It's the best of times and the worst of times for U.S. farmers.
Red-hot economies such as China and India are hungry for U.S. farm exports.
The bad news is the U.S. may slide into a recession that sideswipes the world economy -- slashing food prices and the appetite that Chinese housewives have for Kansas wheat and Washington apples.
Another dilemma is that input prices -- what farmers pay for seeds, fertilizer and other supplies -- probably won't fall as rapidly as the food prices that all growers depend on to make a buck. So farmers face the double-edged sword of falling prices and inflated costs.
"The thing that concerns me most is our ever-rising input costs," said Tim Siefert, a farmer who owns 200 acres of farmland and leases another 200 acres in Auburn, Ill. He says the cost increases for fertilizer, seed, chemicals and fuel far exceed anything he's seen in the past.
Add the impact of climate change, new technology and farming methods and you have one of the biggest farm management challenges since the Dust Bowl days of the 1930s.
How are U.S. farmers coping? They're tapping a mix of new computer technology, tilling methods, chemicals, genetic engineering and consulting services. Their ability to mobilize these tools will help decide if they get traction in a competitive global economy where Peruvian onions are sold alongside New Jersey tomatoes in U.S. supermarkets.
Tech Clears Way
Doug Mosebar, president of the California Farm Bureau Federation, can't say enough about how new technology is transforming the way farmers manage their acreage.
In many cases, the gate to new technology leads to outer space.
Farm equipment makers like Deere & Co. (NYSE:DE - News), Japan's Kubota (NYSE:KUB - News) and others are placing satellite-based global positioning systems onto tractors and harvesters.
A Deere tractor with a GPS-equipped Auto-Trac steering system, for example, moves so precisely through a field that it optimizes tilling, seeding and other activities, while saving on fuel, seed, fertilizer and time.
Aerial imaging and other data gathered from computers mounted on farm equipment also can analyze nutrients, moisture and yield in every square foot of field under cultivation. This tells farmers how much fertilizer, seed and water should be used to cut waste and ramp up farm profits.
While some farmers have embraced computer tech in the field and office, others still fly by the seat of their pants.
"You can use computers and spreadsheets. Some do it the old- fashioned way with calculators. The main thing is to figure out what costs will be," said Jim Zimmer, Monsanto's (NYSE:MON - News) vice president of U.S. branded business.
But computer-based farming clearly has the edge these days. The USDA says the number of farmers with high-speed Internet access doubled in 2007, to 27%.
In 2007, 78% of medium to large farms -- those with sales of $250,000 or more -- owned or leased a computer. About 66% used it to help them manage their farm business.
Fortunately, many farmers have money to pay for this new tech. "Crop prices have been very good the last few years -- mostly because we've had a real change in the (way farms are organized)," said University of Missouri agronomist Nicholas Kalaitzandonakes.
The U.S. Department of Agriculture says the total value of all U.S. farm exports soared 67% to $81.9 billion in 2007 from $49.1 billion. in 1999.
U.S. farmers also have benefited from swelling demand for grain products like corn to make ethanol alternative fuels.
Consultants Help
On the human side, consultants are filling in the cracks for farmers where computers can't.
Siefert relies on consultants to help him decide when to sell his crops. "Timing is extremely important," he said, alluding to fast-changing commodities prices that spell success or doom for those who work the land. Consultants advise farmers on things from when to sell their crops to the best crop to plant for their soil type.
Monsanto's Zimmer says the biggest managing challenge that farmers face is deciding which crops to plant.
"Commodity prices have gone up," Zimmer said, "but so have input costs, fertilizer and fuels. Different crops take different fertilizers and fuel. Deciding which ones to plant is crucial."
Newer field techniques like no-till farming also help farmers get a leg up on efficiency.
No-till farming offers a way to grow crops from year to year without disturbing the soil through tillage. It first came into use in the early 1990s and is now popular.
Usually, the remains of the previous year's crop aren't plowed under and act as sort of a mulch that enriches the soil.
The farmer becomes more productive by not spending time plowing the field, time that can be spent planting, fertilizing or otherwise managing farms.
Research shows that continuous use of no-till methods controls soil erosion, raises crop yields and protects the environment.
War On Weeds
Floods, droughts and other forms of climate change are also stirring challenges for U.S. farmers.
Shifts in growing conditions are triggering weed growth in growing areas across the U.S. This is prompting development of new herbicides .
Monsanto's popular Roundup Ready herbicide gives farmers a new weapon in their war on weeds. It kills weeds without harming the crop. Monsanto also sells crop seeds that are resistant to the chemicals in Roundup. The one-two punch kills weeds while letting crops grow.
Drought conditions in some U.S. states also hurts corn and grain production for ethanol fuels. To meet the challenge, big agribusiness players like Monsanto, DuPont (NYSE:DD - News) and Novartis (NYSE:NVS - News) are using genetic engineering to produce drought-resistant crops.
Monsanto just finished its fifth season of field testing for drought-resistant corn that grows on far less water than regular strains.
Some industry officials say the long-term prospects for U.S. farming are good even if there's a dip in the economy this year that hits overseas markets.
"I think the next 15 to 25 years are going to be the most exciting in agriculture history," said Tom Warner, the vice president of Agrium (NYSE:AGU - News), a Calgary, Alberta-based agricultural products retailer. "There's an opportunity to help with the energy crisis as well as with increasing human consumption of food."
Deere's CEO Robert Lane says demand from China and India will play a big role in energizing U.S. farming.
"The growth of China and India means there are more than 2 billion people who will be able to buy food like they never did before," Lane told IBD in a recent interview.
Friday, February 29, 2008
Farm suppliers' profits bloom as commodity prices jump
WASHINGTON — Farmers aren't the only ones making money from the run-up in commodity prices. Companies that sell things to farmers, everything from fertilizer to seed to tractors, are reporting healthy profits, too.
Terra Industries (TRA), a major fertilizer supplier, reported that its fourth-quarter 2007 profit jumped by six times over the year before.
Deere (DE)— which makes tractors, harvesters and other farm equipment — reported record quarterly earnings. Agricultural equipment sales were up 33%.
The company could benefit further from a $168 billion economic stimulus package that the federal government recently approved. A provision will allow farmers to write off the value of their equipment sooner and let them keep a greater portion of last year's record income to spend on new machinery.
Monsanto (MON) has raised its 2008 earnings estimate by 8% because of strong seed and herbicide sales.
The list of agribusiness winners also includes names such as Dow Chemical (DOW) and DuPont (DD).
"Following a very strong 2007, 2008 is shaping up to be a spectacular year" for agricultural suppliers, Goldman Sachs analysts wrote this month in a report headlined: "Let the good times roll!" The analysts say the industry's "tremendous fundamentals" are unusual in the current economic slowdown.
Prices for corn, soybeans and other commodities have doubled in the past two years, and that means farmers can afford to pay more for seed and chemicals and buy new equipment. Crop insurers also make more money because premiums paid by farmers rise along with the price of the crop being covered.
Economists are forecasting commodity prices to remain well above traditional levels into the next decade.
The U.S. Department of Agriculture estimates that net cash farm income nationwide will hit a record $96.6 billion this year — up 10% from last year and 40% from 2006 — even with the higher prices being charged by companies such as Terra and Monsanto for fertilizer, seed and other supplies.
A farmer planting corn or soybeans this year would earn up to $500 or more per acre after the cost of seed, chemicals, insurance and fuel is deducted. That's up to five times what the crops returned in 2005, according to a Goldman Sachs analysis.
Farmers are willing to pay more for such supplies when their crop is more valuable, said Ron Litterer, president of the National Corn Growers Association.
Terra's ammonia fertilizer sold for an average of $333 a ton in 2007, up from $315 the year before.
A few farmers have tried to lock in their fertilizer prices for 2009, even though this year's crop isn't in the ground yet, said Joe Ewing, vice president of investor relations and human resources for Terra.
Citigroup estimates Terra's 2008 earnings will reach $3.71 per share and hit $4.11 in 2009, up from $2.45 for 2007.
DuPont's agriculture and nutrition business, which includes Pioneer Hi-Bred, is predicting double-digit earnings growth through 2012 because of the strong farm economy and DuPont's new seed and pesticide products.
Pioneer's worldwide seed sales were up 40% in the last quarter of 2007.
At Pioneer rival Monsanto, 2007 was "absolutely spectacular," Executive Vice President Brett Begemann said.
Agriculture is facing a long-term boom that could be derailed only by a depression, said Bill Doyle, chief executive of fertilizer giant PotashCorp (POT). The boom is being driven not by biofuel production so much as by growth in China, India and other countries, he said.
"It's a demographic switch that we've never seen before. We've always had lots of people, but we didn't have people with money in their pockets," he said.
Terra Industries (TRA), a major fertilizer supplier, reported that its fourth-quarter 2007 profit jumped by six times over the year before.
Deere (DE)— which makes tractors, harvesters and other farm equipment — reported record quarterly earnings. Agricultural equipment sales were up 33%.
The company could benefit further from a $168 billion economic stimulus package that the federal government recently approved. A provision will allow farmers to write off the value of their equipment sooner and let them keep a greater portion of last year's record income to spend on new machinery.
Monsanto (MON) has raised its 2008 earnings estimate by 8% because of strong seed and herbicide sales.
The list of agribusiness winners also includes names such as Dow Chemical (DOW) and DuPont (DD).
"Following a very strong 2007, 2008 is shaping up to be a spectacular year" for agricultural suppliers, Goldman Sachs analysts wrote this month in a report headlined: "Let the good times roll!" The analysts say the industry's "tremendous fundamentals" are unusual in the current economic slowdown.
Prices for corn, soybeans and other commodities have doubled in the past two years, and that means farmers can afford to pay more for seed and chemicals and buy new equipment. Crop insurers also make more money because premiums paid by farmers rise along with the price of the crop being covered.
Economists are forecasting commodity prices to remain well above traditional levels into the next decade.
The U.S. Department of Agriculture estimates that net cash farm income nationwide will hit a record $96.6 billion this year — up 10% from last year and 40% from 2006 — even with the higher prices being charged by companies such as Terra and Monsanto for fertilizer, seed and other supplies.
A farmer planting corn or soybeans this year would earn up to $500 or more per acre after the cost of seed, chemicals, insurance and fuel is deducted. That's up to five times what the crops returned in 2005, according to a Goldman Sachs analysis.
Farmers are willing to pay more for such supplies when their crop is more valuable, said Ron Litterer, president of the National Corn Growers Association.
Terra's ammonia fertilizer sold for an average of $333 a ton in 2007, up from $315 the year before.
A few farmers have tried to lock in their fertilizer prices for 2009, even though this year's crop isn't in the ground yet, said Joe Ewing, vice president of investor relations and human resources for Terra.
Citigroup estimates Terra's 2008 earnings will reach $3.71 per share and hit $4.11 in 2009, up from $2.45 for 2007.
