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Market Wrap-Up for Aug.17 (POT, AGU, CF, MOS, JNJ, more)

Posted: 8/17/2010 4:18:00 PM
Referenced Stocks: AGU;BHP;CF;JNJ;MOS;POT

We're getting a market rally today, but look at what's leading the charge: none other than the momentum-driven commodity sector names.

Potash Corp ( POT ) ramped up huge this morning on news the company received an unsolicited acquisition bid from BHP Billiton ( BHP ) . This lit a fire under other companies in the space, such as CF Industries ( CF ) , Mosaic ( MOS ) , and Agrium ( AGU ) . This was great news for traders that are holding these momentum plays. Despite paying dividends (very puny ones), we are not interested in playing in the manic-style turns the sector is now known for. We have seen sporadic jumps in the space, and we all know M&A could propel the sector into a mini-bull market as well, but unless you possess the discipline and timing skills to maneuver through, I would avoid the "who's the next takeover" temptation.

We also see news out this morning that legendary investor Warren Buffett has nearly doubled his stake in Johnson & Johnson ( JNJ ) . Mr. Buffett likes to "prune the garden" at various times when it comes to his holdings, and we employ the same strategy here at at times. There will be circumstances when some names get a bit ahead of themselves in terms of price, and the risk/reward is not as good as other areas of the market. Thus, we remove names from our "Recommended" list until we feel their valuations are more appropriate. Mr. Buffett did that with JNJ - we cut Berkshire's holdings in that name from 64 million shares at the end of 2007, all the way down to 24 million in March 2010. Now, his company has upped its position back to 41 million shares.

Getting back to the commodity buzz I mentioned earlier, I am not thrilled by the news of consolidation in the commodity sector. Less players can sometimes mean higher prices on the back end. The last thing we want to head toward is stagflation, where unemployment and inflation is high and economic conditions are weak.

That's it for today, folks! As always, check out our Best Dividend Stocks List for our top dividend recommendations. Plus, if you haven't done so already, test out our new Monthly Dividend Income Generator tool, which makes scheduling your dividend income payouts easy. See you tomorrow!

Be sure to visit our complete recommended list of the Best Dividend Stocks , as well as a detailed explanation of our ratings system here .