Article by Investment U
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In focus this week: Carl Icahn kicks some Chesapeake (NYSE: CHK), a contrarian tech play (CTSH), a perfect pile of fertilizer (IPI, MOS, POT) and the SITFA.
According to the Journal, the ultimate bargain hunter and activist investor, Carl Icahn, is closing in on Chesapeake Energy (NYSE: CHK). Following what could only be described as a circus over the past few weeks, Chesapeake seems to be so weak, it’s fair game for an activist like him.
An activist investor is a person or group who buys enough stock to force the board of a company, Chesapeake in this case, to make changes in how they are doing things to benefit the shareholders.
In most cases, it can drive the stock price.
Essentially Ichan will be forcing Aubrey McClendon, the CEO of CHK, to act like CHK is a public company, which it is, and act in the best interest of the shareholders, not himself.
If this sounds a little obvious, it is. McClendon it seems has been setting himself up quite well in the CHK structure, giving himself a percentage of all of the company’s production.
That’s a good deal!
Look for Icahn to put a stop to that or seriously limit McClendon’s reach in the company.
So what does all this mean to us? If Icahn does in fact drive the board to make serious changes at CHK, it may be worth a second look to us. But wait to see what happens when Icahn announces his intentions.
CHK is the second-largest gas producer in the U.S., but there are some very big concerns about it being over leveraged. With gas prices still below $4, it’s weighing very heavily on the stock.
Watch Icahn and CHK.
Next up…
A Contrarian Tech Play
"CTSH’s PE is currently right in line with its earnings growth rate."
The upper echelon of the investing world loves bad news. Buffet has often said he loves it when things are really bad.
So it’s easy to see why some of the top contrarians in the money world are looking at Cognizant Technology (Nasdaq: CTSH). The stock fell 27% in one month and the volume during that period was 20 times higher than its average daily volume.
According to a Barron’s article, Citi Group is telling its clients to buy it and Susquehanna Financial is advising its client to capitalize on the fear premium in the stock following what they called a “mob overreaction.”
Susquehanna is making its buy recommendation based on the GARP, growth at a reasonable price. GARP is when the PE is at or below the earnings growth rate, in other words a stock that balances growth and value.
CTSH’s PE is currently right in line with its earnings growth rate.
But be aware, when a stock disappoints, as Cognizant has, there is always the chance it could get whacked by a bad earnings report or even a competitor, either of which could drive it down even further.
Contrarian plays are my favorites but don’t let the low price cloud your judgment. Always protect yourself with reasonable position sizes and trailing stops, especially with a play like this.
Perfect Fertilizer
Everybody it seems is taking a look at Intrepid Potash. Buy recommendations and glowing comments about it are everywhere in the news.
One article this past week called it the perfect investment. Perfect or not this small potash manufacturer is in the right place at the right time.
Potash demand in the U.S., where Intrepid (NYSE: IPI) sells almost its entire product, is very bullish.
Farm income this year is expected to be the second highest ever and farmers are expected to spend a lot more on potash.
Corn, which consumes the most nutrients, is being planted at the highest rate in two decades. That will require more potash.
Reuters reported that Mosaic (NYSE: MOS), one of the big players in potash, sold as much potash in one day as it did in all of January.
Potash Corp. (NYSE: POT), another big player, said that potash levels in the soil are at five-year lows and farmers have to replenish it.
Intrepid is the largest potash producer in the U.S. and they are getting a higher price per ton than the big suppliers, $526 versus $497 for Potash Corp. and Mosaic.
Great numbers, favorable and improving trends and the largest producer in the U.S.; definitely take a look at this one. Intrepid, IPI.
And Finally the SITFA
It goes this week to Tempur-Pedic (NYSE: TPX), the makers of the space age foam mattresses that have taken the market by storm.
In a recent Barron’s article, it was reported that this mattress, which is heavily favored by baby boomers, has one big complaint. Some buyers are reporting that sex is not as good as on a conventional mattress.
I am not joking. Take a look at this week’s Barron’s.
According to one owner, the soft texture doesn’t give you enough traction. Another complained you don’t get the bounce of the coil spring mattress.
But according to the manufacturer, who offers a 90-day full money back offer, none have been returned for that reason.
I’m really at a loss on this one.
See you next week.
Article by Investment U