DuPont's agriculture and nutrition business, which includes Pioneer Hi-Bred, is predicting double-digit earnings growth through 2012 because of the strong farm economy and DuPont's new seed and pesticide products.
Pioneer's worldwide seed sales were up 40% in the last quarter of 2007.
At Pioneer rival Monsanto, 2007 was "absolutely spectacular," Executive Vice President Brett Begemann said.
Agriculture is facing a long-term boom that could be derailed only by a depression, said Bill Doyle, chief executive of fertilizer giant PotashCorp (POT). The boom is being driven not by biofuel production so much as by growth in China, India and other countries, he said.
"It's a demographic switch that we've never seen before. We've always had lots of people, but we didn't have people with money in their pockets," he said.
Agriculture Sector Looks Good in Genes
On the inside pages of today’s Wall Street Journal is a half-page advertisement from BASF touting its ability to get “48 miles per kennel.” The claim is a clever bit of hyperbole, but it does hint at a promising future for the entire agricultural sector -- an area which, as fellow fool Matt Koppenheffer noted earlier this year, is already doing quite well.
A new tool: the supercomputer For centuries, the agricultural industry has been adept at applying the latest advances in technology to improve both yield and productivity. There is no reason to believe that this trend will stop anytime soon, and one unlikely hero in this unfolding technological revolution will be the humble supercomputer.
Earlier this week, researchers at Sandia and Oak Ridge National Laboratories announced that they were developing an exascale computer. For those of you counting at home, an exascale computer will be 1,000 times faster than today’s petaflop computers -- which, as I explained in this piece, are already wickedly powerful.
Now, these supercomputers won’t be tilling the fields or harvesting crops anytime soon, but they will allow farmers to reap more from every kennel of corn and acre of land. This is because supercomputers are the engines fueling the new discoveries being made in the rapidly maturing field of genomics.
This past week brought two noteworthy breakthroughs. First, a team of scientists announced that they had completed a working draft of the corn genome. Among other things, this development is expected to lead to better crop varieties that can meet society’s growing demand for food, livestock, feed, and fuel.
Last week, I wrote about how agricultural scientists at DuPont (NYSE: DD) had identified a key gene that boosts the yield of oil and oleic acid and explained how this could be a windfall to a company like Archer Daniels Midland (NYSE: ADM).
With the corn genome now unraveled, researchers will be able to take this advance many steps farther, including making corn both more nutritious and more efficient for ethanol production -- although not likely in the same cob. In addition to being a boon for large ethanol producers such as The Andersons (Nasdaq: ANDE) and Poet Energy, this could also alleviate some of the tension over the “food vs. fuel” debate by allowing farmers to squeeze more ethanol from each bushel of corn.
Who needs the rain? A second area in which genomics promises to yield some important breakthroughs is in the creation of drought-resistant crops. In a paper published in Nature this week, biologists at the University of California, San Diego, outlined how they have isolated a gene responsible for opening and closing the stomatal pores, which regulate water loss from plants.
This might not sound like that big of a deal, until one considers that plants under drought stress lose 95% of their water through such pores.
If successfully developed at a commercial scale by a company like Monsanto (NYSE: MON) -- and this is still a big “if” at this time -- the advance could open up vast regions of the planet to productive farming. And because many of these crops will still need to rely on fertilizers and other chemicals to achieve maximum output, this could be a boon to companies like The Mosaic Company (NYSE: MOS) and Syngenta (NYSE: SYT), which supply those materials.
Foolish bottom line As significant as these advances are, I would strongly advise Foolish readers to keep an eye on the work of geneticist Craig Venter. At a presentation at the prestigious Technology, Entertainment and Design (TED) conference this week, Venter disclosed his potentially world-changing “fourth-generation fuel,” which (as you may have guessed) is being fueled by advances in genomics.
As Venter noted, he has 20 million genes which he can genetically reengineer to “eat” agricultural feedstocks and “excrete” pure fuel. If he is successful, agriculture could not only feed the world, it could fuel it.
Advances in genomics are going to impact a great many industries, including health care and pharmaceuticals. But for my money, if you’re looking for an industry that might look really good in “genes,” you should consider the agricultural sector.
A new tool: the supercomputer For centuries, the agricultural industry has been adept at applying the latest advances in technology to improve both yield and productivity. There is no reason to believe that this trend will stop anytime soon, and one unlikely hero in this unfolding technological revolution will be the humble supercomputer.
Earlier this week, researchers at Sandia and Oak Ridge National Laboratories announced that they were developing an exascale computer. For those of you counting at home, an exascale computer will be 1,000 times faster than today’s petaflop computers -- which, as I explained in this piece, are already wickedly powerful.
Now, these supercomputers won’t be tilling the fields or harvesting crops anytime soon, but they will allow farmers to reap more from every kennel of corn and acre of land. This is because supercomputers are the engines fueling the new discoveries being made in the rapidly maturing field of genomics.
This past week brought two noteworthy breakthroughs. First, a team of scientists announced that they had completed a working draft of the corn genome. Among other things, this development is expected to lead to better crop varieties that can meet society’s growing demand for food, livestock, feed, and fuel.
Last week, I wrote about how agricultural scientists at DuPont (NYSE: DD) had identified a key gene that boosts the yield of oil and oleic acid and explained how this could be a windfall to a company like Archer Daniels Midland (NYSE: ADM).
With the corn genome now unraveled, researchers will be able to take this advance many steps farther, including making corn both more nutritious and more efficient for ethanol production -- although not likely in the same cob. In addition to being a boon for large ethanol producers such as The Andersons (Nasdaq: ANDE) and Poet Energy, this could also alleviate some of the tension over the “food vs. fuel” debate by allowing farmers to squeeze more ethanol from each bushel of corn.
Who needs the rain? A second area in which genomics promises to yield some important breakthroughs is in the creation of drought-resistant crops. In a paper published in Nature this week, biologists at the University of California, San Diego, outlined how they have isolated a gene responsible for opening and closing the stomatal pores, which regulate water loss from plants.
This might not sound like that big of a deal, until one considers that plants under drought stress lose 95% of their water through such pores.
If successfully developed at a commercial scale by a company like Monsanto (NYSE: MON) -- and this is still a big “if” at this time -- the advance could open up vast regions of the planet to productive farming. And because many of these crops will still need to rely on fertilizers and other chemicals to achieve maximum output, this could be a boon to companies like The Mosaic Company (NYSE: MOS) and Syngenta (NYSE: SYT), which supply those materials.
Foolish bottom line As significant as these advances are, I would strongly advise Foolish readers to keep an eye on the work of geneticist Craig Venter. At a presentation at the prestigious Technology, Entertainment and Design (TED) conference this week, Venter disclosed his potentially world-changing “fourth-generation fuel,” which (as you may have guessed) is being fueled by advances in genomics.
As Venter noted, he has 20 million genes which he can genetically reengineer to “eat” agricultural feedstocks and “excrete” pure fuel. If he is successful, agriculture could not only feed the world, it could fuel it.
Advances in genomics are going to impact a great many industries, including health care and pharmaceuticals. But for my money, if you’re looking for an industry that might look really good in “genes,” you should consider the agricultural sector.
Thursday, February 28, 2008
Stock Star Rating Performance Update
As an investor, I have always valued candor very highly when assessing both CEOs and portfolio managers. So, I will be as candid as possible in reviewing the overall performance of our stock picks in 2007: We had a bad year. Our 5-star calls underperformed just about any relevant benchmark, and they also posted poor absolute returns.
What went wrong? Broadly speaking, two themes hurt us. First, we underestimated the amount of bad lending behavior during the housing bubble, which had repercussions across our coverage universe--from homebuilders to mortgage lenders to bond guarantors and beyond. Second, the spillover effects of a weak real-estate market on consumer spending were much greater than we anticipated, causing us to re-evaluate the prospects for many retailers and restaurants.
Click here to see the images associated with this article:http://news.morningstar.com/articlenet/article.aspx?id=230081
Our poor 2007 returns drag down our trailing numbers, as you can see in the table below. Although we are still ahead of the S&P 500 over the long term, our lead has been cut by quite a bit.
Click here to see the images associated with this article:http://news.morningstar.com/articlenet/article.aspx?id=230081
Let's start with housing.
With the benefit of 20/20 hindsight, I think it's clear that much of the unsustainable demand and uneconomic lending that occurred during the housing boom can be traced back to the widening gulf between lenders and borrowers.
Way back in the days of yore, a real estate lender assessed the value of a piece of property as collateral, made a judgment about the borrower's ability to repay the loan, and then held that loan for a lengthy period of time. If the property's value was misestimated, or the borrower turned out to be a poor credit risk, the lender suffered the consequences. The advent of Fannie Mae (NYSE:FNM - News) and Freddie Mac (NYSE:FRE - News) made it easier for lenders to sell loans into the secondary market, but the standards imposed by those two institutions on the kinds of loans they would purchase maintained some degree of oversight on the market.
But as the demand for nonconforming loans--that is, those outside Fannie and Freddie's guidelines--increased, lenders were happy to step up to the plate, make the loans, and wash their hands of the loans' future performance by selling them to investors. This latter point is crucial, and a recent paper from the University of Chicago puts some analytical meat on a point that seems intuitively clear--when a lender has little economic stake in the future performance of a loan, he or she will have little incentive to make loans that are more likely to be repaid.
The bottom line is that poor lending and underwriting decisions were being made in many, many parts of the mortgage market, and we did not anticipate the consequences of those decisions. These decisions created unsustainable levels of demand for real estate, which made the downturn that much worse for homebuilders, and they created large losses in many financial institutions as loan performance worsened.
That's the general backdrop. On a more specific level, we entered 2007 with fairly downbeat forecasts for most of the financial services companies we cover, expecting that the benign credit environment of the previous few years would deteriorate substantially. In fact, the average price/fair value ratio for the financial services sector was 1.10 at the beginning of 2007, meaning that we thought the sector was about 10% overvalued, and only 4% of financial services companies were rated 5 stars.
However, we were expecting credit metrics to revert back to long-run historical averages, and it now looks like they'll shoot way past that level. We also underestimated just how much of the financial services world was tied to mortgages in one way or another, which meant that we did not anticipate the massive security write-downs that have plagued the largest banks and caused the bond insurers to implode.
Finally, as is often the case with levered companies that start experiencing liquidity troubles, the market can quickly shift from valuing a company as a going concern to valuing it as a collection of assets and liabilities that may be worthless. We were behind the curve in recognizing this change for some of our worst performers--at a certain point, market perception can become reality if it impairs a company's ability to raise capital.
Our poorly timed bullish calls on homebuilders reduced the performance of the Buy at 5, Sell at Fair Value portfolio by 3.8 percentage points in 2007, a figure that rises to 8 percentage points once you factor in the impact of our ratings on mortgage-related financial services firms. The portfolio would have been roughly flat absent these calls.
