooper, but I don’t want to keep going on and on about things and you don’t get to your other questions.
Kate Stalter: Well, you have mentioned a lot of these great companies that you see as showing some strength right now, either fundamentally or technically or both. How about some of the sectors or asset classes or companies that you believe investors should avoid right now?|pagebreak|
Ramesh Gulati: Right now, I don’t see that we have any leadership in this market like we used to. We used to have some really good leadership from technology or from financials, and no one has really taken that.
There are individual companies, but no one has really taken the lead. For this market to go forward we need financials, and they are just languishing right now.
Until we get all that toxic debt off the balance sheets—and no one even really knows where it is anymore—the financials are going to have problems. If you were to put a gun to my head and pick a financial right now, I would take best of breed, Goldman Sachs (GS). They disappointed in earnings but they still have the best and brightest and they always figure out a way to make money.
So if you want to pick the best stock in an ugly sector, I would take Goldman Sachs on that, but a lot of the other ones in the financials you need to still avoid.
Other specific stocks...I still do not understand a lot of these high flyers, and I was in a lot of them. Like Netflix (NFLX). I look like a genius from $80 to $150, but look at it now. And, you know, these momentous things and these analyst, they just jump on the bandwagon and keep throwing these things up higher and higher and higher.
It reminds me of some of the stuff we saw in 1999. Look at LinkedIn (LNKD). They take, what, 10% of the company public. They misprice it and it is at $100. They make no money. I just don’t understand a lot of those. Look at Chipotle (CMG). It just keeps flying up there.
A company like SodaStream (SODA). A lot of those momentum, flashy names, I would not buy it. Don’t get me wrong, they are a widowmaker if you try to short these things. And if you were to buy them, I would definitely use options because you can get your head handed to you really quick.
Kate Stalter: You have mentioned a lot of names here today, Ramesh, and I really appreciate it. Are there any other investment vehicles that you are using to meet your clients' objectives? Or any other sectors, names, global regions that you think might be worth a look that you have not mentioned yet today?
Ramesh Gulati: Well, I like ETFs. I was one of the first ones to use ETFs. When I have a client that wants to be diversified and doesn’t have the funds to properly diversify with individual stocks, I use a lot of ETF and they work really, really, really well.
Some of the ETFs you want to be very careful of are the triples. I don’t know if anyone knows very much about them, but something like the Direxion Daily Large Cap Bull 3x Shares (BGU), or Direxion Daily Small Cap Bear 3x Shares (TZA). There are ETFs out there that will move triple whatever the underlying index is the day. So let’s say something is up 1% for the day. If you are in the triple, it is going to move 3% for the day.
But one thing people don’t realize is that these things they re-price every day...so these vehicles, if you are going to use them and they are very volatile, you can make a lot of money or lose very quickly. But remember these aren’t vehicles that you should be in for more than a week because they will lose money. Even if the market is going in the right way, they will lose money over time.
But if you ever want to go short silver, you do the ProShares UltraShort Silver (ZSL). It is a double short silver. You want to go long silver and a quick short term trade, you hit something like ProShares Ultra Silver (AGQ). You know that is going to go double long silver, but again I have seen these things move 7%, 8% in a day.
So you’ve got to know what you are doing, and you have to be careful and I wouldn’t suggest it for the faint of heart.
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