Nine Winning Trades For 2009

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Trade #5: Buy the Basics

There are some industries that will be substantially less impacted by the “demand destruction” occurring in this downturn than others.  Many of these winners are companies in sectors such as agriculture and chemicals.

Two of our favorites are Dow Chemical (DOW) and Intrepid Potash (IPI).  Although DOW does have some debt exposure, it is a blue chip company trading at less than 10 times earnings with an 8% yield that appears rock solid. 

Intrepid Potash (IPI) is a potash mining company with operations in New Mexico and Utah.  Potash is a critical ingredient for fertilizer. In a world of crazy change, one constant is that people will keep eating and farms will keep growing crops. The company also has a price advantage as its transportation costs are below industry average.  In 2009, the company plans to increase production capacity by about 15%. The stock is currently trading at about four times earnings per share.  The potash mining business has huge barriers to entry. To open a mine costs about $2.5 billion and takes 5 to 7 years. In a world where credit is tightening, this company should be free of new competition for the foreseeable future.

Both the larger potash companies, The Mosaic Co. (MOS) and Potash Corp. of Saskatchewan (POT), are also of interest.

Trade #6: Real Estate Will Get Worse