Consumer stocks also hurt our performance in 2007, though to a much lesser extent than housing and mortgage-related stocks. On a very big-picture level, consumer spending tends to follow employment, and the relatively strong job market throughout 2007 lulled us into a sense of false security regarding consumers' likely reaction to the declining real estate market, and so we rated many retailers and restaurants 5 stars as the sector rolled over in the second half of the year. The picture has turned decidedly worse over the past few months, and although we still think many consumer-related stocks are excellent bargains at the moment, we did reduce a number of our fair value estimates in early 2008. We turned bullish too early, generally speaking.
On the bright side, we had some excellent stock-specific calls that helped our performance. Monsanto (NYSE:MON - News) and Mastercard (NYSE:MA - News) continued to be big winners for us, both more than doubling during 2007. We still love both of these wide-moat businesses, but their shares are only fairly valued at the moment. Speaking of good businesses, our bullish stance on for-profit education stocks paid off nicely in 2007, with DeVry (NYSE:DV - News) and Apollo (NasdaqGS:APOL - News) each rising about 80%, and Strayer (NasdaqGS:STRA - News) popping more than 60%. Steel stocks also helped our performance, with Brazilian steelmaker Gerdau (NYSE:GGB - News) rising more than 70%, the newly merged ArcelorMittal (NYSE:MT - News) jumping almost 90%, and low-cost minimill operator Steel Dynamics (NasdaqGS:STLD - News) rising 60% in the second half of the year.
I'll end this performance review on a bullish note. While we clearly erred in our assessment of most housing-related stocks last year, we're working hard to not anchor on that experience--otherwise, we could easily become too conservative and miss the bottom whenever it does come. Moreover, it's important to remember that stocks do not become cheap when the headlines are good, and we try to add value for our clients by being willing to step into seemingly ugly situations. Last year, many of these contrarian calls hurt our performance, but we continue to believe that, over time, buying assets for 70 and 80 cents on the dollar is a rational route to solid investment returns.
At the moment, the median stock we cover is about 12% undervalued, while large-cap, high-quality companies look even cheaper, trading at 15%-20% discounts to our estimates of intrinsic value. In our opinion, this is a better time to be a net buyer of stocks than a net seller, especially because the cheapest assets--wide-moat mega-cap stocks--are also the ones best positioned to serve as the bedrock of a long-term portfolio.
What went wrong? Broadly speaking, two themes hurt us. First, we underestimated the amount of bad lending behavior during the housing bubble, which had repercussions across our coverage universe--from homebuilders to mortgage lenders to bond guarantors and beyond. Second, the spillover effects of a weak real-estate market on consumer spending were much greater than we anticipated, causing us to re-evaluate the prospects for many retailers and restaurants.
Click here to see the images associated with this article:http://news.morningstar.com/articlenet/article.aspx?id=230081
Our poor 2007 returns drag down our trailing numbers, as you can see in the table below. Although we are still ahead of the S&P 500 over the long term, our lead has been cut by quite a bit.
Click here to see the images associated with this article:http://news.morningstar.com/articlenet/article.aspx?id=230081
Let's start with housing.
With the benefit of 20/20 hindsight, I think it's clear that much of the unsustainable demand and uneconomic lending that occurred during the housing boom can be traced back to the widening gulf between lenders and borrowers.
Way back in the days of yore, a real estate lender assessed the value of a piece of property as collateral, made a judgment about the borrower's ability to repay the loan, and then held that loan for a lengthy period of time. If the property's value was misestimated, or the borrower turned out to be a poor credit risk, the lender suffered the consequences. The advent of Fannie Mae (NYSE:FNM - News) and Freddie Mac (NYSE:FRE - News) made it easier for lenders to sell loans into the secondary market, but the standards imposed by those two institutions on the kinds of loans they would purchase maintained some degree of oversight on the market.
But as the demand for nonconforming loans--that is, those outside Fannie and Freddie's guidelines--increased, lenders were happy to step up to the plate, make the loans, and wash their hands of the loans' future performance by selling them to investors. This latter point is crucial, and a recent paper from the University of Chicago puts some analytical meat on a point that seems intuitively clear--when a lender has little economic stake in the future performance of a loan, he or she will have little incentive to make loans that are more likely to be repaid.
The bottom line is that poor lending and underwriting decisions were being made in many, many parts of the mortgage market, and we did not anticipate the consequences of those decisions. These decisions created unsustainable levels of demand for real estate, which made the downturn that much worse for homebuilders, and they created large losses in many financial institutions as loan performance worsened.
That's the general backdrop. On a more specific level, we entered 2007 with fairly downbeat forecasts for most of the financial services companies we cover, expecting that the benign credit environment of the previous few years would deteriorate substantially. In fact, the average price/fair value ratio for the financial services sector was 1.10 at the beginning of 2007, meaning that we thought the sector was about 10% overvalued, and only 4% of financial services companies were rated 5 stars.
However, we were expecting credit metrics to revert back to long-run historical averages, and it now looks like they'll shoot way past that level. We also underestimated just how much of the financial services world was tied to mortgages in one way or another, which meant that we did not anticipate the massive security write-downs that have plagued the largest banks and caused the bond insurers to implode.
Finally, as is often the case with levered companies that start experiencing liquidity troubles, the market can quickly shift from valuing a company as a going concern to valuing it as a collection of assets and liabilities that may be worthless. We were behind the curve in recognizing this change for some of our worst performers--at a certain point, market perception can become reality if it impairs a company's ability to raise capital.
Our poorly timed bullish calls on homebuilders reduced the performance of the Buy at 5, Sell at Fair Value portfolio by 3.8 percentage points in 2007, a figure that rises to 8 percentage points once you factor in the impact of our ratings on mortgage-related financial services firms. The portfolio would have been roughly flat absent these calls.
Consumer stocks also hurt our performance in 2007, though to a much lesser extent than housing and mortgage-related stocks. On a very big-picture level, consumer spending tends to follow employment, and the relatively strong job market throughout 2007 lulled us into a sense of false security regarding consumers' likely reaction to the declining real estate market, and so we rated many retailers and restaurants 5 stars as the sector rolled over in the second half of the year. The picture has turned decidedly worse over the past few months, and although we still think many consumer-related stocks are excellent bargains at the moment, we did reduce a number of our fair value estimates in early 2008. We turned bullish too early, generally speaking.
On the bright side, we had some excellent stock-specific calls that helped our performance. Monsanto (NYSE:MON - News) and Mastercard (NYSE:MA - News) continued to be big winners for us, both more than doubling during 2007. We still love both of these wide-moat businesses, but their shares are only fairly valued at the moment. Speaking of good businesses, our bullish stance on for-profit education stocks paid off nicely in 2007, with DeVry (NYSE:DV - News) and Apollo (NasdaqGS:APOL - News) each rising about 80%, and Strayer (NasdaqGS:STRA - News) popping more than 60%. Steel stocks also helped our performance, with Brazilian steelmaker Gerdau (NYSE:GGB - News) rising more than 70%, the newly merged ArcelorMittal (NYSE:MT - News) jumping almost 90%, and low-cost minimill operator Steel Dynamics (NasdaqGS:STLD - News) rising 60% in the second half of the year.
I'll end this performance review on a bullish note. While we clearly erred in our assessment of most housing-related stocks last year, we're working hard to not anchor on that experience--otherwise, we could easily become too conservative and miss the bottom whenever it does come. Moreover, it's important to remember that stocks do not become cheap when the headlines are good, and we try to add value for our clients by being willing to step into seemingly ugly situations. Last year, many of these contrarian calls hurt our performance, but we continue to believe that, over time, buying assets for 70 and 80 cents on the dollar is a rational route to solid investment returns.
At the moment, the median stock we cover is about 12% undervalued, while large-cap, high-quality companies look even cheaper, trading at 15%-20% discounts to our estimates of intrinsic value. In our opinion, this is a better time to be a net buyer of stocks than a net seller, especially because the cheapest assets--wide-moat mega-cap stocks--are also the ones best positioned to serve as the bedrock of a long-term portfolio.
Terra Industries SVP Sells Shares
Terra Industries Senior Vice President Joseph D. Giesler Sells 5,000 Shares
NEW YORK (AP) -- A senior vice president of fertilizer producer Terra Industries Inc. sold 5,000 shares of common stock, according to a Securities and Exchange Commission filing Tuesday.
In a Form 4 filed with the SEC, Joseph D. Giesler reported selling the shares on Tuesday for $51.85 apiece. Giesler also surrendered 19,613 shares back to the company for $47.75 apiece on Friday.
Insiders can surrender shares as a way to cover either taxes or the cost of exercising options.
Insiders file Form 4s with the SEC to report transactions in their companies' shares. Open market purchases and sales must be reported within two business days of the transaction.
Terra Industries is based in Sioux City, Iowa
NEW YORK (AP) -- A senior vice president of fertilizer producer Terra Industries Inc. sold 5,000 shares of common stock, according to a Securities and Exchange Commission filing Tuesday.
In a Form 4 filed with the SEC, Joseph D. Giesler reported selling the shares on Tuesday for $51.85 apiece. Giesler also surrendered 19,613 shares back to the company for $47.75 apiece on Friday.
Insiders can surrender shares as a way to cover either taxes or the cost of exercising options.
Insiders file Form 4s with the SEC to report transactions in their companies' shares. Open market purchases and sales must be reported within two business days of the transaction.
Terra Industries is based in Sioux City, Iowa
Potash Widely Held Among Hedge Funds and Other Pro Investors
A confluence of global factors continues to keep shares of fertilizer producers near all-time highs. Worldwide demand, backed by everything from the subsidy-backed ethanol boom to booming economies in Asia, has pushed fertilizer prices higher as farmers are upping their yields in order to meet demand.
The recent run to $100 per barrel oil -- lofty oil prices keep demand for biofuels high -- has helped fertilizer companies, but concerns about a slowing global economy, which could reduce demand for oil and thus ease the demand for ethanol as well, have the potential to temper some of the enthusiasm for fertilizer stocks.
Nonetheless, industry leader Potash (NYSE: POT - News), a Canadian firm specializing in potash, a form of potassium carbonate, as well as nitrogen and phosphate, all of which have agricultural applications, is up about 11% year to date. Meanwhile, the industry's other giant, potash producer Mosaic (NYSE: MOS - News) has seen its shares gain 20% in 2008. Another producer, Agrium (NYSE: AGU - News), is awaiting approval for its $2.15 billion agreement to buy agricultural-products distributor UAP Holding (Nasdaq: UAPH - News).
Several institutional investors have had exposure to the fertilizer boom. Hedge fund Dawson Herman Capital Management, which "has traditionally invested in the growth sectors of the U.S. economy," according to its website, has substantial holdings in the sector. As of the end of 2007, its top-four U.S-listed equity holdings are fertilizer producers. During Q4, the firm trimmed its stakes in Terra Industries (NYSE: TRA - News), a firm that produces nitrogen and methanol products for agricultural and industrial markets, and CF Industries (NYSE: CF - News), which operates in two segments, nitrogen fertilizers and phosphate fertilizers. The firm also slightly increased its stakes in Potash and Mosaic. A list of the rest of Dawson's top U.S-listed equity holdings is available at tickerspy.com.
Potash proved to be the most popular fertilizer company among Pro investors in Q4. Among the 44 investment firms holding stakes in the company, the largest was a 20.1 million-share stake held by mutual fund giant Janus Capital Management. Meanwhile, Potash is also the favorite fertilizer stock among tickerspy members, though Terra Nitrogen (NYSE: TNH - News), an incredibly volatile master limited partnership (MLP) with a focus on nitrogen fertilizer products, and Compass Minerals (NYSE: CMP - News), a specialty fertilizer producer, are popular as well.
The recent run to $100 per barrel oil -- lofty oil prices keep demand for biofuels high -- has helped fertilizer companies, but concerns about a slowing global economy, which could reduce demand for oil and thus ease the demand for ethanol as well, have the potential to temper some of the enthusiasm for fertilizer stocks.
Nonetheless, industry leader Potash (NYSE: POT - News), a Canadian firm specializing in potash, a form of potassium carbonate, as well as nitrogen and phosphate, all of which have agricultural applications, is up about 11% year to date. Meanwhile, the industry's other giant, potash producer Mosaic (NYSE: MOS - News) has seen its shares gain 20% in 2008. Another producer, Agrium (NYSE: AGU - News), is awaiting approval for its $2.15 billion agreement to buy agricultural-products distributor UAP Holding (Nasdaq: UAPH - News).
Several institutional investors have had exposure to the fertilizer boom. Hedge fund Dawson Herman Capital Management, which "has traditionally invested in the growth sectors of the U.S. economy," according to its website, has substantial holdings in the sector. As of the end of 2007, its top-four U.S-listed equity holdings are fertilizer producers. During Q4, the firm trimmed its stakes in Terra Industries (NYSE: TRA - News), a firm that produces nitrogen and methanol products for agricultural and industrial markets, and CF Industries (NYSE: CF - News), which operates in two segments, nitrogen fertilizers and phosphate fertilizers. The firm also slightly increased its stakes in Potash and Mosaic. A list of the rest of Dawson's top U.S-listed equity holdings is available at tickerspy.com.
Potash proved to be the most popular fertilizer company among Pro investors in Q4. Among the 44 investment firms holding stakes in the company, the largest was a 20.1 million-share stake held by mutual fund giant Janus Capital Management. Meanwhile, Potash is also the favorite fertilizer stock among tickerspy members, though Terra Nitrogen (NYSE: TNH - News), an incredibly volatile master limited partnership (MLP) with a focus on nitrogen fertilizer products, and Compass Minerals (NYSE: CMP - News), a specialty fertilizer producer, are popular as well.
Wednesday, February 27, 2008
Feast or Famine?
Cramer likes to invoke the ghosts of leaders past – and, on occasion, top-40 rappers – to make a point. So when he declares “ethanol subsidies [are] crucifying mankind upon a cross of ethanol,” high-school-level history buffs probably recognize the William Jennings Bryan reference
Cramer’s scornful diatribes against ethanol are nothing new to Mad Money fans. They happen almost as often as the Lightning Round. But he’ll be the first to admit the resultant “federally mandated bull market” in agriculture has been a boon to his Fab Five: Mosaic , Potash, Agrium,Monsanto and Deere
Now, the sector’s getting another lift from sky-high food prices. Corn and soybeans have soared to record levels. Wheat prices during the trading day are maxing out. And the profits are going straight to the ag sector’s bottom line.
Now, the dark side of this expensive food, Cramer says, is that billions either don’t have it or can’t afford to buy it. So poor people from China to Brazil are going hungry as these crops are used for fuel or livestock feed. This means, at least to some extent, the Fab Five are getting filthy rich in the midst of a global famine.
What’s a loyal Homegamer to do? Join the Peace Corp.? Go vegan? (Here’s the definition just in case you’re in the same camp as Roger Clemens.)
Nope. Cramer recommends you buy the Fab Five. These stocks have returned anywhere from 93% to 222% since Cramer first mentioned them on the show. And because it’s still early in this sector’s multiyear cycle, Mosaic, Potash, Agrium, Monsanto and Deere should continue to outperform.
In fact, Cramer said he doubts they’ll stop until their combined market cap equals that of Exxon Mobil, $479.7 billion. The Fab Five are only at $210.6 billion, so “these stocks still have a way to go,” Cramer said.
If your conscience is still weighing on you after you cash in, you can always donate the profits to the United Nations World Food Program.
Cramer’s scornful diatribes against ethanol are nothing new to Mad Money fans. They happen almost as often as the Lightning Round. But he’ll be the first to admit the resultant “federally mandated bull market” in agriculture has been a boon to his Fab Five: Mosaic , Potash, Agrium,Monsanto and Deere
Now, the sector’s getting another lift from sky-high food prices. Corn and soybeans have soared to record levels. Wheat prices during the trading day are maxing out. And the profits are going straight to the ag sector’s bottom line.
Now, the dark side of this expensive food, Cramer says, is that billions either don’t have it or can’t afford to buy it. So poor people from China to Brazil are going hungry as these crops are used for fuel or livestock feed. This means, at least to some extent, the Fab Five are getting filthy rich in the midst of a global famine.
What’s a loyal Homegamer to do? Join the Peace Corp.? Go vegan? (Here’s the definition just in case you’re in the same camp as Roger Clemens.)
Nope. Cramer recommends you buy the Fab Five. These stocks have returned anywhere from 93% to 222% since Cramer first mentioned them on the show. And because it’s still early in this sector’s multiyear cycle, Mosaic, Potash, Agrium, Monsanto and Deere should continue to outperform.
In fact, Cramer said he doubts they’ll stop until their combined market cap equals that of Exxon Mobil, $479.7 billion. The Fab Five are only at $210.6 billion, so “these stocks still have a way to go,” Cramer said.
If your conscience is still weighing on you after you cash in, you can always donate the profits to the United Nations World Food Program.
5 Stocks Approaching Greatness
Some companies are obviously great investments -- in hindsight. Sure, we should have bought Starbucks at its IPO and earned hundredfold returns over the years. Yet for every stock out there screaming "buy me," others simply give us a nudge and a nod. How can we tell tomorrow's obviously great investments from the thousands of pretenders?
The stars' walk of fameOn Motley Fool CAPS, these opportunities can be found among our four-star stocks. In CAPS' proprietary ratings system, they rank higher than most of the other 5,300 companies in the CAPS universe, but they're just shy of superstardom. While their five-star peers might draw all the attention, we can sift through CAPS to find four-star firms approaching greatness:
Bucyrus International (Nasdaq: BUCY)
SiRF Technology (Nasdaq: SIRF)
Mercadolibre (Nasdaq: MELI)
Mosaic (NYSE: MOS)
SanDisk (Nasdaq: SNDK)
Tuesday, February 26, 2008
Inflation-Proof Investments
Wholesale inflation and producer prices surged in January on rising energy and food costs. Those two sectors are still ripe places for investment, according to Jon Najarian on CNBC’s Closing Bell.
The companies that provide what is needed to grow food – mainly the agriculture complex – are all performing well even as inflation worries creep back into the minds of investors. Potash
Potash Corp of Saskatchewan Inc, AGU and AG are all booming and Najarian would be a buyer of any of them.
The companies that provide what is needed to grow food – mainly the agriculture complex – are all performing well even as inflation worries creep back into the minds of investors. Potash
Potash Corp of Saskatchewan Inc, AGU and AG are all booming and Najarian would be a buyer of any of them.
Farmers Wonder if Boom In Grain Prices Is a Bubble
Come spring, Tim Recker plans to demolish two rotting barns and a dilapidated workshop on his 1,500-acre farm in Arlington, Iowa. In their place will sit about three acres of rich, black topsoil prime for capitalizing on the biggest global grain boom in decades.
"Every acre is more valuable than it was five years ago," says Mr. Recker, a farmer and land excavator.
With corn, wheat, soybeans, barley, sunflowers and other grains selling at or near record prices, U.S. farmers are preparing for a potentially historic planting season. A rush to make biofuels from crops and soaring demand for grains in China, India and other emerging markets have pushed up grain prices world-wide, helping drive food prices higher.
Just yesterday, Kraft Foods Inc. -- echoing similar announcements earlier in the week by Tyson Foods Inc. and Hershey Co. -- said it will raise prices this year because of higher costs, and Kellogg Co. said its fourth-quarter profit fell because of higher commodity prices.
The shift has created huge opportunities in the Farm Belt as growers make their annual decisions about which crops to plant, how much land they need, which fertilizer and pesticides to buy, and how much of their crop to sell ahead of time on futures markets.
But there are risks, too. Farmland prices have climbed more than 20% over the past year in many Midwestern states, so the many growers who lease land are shelling out higher rents. Some seed prices have jumped 30%, and fertilizer prices have doubled nearly across the board. Nocturnal thieves are stealing grains from unlocked bins. And ever looming is the prospect of a drought, which could push prices even higher, sending shock waves through global grain markets.
Farmers are left to wonder: Could the grain boom be another bubble like dot-com and housing? Crop prices have been bouncing up and down in recent weeks: Wednesday of last week, corn trading on the Chicago Board of Trade dropped nearly 20 cents a bushel, the exchange-traded daily limit. The following day, corn was back up 20 cents, to nearly $5 a bushel, about where the March contract closed yesterday.
Craig Ratajczyk, director of global issues at the U.S. Soybean Export Council, says he is warning farmers that grain markets this year will be characterized by "wild gyrations." And despite the high prices they are fetching for their grain, some farmers won't be as profitable because of the higher costs.
Minnesota grain farmer Kevin Paap says he is excited by the "potential" in the grain markets. But he says his "stomach's in a little bit of a knot because of all that risk both on the upside and the downside."
This year, he likely will plant half of his crop in corn and half in soybeans, a change from last year, when he planted more than half of his crop as corn because its profit potential was far more attractive than soybeans. Last year, the market was saying "we need more corn acres," says Mr. Paap. "This year, the markets are telling us they want more everything." He also says soybeans are looking better this year because they tend to withstand dry weather better than corn and because they are generally cheaper to plant, partly because they require less fertilizer.
It was simpler last year. With ethanol plants sprouting across the Midwest, corn prices were running higher than farmers had seen in a decade and the price of land and fertilizer and other input costs hadn't yet spiked.
Farmers planted about 93 million acres of corn, a 20% increase over the previous year and the most since 1944. Experts figured the big crop would push prices back down, easing pressure on livestock farmers, who feed corn to their animals, and helping ethanol producers remain profitable.
Instead, corn prices stayed well above 2006 levels, in part because demand continued to grow and inventories were at near-historic lows at the end of the harvest. As farmers switched out of soybeans, wheat and other crops to plant corn, the prices of those crops rose, too. For instance, soybean acreage declined 16% as farmers opted for corn. The March soybean contract yesterday settled at $12.758 a bushel, up from $7.21 a year earlier.
Keith Collins, former chief economist at the U.S. Agriculture Department, recently said he expected that planted corn acres in the U.S. would decline as much as 8% this year, while soybean acres would rebound to 70 million acres, up about 10% from last year.
Most agricultural economists agree that key factors underlying the farm boom are likely to persist. "Once people enter the middle class and move up the income and food ladder, they rarely regress," says Rich Feltes, senior vice president and director of commodity research at MF Global.
Landowners world-wide are trying to get as much as possible out of their fields. Farmers are looking to expand fields in Canada, where growers tend to idle more land, and Brazil, where large tracts lie uncultivated. Russia, Algeria and South Africa all have expanded their grain production. In the U.S., farmers like Mr. Recker are razing old barns, ripping up sod and grassland, and uprooting fences -- some in a routine attempt to improve land, others in an effort to make room for the grain boom. "They're trying to squeeze everything they can" out of their land, says Kent Cramer, an excavator in Belmond, Iowa.
Food prices are widely expected to push even higher this year, even if the U.S. enters a recession, economists say, because food is typically one of the last goods to be affected by a downturn.
Still, this month's global stock-market tumult temporarily slowed the steady rise of agriculture-related stocks, which have been outperforming most stocks. The week of Jan. 14, the shares of farm-equipment maker Deere & Co. dropped nearly 20%, but the stock yesterday still was up 73% from a year ago. Seed giant Monsanto Co.'s stock dived 17% that same week. It has doubled since last year.
While seed suppliers see robust sales continuing, Dan Basse, president of Chicago-based AgResource Co., an agricultural-research firm, says this is evidence that the farm economy and the overall economy are still "tied at the hip." He worries that any recession in the U.S. could spill over into Asia and curb demand for food in those places that are driving demand here.
That resonates for Kip Tom, who farms 12,000 acres in Leesburg, Ind. He decided to sell 80% of his 2008 corn crop on the futures market -- locking in a price at more than $5 a bushel -- even though he hasn't planted a seed yet. Normally, he says, he might have sold only about half of his crop this early in the year. "We just think this rally is too good to be true," he says.
"Every acre is more valuable than it was five years ago," says Mr. Recker, a farmer and land excavator.
With corn, wheat, soybeans, barley, sunflowers and other grains selling at or near record prices, U.S. farmers are preparing for a potentially historic planting season. A rush to make biofuels from crops and soaring demand for grains in China, India and other emerging markets have pushed up grain prices world-wide, helping drive food prices higher.
Just yesterday, Kraft Foods Inc. -- echoing similar announcements earlier in the week by Tyson Foods Inc. and Hershey Co. -- said it will raise prices this year because of higher costs, and Kellogg Co. said its fourth-quarter profit fell because of higher commodity prices.
The shift has created huge opportunities in the Farm Belt as growers make their annual decisions about which crops to plant, how much land they need, which fertilizer and pesticides to buy, and how much of their crop to sell ahead of time on futures markets.
But there are risks, too. Farmland prices have climbed more than 20% over the past year in many Midwestern states, so the many growers who lease land are shelling out higher rents. Some seed prices have jumped 30%, and fertilizer prices have doubled nearly across the board. Nocturnal thieves are stealing grains from unlocked bins. And ever looming is the prospect of a drought, which could push prices even higher, sending shock waves through global grain markets.
Farmers are left to wonder: Could the grain boom be another bubble like dot-com and housing? Crop prices have been bouncing up and down in recent weeks: Wednesday of last week, corn trading on the Chicago Board of Trade dropped nearly 20 cents a bushel, the exchange-traded daily limit. The following day, corn was back up 20 cents, to nearly $5 a bushel, about where the March contract closed yesterday.
Craig Ratajczyk, director of global issues at the U.S. Soybean Export Council, says he is warning farmers that grain markets this year will be characterized by "wild gyrations." And despite the high prices they are fetching for their grain, some farmers won't be as profitable because of the higher costs.
Minnesota grain farmer Kevin Paap says he is excited by the "potential" in the grain markets. But he says his "stomach's in a little bit of a knot because of all that risk both on the upside and the downside."
This year, he likely will plant half of his crop in corn and half in soybeans, a change from last year, when he planted more than half of his crop as corn because its profit potential was far more attractive than soybeans. Last year, the market was saying "we need more corn acres," says Mr. Paap. "This year, the markets are telling us they want more everything." He also says soybeans are looking better this year because they tend to withstand dry weather better than corn and because they are generally cheaper to plant, partly because they require less fertilizer.
It was simpler last year. With ethanol plants sprouting across the Midwest, corn prices were running higher than farmers had seen in a decade and the price of land and fertilizer and other input costs hadn't yet spiked.
Farmers planted about 93 million acres of corn, a 20% increase over the previous year and the most since 1944. Experts figured the big crop would push prices back down, easing pressure on livestock farmers, who feed corn to their animals, and helping ethanol producers remain profitable.
Instead, corn prices stayed well above 2006 levels, in part because demand continued to grow and inventories were at near-historic lows at the end of the harvest. As farmers switched out of soybeans, wheat and other crops to plant corn, the prices of those crops rose, too. For instance, soybean acreage declined 16% as farmers opted for corn. The March soybean contract yesterday settled at $12.758 a bushel, up from $7.21 a year earlier.
Keith Collins, former chief economist at the U.S. Agriculture Department, recently said he expected that planted corn acres in the U.S. would decline as much as 8% this year, while soybean acres would rebound to 70 million acres, up about 10% from last year.
Most agricultural economists agree that key factors underlying the farm boom are likely to persist. "Once people enter the middle class and move up the income and food ladder, they rarely regress," says Rich Feltes, senior vice president and director of commodity research at MF Global.
Landowners world-wide are trying to get as much as possible out of their fields. Farmers are looking to expand fields in Canada, where growers tend to idle more land, and Brazil, where large tracts lie uncultivated. Russia, Algeria and South Africa all have expanded their grain production. In the U.S., farmers like Mr. Recker are razing old barns, ripping up sod and grassland, and uprooting fences -- some in a routine attempt to improve land, others in an effort to make room for the grain boom. "They're trying to squeeze everything they can" out of their land, says Kent Cramer, an excavator in Belmond, Iowa.
Food prices are widely expected to push even higher this year, even if the U.S. enters a recession, economists say, because food is typically one of the last goods to be affected by a downturn.
Still, this month's global stock-market tumult temporarily slowed the steady rise of agriculture-related stocks, which have been outperforming most stocks. The week of Jan. 14, the shares of farm-equipment maker Deere & Co. dropped nearly 20%, but the stock yesterday still was up 73% from a year ago. Seed giant Monsanto Co.'s stock dived 17% that same week. It has doubled since last year.
While seed suppliers see robust sales continuing, Dan Basse, president of Chicago-based AgResource Co., an agricultural-research firm, says this is evidence that the farm economy and the overall economy are still "tied at the hip." He worries that any recession in the U.S. could spill over into Asia and curb demand for food in those places that are driving demand here.
That resonates for Kip Tom, who farms 12,000 acres in Leesburg, Ind. He decided to sell 80% of his 2008 corn crop on the futures market -- locking in a price at more than $5 a bushel -- even though he hasn't planted a seed yet. Normally, he says, he might have sold only about half of his crop this early in the year. "We just think this rally is too good to be true," he says.
The Top Dividend Stocks of the Week
Several major companies in varied industries raised their dividends last week, proving that there are high-yield gems in this recent financial turmoil. Half a dozen companies increased their dividend payments by 10% or more, with three of those companies bumping up their payouts by more than 35%.
To help sort through these stock ideas, Stockpickr has put together a list of the Top Dividend-Raisers for the Week Ending Feb. 23.
At the top of the list is CNH Global (CNH - Cramer's Take - Stockpickr), a Dutch manufacturer of agricultural and construction equipment. The company's board last week recommended doubling its annual dividend payment from 25 cents to 50 cents a share. If approved, the move would be the first such dividend increase in five years. The stock has a price-to-earnings (P/E) ratio of 22 with a yield of 0.5%.
CNH shares are owned by Franklin Balance Sheet Investment Fund, a five-star Morningstar-rated fund managed by Bruce Baughman. The fund also holds Prudential Financial (PRU - Cramer's Take - Stockpickr), which yields 1.6%, Corn Products International (CPO - Cramer's Take - Stockpickr), which pays 1.2%, and Reliance Steel & Aluminum (RS - Cramer's Take - Stockpickr), which pays a yield of 0.6%.
Another dividend-raiser last week was beverage maker Coca-Cola (KO - Cramer's Take - Stockpickr), which increased its quarterly payment by 12% to 38 cents a share. The new payment works out to $1.52 a share on an annualized basis. Coca-Cola stock has a P/E of 23 and yields 2.6%.
Coca-Cola is one of Warren Buffett's favorite stocks. His Berkshire Hathaway owns several other dividend-paying stocks, including Wells Fargo (WFC - Cramer's Take - Stockpickr), which pays 4%, American Express (AXP - Cramer's Take - Stockpickr), paying 1.6%, and Procter & Gamble (PG - Cramer's Take - Stockpickr), which yields 2.1%.
Kimberly-Clark (KMB - Cramer's Take - Stockpickr) also raised its dividend last week. The Kleenex company increased its quarterly payment 9.4% to 58 cents a share. Last week, the company reaffirmed its 2008 profit guidance, forecasting net income between $4.45 and $4.60 per share. The stock has a P/E of 16 and yields 3.3%.
Kimberly-Clark also shows up in the portfolio of Renaissance Technologies, a New York-based hedge fund whose Medallion Fund has generated an average annual return of about 38% since 1989. Renaissance also invests in Johnson & Johnson (JNJ - Cramer's Take - Stockpickr), which yields 2.6%, Lockheed Martin (LMT - Cramer's Take - Stockpickr), with a 1.6% yield, and Nokia (NOK - Cramer's Take - Stockpickr), which pays a yield of 2.2%.
To help sort through these stock ideas, Stockpickr has put together a list of the Top Dividend-Raisers for the Week Ending Feb. 23.
At the top of the list is CNH Global (CNH - Cramer's Take - Stockpickr), a Dutch manufacturer of agricultural and construction equipment. The company's board last week recommended doubling its annual dividend payment from 25 cents to 50 cents a share. If approved, the move would be the first such dividend increase in five years. The stock has a price-to-earnings (P/E) ratio of 22 with a yield of 0.5%.
CNH shares are owned by Franklin Balance Sheet Investment Fund, a five-star Morningstar-rated fund managed by Bruce Baughman. The fund also holds Prudential Financial (PRU - Cramer's Take - Stockpickr), which yields 1.6%, Corn Products International (CPO - Cramer's Take - Stockpickr), which pays 1.2%, and Reliance Steel & Aluminum (RS - Cramer's Take - Stockpickr), which pays a yield of 0.6%.
Another dividend-raiser last week was beverage maker Coca-Cola (KO - Cramer's Take - Stockpickr), which increased its quarterly payment by 12% to 38 cents a share. The new payment works out to $1.52 a share on an annualized basis. Coca-Cola stock has a P/E of 23 and yields 2.6%.
Coca-Cola is one of Warren Buffett's favorite stocks. His Berkshire Hathaway owns several other dividend-paying stocks, including Wells Fargo (WFC - Cramer's Take - Stockpickr), which pays 4%, American Express (AXP - Cramer's Take - Stockpickr), paying 1.6%, and Procter & Gamble (PG - Cramer's Take - Stockpickr), which yields 2.1%.
Kimberly-Clark (KMB - Cramer's Take - Stockpickr) also raised its dividend last week. The Kleenex company increased its quarterly payment 9.4% to 58 cents a share. Last week, the company reaffirmed its 2008 profit guidance, forecasting net income between $4.45 and $4.60 per share. The stock has a P/E of 16 and yields 3.3%.
Kimberly-Clark also shows up in the portfolio of Renaissance Technologies, a New York-based hedge fund whose Medallion Fund has generated an average annual return of about 38% since 1989. Renaissance also invests in Johnson & Johnson (JNJ - Cramer's Take - Stockpickr), which yields 2.6%, Lockheed Martin (LMT - Cramer's Take - Stockpickr), with a 1.6% yield, and Nokia (NOK - Cramer's Take - Stockpickr), which pays a yield of 2.2%.
Will China Save Us All?
"Thank God for China. They saved us last year."
Maybe that's a strange thing for an American of any stripes to say, but it was a recurring theme among the micro-cap investors who gathered at Roth Capital's 20th annual growth stock conference last week.
These are folks with a lot of money, a lot of smarts, and a lot of experience ... and China saved them all.
A likely saviorSee, while micros had a brutal 2007 (down nearly 10%), Chinese stocks had a banner 2007 (up nearly 60%). And while China may not replicate that success in 2008, now is still a great time to make sure your portfolio has at least some exposure to this long-term economic success story.
And by "now," I mean "right now."
Chinese stocks have dropped more than 20% in 2008 because of a generally panicky investor environment. Ask yourself: Has one-fifth of China's economic promise evaporated in less than 60 days?
Not even closeThis is not to say that China will go unscathed by economic fallout in the Americas, Europe, and Japan. Roth's resident China expert, Don Straszheim, wrote in a recent report that "China's economy is likely to slow considerably in 2008," from a real GDP growth rate of 11.5% in 2007 to 8.9% 2008.
That 8.9% growth, however, "will still be the fastest in the world," and Mr. Straszheim expects "China's best-in-the-world economic growth record to continue for the next several years."
And while a rising tide will lift a lot of boats, the stocks that will rise the most are those that you can buy cheap, and that will benefit most from the country's economic priorities.
Those priorities, specificallyThanks to its five-year plans, the Chinese government makes it easy for outside investors to know where the country is headed. Central themes include building infrastructure, increasing domestic food production, improving public health, and cleaning up the environment.
Money in earthmovers...Staraszheim expects "major" investments in infrastructure in China through 2020, including highways, railways, airports, subways, and sewers, with "considerable opportunity" for foreign companies.
Caterpillar (NYSE: CAT) is one of those names set for China's rapid growth. It recently opened a new plant in Wuxi, and it now has 11 facilities in the country. Cemex expanded its footprint in the country through the acquisition of Rinker. And Ingersoll-Rand (NYSE: IR) spent the last couple of years buying up a number of Chinese toolmakers.
None, however, are as pure a play as China Housing and Land Development -- a real estate company in Xian, and a stock that one of our China contacts said was his "top personal holding."
And food...When it comes to agriculture, there's no disputing that China has more than 1.3 billion mouths to feed. And while China's farm production is on the rise, arable acreage continues to decline -- meaning that Chinese farmers need to get more bang for their buck.
That's been a boon to fertilizer- and seed-seller Monsanto (NYSE: MON), which has more than doubled its sales to Asia since 2003, as well as for Deere (NYSE: DE), which just finished an acquisition of a Chinese tractor manufacturer and is expanding its China product line.
Neither, however, is the pure play that China Green Agriculture is.
And energy...Finally, green tech. The sector was a market darling in 2007, with First Solar (Nasdaq: FSLR) returning more than 795% and China's Suntech Power (NYSE: STP) returning more than 140%. This is all for good reason. China is both a growing consumer of energy and the world's most significant emitter of greenhouse gases.
Something -- as the old saying goes -- has got to give.
And while the Chinese government has put forth some aggressive alternative-energy goals, you won't find many cheap stocks in the sector. The story is too well-known, and it's worth noting that A-Power Energy Generation Systems (Nasdaq: APWR) was the best-attended presentation I saw at Roth's conference.
Cash in on ChinaIf you can find a player in any one of these niches, it's worth further research -- though keep in mind that sound fundamental research and thorough valuation work are crucial.
That's particularly true when it comes to investing in small Chinese names. While the upside potential is huge, small Chinese companies can also have issues when it comes to corporate governance and internal controls.
To account for that, look for:
Experienced and aligned management
Proven cash-generating business plans
Friendly relationships with the government
Scalable business models
Stocks that are also owned by reputable American institutional investors
And above all, demand a hefty margin of safety when you buy.
Go on and get startedThis is how we approach investing in China and other emerging economies at Motley Fool Global Gains. As a result, our picks have beaten the U.S. market by nearly 12 percentage points on average.
Maybe that's a strange thing for an American of any stripes to say, but it was a recurring theme among the micro-cap investors who gathered at Roth Capital's 20th annual growth stock conference last week.
These are folks with a lot of money, a lot of smarts, and a lot of experience ... and China saved them all.
A likely saviorSee, while micros had a brutal 2007 (down nearly 10%), Chinese stocks had a banner 2007 (up nearly 60%). And while China may not replicate that success in 2008, now is still a great time to make sure your portfolio has at least some exposure to this long-term economic success story.
And by "now," I mean "right now."
Chinese stocks have dropped more than 20% in 2008 because of a generally panicky investor environment. Ask yourself: Has one-fifth of China's economic promise evaporated in less than 60 days?
Not even closeThis is not to say that China will go unscathed by economic fallout in the Americas, Europe, and Japan. Roth's resident China expert, Don Straszheim, wrote in a recent report that "China's economy is likely to slow considerably in 2008," from a real GDP growth rate of 11.5% in 2007 to 8.9% 2008.
That 8.9% growth, however, "will still be the fastest in the world," and Mr. Straszheim expects "China's best-in-the-world economic growth record to continue for the next several years."
And while a rising tide will lift a lot of boats, the stocks that will rise the most are those that you can buy cheap, and that will benefit most from the country's economic priorities.
Those priorities, specificallyThanks to its five-year plans, the Chinese government makes it easy for outside investors to know where the country is headed. Central themes include building infrastructure, increasing domestic food production, improving public health, and cleaning up the environment.
Money in earthmovers...Staraszheim expects "major" investments in infrastructure in China through 2020, including highways, railways, airports, subways, and sewers, with "considerable opportunity" for foreign companies.
Caterpillar (NYSE: CAT) is one of those names set for China's rapid growth. It recently opened a new plant in Wuxi, and it now has 11 facilities in the country. Cemex expanded its footprint in the country through the acquisition of Rinker. And Ingersoll-Rand (NYSE: IR) spent the last couple of years buying up a number of Chinese toolmakers.
None, however, are as pure a play as China Housing and Land Development -- a real estate company in Xian, and a stock that one of our China contacts said was his "top personal holding."
And food...When it comes to agriculture, there's no disputing that China has more than 1.3 billion mouths to feed. And while China's farm production is on the rise, arable acreage continues to decline -- meaning that Chinese farmers need to get more bang for their buck.
That's been a boon to fertilizer- and seed-seller Monsanto (NYSE: MON), which has more than doubled its sales to Asia since 2003, as well as for Deere (NYSE: DE), which just finished an acquisition of a Chinese tractor manufacturer and is expanding its China product line.
Neither, however, is the pure play that China Green Agriculture is.
And energy...Finally, green tech. The sector was a market darling in 2007, with First Solar (Nasdaq: FSLR) returning more than 795% and China's Suntech Power (NYSE: STP) returning more than 140%. This is all for good reason. China is both a growing consumer of energy and the world's most significant emitter of greenhouse gases.
Something -- as the old saying goes -- has got to give.
And while the Chinese government has put forth some aggressive alternative-energy goals, you won't find many cheap stocks in the sector. The story is too well-known, and it's worth noting that A-Power Energy Generation Systems (Nasdaq: APWR) was the best-attended presentation I saw at Roth's conference.
Cash in on ChinaIf you can find a player in any one of these niches, it's worth further research -- though keep in mind that sound fundamental research and thorough valuation work are crucial.
That's particularly true when it comes to investing in small Chinese names. While the upside potential is huge, small Chinese companies can also have issues when it comes to corporate governance and internal controls.
To account for that, look for:
Experienced and aligned management
Proven cash-generating business plans
Friendly relationships with the government
Scalable business models
Stocks that are also owned by reputable American institutional investors
And above all, demand a hefty margin of safety when you buy.
Go on and get startedThis is how we approach investing in China and other emerging economies at Motley Fool Global Gains. As a result, our picks have beaten the U.S. market by nearly 12 percentage points on average.
Market Vectors Adds to Family of Muni Bond ETFS; Launches Short Term Municipal Bond ETF On American Stock Exchange
NEW YORK--(BUSINESS WIRE)--New York-based asset manager Van Eck Global today launched on the American Stock Exchange® the Market Vectors-Lehman Brothers AMT-Free Short Municipal Index ETF (Amex: SMB - News). The new ETF is designed to offer investors exposure to investment-grade municipal bonds with a nominal maturity of 1-6 years.
SMB seeks to replicate, before fees and expenses, the price and yield performance of the Lehman Brothers AMT-Free Short Continuous Municipal Index. Lehman Brothers is the world’s largest provider of fixed income benchmarks and producer of some of the most widely followed benchmarks in the global debt markets. Issues in the underlying Lehman Brothers index are investment grade and AMT-free. The net expense ratio of SMB is 0.16%. This new ETF joins the Market Vectors Intermediate and Long municipal ETFs, launched by Van Eck on the Amex® in December and January, respectively.
“There are compelling cost savings associated with purchasing municipal bonds through an ETF platform—I like to think of it as ‘more munis for the money’,” said Jan van Eck, Principal at Van Eck Global. “Market Vectors now offers investors a selection of three national municipal bond ETFs at different points along the yield curve. With our short, intermediate and long muni ETFs, investors can choose the maturities that best suit their needs. These ETFs are structured to offer enhanced yield through broader diversification of index constituents.”
SMB seeks to replicate, before fees and expenses, the price and yield performance of the Lehman Brothers AMT-Free Short Continuous Municipal Index. Lehman Brothers is the world’s largest provider of fixed income benchmarks and producer of some of the most widely followed benchmarks in the global debt markets. Issues in the underlying Lehman Brothers index are investment grade and AMT-free. The net expense ratio of SMB is 0.16%. This new ETF joins the Market Vectors Intermediate and Long municipal ETFs, launched by Van Eck on the Amex® in December and January, respectively.
“There are compelling cost savings associated with purchasing municipal bonds through an ETF platform—I like to think of it as ‘more munis for the money’,” said Jan van Eck, Principal at Van Eck Global. “Market Vectors now offers investors a selection of three national municipal bond ETFs at different points along the yield curve. With our short, intermediate and long muni ETFs, investors can choose the maturities that best suit their needs. These ETFs are structured to offer enhanced yield through broader diversification of index constituents.”
Researchers sequence genome of corn
WASHINGTON (Reuters) - Researchers have sequenced the gene map of corn, also known as maize, a key crop across much of the world and a source of food, oil and products ranging from shoe polish to ethanol.
They said their sequence, to be released at a meeting in Washington on Thursday, would help plant scientists improve varieties of corn and other cereal crops, including rice, wheat and barley.
"Scientists now will be able to accurately and efficiently probe the corn genome to find ways to improve breeding and subsequently increase crop yields and resistance to drought and disease," Richard Wilson of Washington University in St. Louis, whose team led the effort, said in a statement.
The effort to sequence the entire gene map of corn has cost $29.5 million, funded by the National Science Foundation, the U.S. Department of Agriculture and the U.S. Department of Energy.
"Corn is one of the most economically important crops for our nation," National Science Foundation director Arden Bement said in a statement.
"Completing this draft sequence of the corn genome constitutes a significant scientific advance and will foster growth of the agricultural community and the economy as a whole."
The sequence information is in GenBank, a freely available online public DNA database, and at maizesequence.org.
"The genome will help unravel the basic biology of corn. That information can be used to look for genes that make corn more nutritious or more efficient for ethanol production, for example," said Ralph Quatrano, chairman of Washington University's Department of Biology.
The only other crop plant to have its genome sequenced is rice.
They said their sequence, to be released at a meeting in Washington on Thursday, would help plant scientists improve varieties of corn and other cereal crops, including rice, wheat and barley.
"Scientists now will be able to accurately and efficiently probe the corn genome to find ways to improve breeding and subsequently increase crop yields and resistance to drought and disease," Richard Wilson of Washington University in St. Louis, whose team led the effort, said in a statement.
The effort to sequence the entire gene map of corn has cost $29.5 million, funded by the National Science Foundation, the U.S. Department of Agriculture and the U.S. Department of Energy.
"Corn is one of the most economically important crops for our nation," National Science Foundation director Arden Bement said in a statement.
"Completing this draft sequence of the corn genome constitutes a significant scientific advance and will foster growth of the agricultural community and the economy as a whole."
The sequence information is in GenBank, a freely available online public DNA database, and at maizesequence.org.
"The genome will help unravel the basic biology of corn. That information can be used to look for genes that make corn more nutritious or more efficient for ethanol production, for example," said Ralph Quatrano, chairman of Washington University's Department of Biology.
The only other crop plant to have its genome sequenced is rice.
Friday, February 22, 2008
Fast Money recap
Fast Messages
One viewer asked how to invest in copper and aluminum. Adami recommended Freeport-McMoRan, reminding investors that Goldman Sachs put the company on its conviction buy list.
A second viewer asked Seymour if the Monsanto (MON - Cramer's Take - Stockpickr) story was still intact. In Seymour's view, the agriculture stock was a buy.
Another viewer asked Finerman at what level she'd get back into American Eagle (AEO - Cramer's Take - Stockpickr). She said she'd add to her position if the stock went below $20.
Final TradeMacke went with Starbucks. Adami chose Genentech. Finerman selected Altria (MO - Cramer's Take - Stockpickr). Seymour was selling Stillwater (SWC - Cramer's Take - Stockpickr).
One viewer asked how to invest in copper and aluminum. Adami recommended Freeport-McMoRan, reminding investors that Goldman Sachs put the company on its conviction buy list.
A second viewer asked Seymour if the Monsanto (MON - Cramer's Take - Stockpickr) story was still intact. In Seymour's view, the agriculture stock was a buy.
Another viewer asked Finerman at what level she'd get back into American Eagle (AEO - Cramer's Take - Stockpickr). She said she'd add to her position if the stock went below $20.
Final TradeMacke went with Starbucks. Adami chose Genentech. Finerman selected Altria (MO - Cramer's Take - Stockpickr). Seymour was selling Stillwater (SWC - Cramer's Take - Stockpickr).
Fast Message - We Answer Your Questions
Fast Money recap
Do you still believe Monsanto is good stock in inflationary times? -Beth, TX
The agriculture trade is alive and well, said Tim Seymour. Monsanto can work independent of domestic growth. It showed that in its earnings
Do you still believe Monsanto is good stock in inflationary times? -Beth, TX
The agriculture trade is alive and well, said Tim Seymour. Monsanto can work independent of domestic growth. It showed that in its earnings
Fun With Inflation
New data released Wednesday suggests inflation is on the rise. So what's the best way to trade it?
Treasury Inflation Protected Securities or “TIPS” are inflation index bonds that investors might want to investigate, says Karen Finerman. Or if that’s too complicated there are mutual funds that will do it for you. Check out the VanGuard Inflation Fund (VIPSX) or Pimco’s (PRTNX).
Forget that, says Guy Adami. Buy defense stocks such as Lockheed Martin
Lockheed Martin Corp (LMT), General Dynamics (GD), Raytheon (RTN), or L-3 Communications (LLL). I think all of these stocks could go higher into the election. Also check out Potash Potash Corp of Saskatchewan Inc POT
Treasury Inflation Protected Securities or “TIPS” are inflation index bonds that investors might want to investigate, says Karen Finerman. Or if that’s too complicated there are mutual funds that will do it for you. Check out the VanGuard Inflation Fund (VIPSX) or Pimco’s (PRTNX).
Forget that, says Guy Adami. Buy defense stocks such as Lockheed Martin
Lockheed Martin Corp (LMT), General Dynamics (GD), Raytheon (RTN), or L-3 Communications (LLL). I think all of these stocks could go higher into the election. Also check out Potash Potash Corp of Saskatchewan Inc POT
Wednesday, February 20, 2008
Monsanto is Uniquely Positioned to Capitalize on Flourishing Agriculture Demand
Company Taps New Opportunity with New Global Seed Treatment Platform
NEW YORK, Feb. 20 /PRNewswire-FirstCall/ -- Monsanto (NYSE: MON - News) Company's technologies have placed it in a unique position to help farmers meet the changing supply-demand patterns of global agriculture, Monsanto's Executive Vice President of Strategy and Operations, Carl Casale, will tell investors tomorrow. Casale will deliver his remarks as part of a presentation at the Morgan Stanley Basic Materials Conference 2008 on Thursday in New York.
Casale's presentation will discuss how there has been a fundamental shift in the agricultural landscape creating a new demand-driven agriculture market fueled by three main factors. These factors include increased protein demand from rising incomes, demand for grain from China and biofuels.
"The real demand pull comes from China," Casale said. "To meet the protein demands of this growing population, China will look outside of its agricultural sector, providing an enormous demand pull for grain over the next decade."
"The solution to meeting these demands is yield," Casale said. "In a demand-driven environment opportunity is defined by scarcity or innovation," he said. "Monsanto's strategy is targeted on innovation -- discovering and developing technology that is game changing."
Casale believes the company's innovation focus sets it apart, both in the value created for farmers and the company's strategic opportunity. "We will grow because of what we do, how we invest and what we deliver -- not because of what the commodity cycles do," he said.
Casale believes that the company's ability to provide technology to boost per-acre productivity will be key to helping farmers meet the needs of a demand-driven market. These potential technologies, like Roundup Ready 2 Yield soybeans, SmartStax corn and nitrogen-utilization corn are being developed to drive yields to meet these demands, he said.
Monsanto Establishes Global Seed Treatment Platform
As a technology company with strong cash generation, Monsanto has the opportunity to invest in growth areas for agriculture, Casale said.
As part of his presentation, Casale will announce that Monsanto is establishing a global seed treatment platform. The company has entered into separate agreements with Becker Underwood and Plant Health Care Inc., as novel components of the platform for delivering proprietary seed treatments for corn, soybeans and cotton.
The global platform is a natural complement to the company's seed strategy and yield-enhancing technology pioneered by Monsanto through biotechnology and breeding, as well as its collaborative approach to new technologies, Casale said.
"As we develop our seed-treatment platform, we're planning to stake a leading position in an underserved, but emerging category and to enter into a variety of licensing and supply agreements," Casale said. "Seed treatments are the next step in yield protection and delivery, and represent a high-margin global opportunity."
The global seed treatment industry generates annual sales of greater than $1.5 billion, with almost $900 million in the crops key to Monsanto's business. Currently, Monsanto treats more than 1 billion pounds of seed each year and sees the potential to expand treatment to new crops and new geographies, Casale said.
"The realizable yield in seeds is so valuable to farmers that seed treatments are the next logical complement to further protect yield created by advanced breeding and biotech traits," said Casale.
Monsanto plans to begin offering seed treatments as early as the 2009 season. In 2009, Monsanto plans to treat all Roundup Ready 2 Yield soybeans with a proprietary treatment, aimed at incremental yield boost in soybeans. Similarly in 2010, Monsanto plans to have a proprietary seed treatment for the launch of its SmartStax corn product, and the company is also working to have a seed treatment solution for its Deltapine cotton varieties by 2011.
The agreement between Monsanto and Becker Underwood is focused on evaluating a biological seed treatment aimed at helping soybeans improve both their nitrogen fixation ability and overall plant performance. Monsanto is also working with Plant Health Care Inc. to develop and commercialize a novel seed-based solution for nematodes, a plant parasite that can severely limit crop yields around the world in crops such as corn, soybeans, cotton and vegetables.
Casale's presentation slides and simultaneous audio webcast of the presentation may be accessed by visiting the company's web site at http://www.monsanto.com/investors. Following tomorrow's live broadcast set for 8 a.m. ET, a replay of the webcast will be available for two weeks through this same link.
Monsanto Company is a leading global provider of technology-based solutions and agricultural products that improve farm productivity and food quality. For more information on Monsanto, see: http://www.monsanto.com.
NEW YORK, Feb. 20 /PRNewswire-FirstCall/ -- Monsanto (NYSE: MON - News) Company's technologies have placed it in a unique position to help farmers meet the changing supply-demand patterns of global agriculture, Monsanto's Executive Vice President of Strategy and Operations, Carl Casale, will tell investors tomorrow. Casale will deliver his remarks as part of a presentation at the Morgan Stanley Basic Materials Conference 2008 on Thursday in New York.
Casale's presentation will discuss how there has been a fundamental shift in the agricultural landscape creating a new demand-driven agriculture market fueled by three main factors. These factors include increased protein demand from rising incomes, demand for grain from China and biofuels.
"The real demand pull comes from China," Casale said. "To meet the protein demands of this growing population, China will look outside of its agricultural sector, providing an enormous demand pull for grain over the next decade."
"The solution to meeting these demands is yield," Casale said. "In a demand-driven environment opportunity is defined by scarcity or innovation," he said. "Monsanto's strategy is targeted on innovation -- discovering and developing technology that is game changing."
Casale believes the company's innovation focus sets it apart, both in the value created for farmers and the company's strategic opportunity. "We will grow because of what we do, how we invest and what we deliver -- not because of what the commodity cycles do," he said.
Casale believes that the company's ability to provide technology to boost per-acre productivity will be key to helping farmers meet the needs of a demand-driven market. These potential technologies, like Roundup Ready 2 Yield soybeans, SmartStax corn and nitrogen-utilization corn are being developed to drive yields to meet these demands, he said.
Monsanto Establishes Global Seed Treatment Platform
As a technology company with strong cash generation, Monsanto has the opportunity to invest in growth areas for agriculture, Casale said.
As part of his presentation, Casale will announce that Monsanto is establishing a global seed treatment platform. The company has entered into separate agreements with Becker Underwood and Plant Health Care Inc., as novel components of the platform for delivering proprietary seed treatments for corn, soybeans and cotton.
The global platform is a natural complement to the company's seed strategy and yield-enhancing technology pioneered by Monsanto through biotechnology and breeding, as well as its collaborative approach to new technologies, Casale said.
"As we develop our seed-treatment platform, we're planning to stake a leading position in an underserved, but emerging category and to enter into a variety of licensing and supply agreements," Casale said. "Seed treatments are the next step in yield protection and delivery, and represent a high-margin global opportunity."
The global seed treatment industry generates annual sales of greater than $1.5 billion, with almost $900 million in the crops key to Monsanto's business. Currently, Monsanto treats more than 1 billion pounds of seed each year and sees the potential to expand treatment to new crops and new geographies, Casale said.
"The realizable yield in seeds is so valuable to farmers that seed treatments are the next logical complement to further protect yield created by advanced breeding and biotech traits," said Casale.
Monsanto plans to begin offering seed treatments as early as the 2009 season. In 2009, Monsanto plans to treat all Roundup Ready 2 Yield soybeans with a proprietary treatment, aimed at incremental yield boost in soybeans. Similarly in 2010, Monsanto plans to have a proprietary seed treatment for the launch of its SmartStax corn product, and the company is also working to have a seed treatment solution for its Deltapine cotton varieties by 2011.
The agreement between Monsanto and Becker Underwood is focused on evaluating a biological seed treatment aimed at helping soybeans improve both their nitrogen fixation ability and overall plant performance. Monsanto is also working with Plant Health Care Inc. to develop and commercialize a novel seed-based solution for nematodes, a plant parasite that can severely limit crop yields around the world in crops such as corn, soybeans, cotton and vegetables.
Casale's presentation slides and simultaneous audio webcast of the presentation may be accessed by visiting the company's web site at http://www.monsanto.com/investors. Following tomorrow's live broadcast set for 8 a.m. ET, a replay of the webcast will be available for two weeks through this same link.
Monsanto Company is a leading global provider of technology-based solutions and agricultural products that improve farm productivity and food quality. For more information on Monsanto, see: http://www.monsanto.com.
Tuesday, February 19, 2008
Agriculture Stocks Belong In Long-Term Portfolios
Despite recession fears and the widening credit crunch, one boom just keeps rolling along: commodities. Last year energy and raw materials grabbed the spotlight, and now it's agriculture.
What's remarkable about soaring agriculture prices is that corn, oats, barley and wheat aren't finite resources, like oil or copper. Fortunately for the world's ever-growing population, food is a renewable resource. Yet it isn't inexhaustible. U.S. stockpiles of many grains are at record lows, according to some reports. A more affluent world population is clamoring for better-quality foods, starting with wheat, a natural high-protein grain and the essential raw material in bread. The ethanol boom may have peaked, but the biofuel movement has further super-charged demand.
You thought $3-a-gallon gas was bad? On a recent visit to my neighborhood market, I saw loaves of bread fetching upward of $4, a small box of granola was $5, and a pound of beef filet was $27.99. Get ready for refrigerator shock.
There isn't much consumers can do about it, short of going on a crash diet. But you can ease the pain by sharing in some of the profits that are flowing into the agricultural sector. Readers of this column should be well positioned, since I've been urging a commitment to the agriculture sector for some time, and have recommended Monsanto Syngenta, and Deere (all of which I own). If you haven't sowed any of these seeds, so to speak, I don't think it's too late. Despite stellar earnings last week, Deere shares dropped on the news because its second-quarter forecast was slightly lower than expected. Buying opportunities crop up periodically, which I've been taking advantage of.
Agricultural commodity prices have been historically volatile, with booms like the current one inevitably followed by overproduction and busts. I grew up in a farming region and still have friends and family there. Farmers have lived through these cycles before. Maybe because they're so dependent on the weather, many tend to be pessimists. They aren't living lavishly on their newfound wealth. They're plowing profits back into machinery, seed and land, and saving for the proverbial rainy day. Still, there's reason to believe the current boom will persist. In its earnings release, Deere noted that "farm conditions throughout the world remain quite positive." High grain prices, low stockpiles, and government encouragement of biofuel development have spurred investment in the tractors, combines and other heavy equipment that Deere makes.
Another agricultural stock I like, but don't own (at least not yet) is Bunge. Bunge is one of the world's biggest soybean processors, but it's also ideally positioned to benefit from soaring demand for grain. Bunge makes fertilizer, seeds, grains, animal feed, biofuels and consumer products, which pretty much covers every stage of the plant life cycle.
Neither Deere nor Bunge is entirely immune from the risk of recession, and both are well off their 52-week highs. Both peaked in mid-January. Deere is trading at about $83 after reaching $94. Bunge is selling for around $112 a share, down from $135. But even in tougher economic times, food is one of the last things where people cut back.
On a recent trip to the grocery store, I managed to find some relative bargains, and the same is true of agriculture stocks. With the "green" revolution showing no signs of flagging, they belong in every long-term investor's portfolio.
James B. Stewart, a columnist for SmartMoney magazine and SmartMoney.com, writes weekly about his personal investing strategy. Unlike Dow Jones reporters, he may have positions in the stocks he writes about. For his past columns, see: www.smartmoney.com/commonsense.
What's remarkable about soaring agriculture prices is that corn, oats, barley and wheat aren't finite resources, like oil or copper. Fortunately for the world's ever-growing population, food is a renewable resource. Yet it isn't inexhaustible. U.S. stockpiles of many grains are at record lows, according to some reports. A more affluent world population is clamoring for better-quality foods, starting with wheat, a natural high-protein grain and the essential raw material in bread. The ethanol boom may have peaked, but the biofuel movement has further super-charged demand.
You thought $3-a-gallon gas was bad? On a recent visit to my neighborhood market, I saw loaves of bread fetching upward of $4, a small box of granola was $5, and a pound of beef filet was $27.99. Get ready for refrigerator shock.
There isn't much consumers can do about it, short of going on a crash diet. But you can ease the pain by sharing in some of the profits that are flowing into the agricultural sector. Readers of this column should be well positioned, since I've been urging a commitment to the agriculture sector for some time, and have recommended Monsanto Syngenta, and Deere (all of which I own). If you haven't sowed any of these seeds, so to speak, I don't think it's too late. Despite stellar earnings last week, Deere shares dropped on the news because its second-quarter forecast was slightly lower than expected. Buying opportunities crop up periodically, which I've been taking advantage of.
Agricultural commodity prices have been historically volatile, with booms like the current one inevitably followed by overproduction and busts. I grew up in a farming region and still have friends and family there. Farmers have lived through these cycles before. Maybe because they're so dependent on the weather, many tend to be pessimists. They aren't living lavishly on their newfound wealth. They're plowing profits back into machinery, seed and land, and saving for the proverbial rainy day. Still, there's reason to believe the current boom will persist. In its earnings release, Deere noted that "farm conditions throughout the world remain quite positive." High grain prices, low stockpiles, and government encouragement of biofuel development have spurred investment in the tractors, combines and other heavy equipment that Deere makes.
Another agricultural stock I like, but don't own (at least not yet) is Bunge. Bunge is one of the world's biggest soybean processors, but it's also ideally positioned to benefit from soaring demand for grain. Bunge makes fertilizer, seeds, grains, animal feed, biofuels and consumer products, which pretty much covers every stage of the plant life cycle.
Neither Deere nor Bunge is entirely immune from the risk of recession, and both are well off their 52-week highs. Both peaked in mid-January. Deere is trading at about $83 after reaching $94. Bunge is selling for around $112 a share, down from $135. But even in tougher economic times, food is one of the last things where people cut back.
On a recent trip to the grocery store, I managed to find some relative bargains, and the same is true of agriculture stocks. With the "green" revolution showing no signs of flagging, they belong in every long-term investor's portfolio.
James B. Stewart, a columnist for SmartMoney magazine and SmartMoney.com, writes weekly about his personal investing strategy. Unlike Dow Jones reporters, he may have positions in the stocks he writes about. For his past columns, see: www.smartmoney.com/commonsense.
Very Picky Stockpicker - Danny Becker
Dan Becker, Co-Portfolio Manager, Waddell & Reed Advisors Vanguard Fund
One of Becker's favorites is St. Louis-based Monsanto (MON), the fund's second-largest holding. "It is benefiting from the emerging middle class around the world, and our energy policy. There is a huge demand for protein and ethanol, but there is only a certain amount of land. Production can be increased through crop-protection chemicals and seeds that are resistant to bugs," he observes. He began buying it in 2005 at 33; it's now above 116. First Call puts per-share earnings at $2.83 in 2008 and $3.48 in '09.
One of Becker's favorites is St. Louis-based Monsanto (MON), the fund's second-largest holding. "It is benefiting from the emerging middle class around the world, and our energy policy. There is a huge demand for protein and ethanol, but there is only a certain amount of land. Production can be increased through crop-protection chemicals and seeds that are resistant to bugs," he observes. He began buying it in 2005 at 33; it's now above 116. First Call puts per-share earnings at $2.83 in 2008 and $3.48 in '09.
Deere Sowed $1.5M to Lobby Government
Deere Spent More Than $1.5 Million in 2007 to Lobby Government on Biofuels, Immigration
WASHINGTON (AP) -- Deere & Co., the world's largest manufacturer of agricultural machinery, spent more than $1.5 million in 2007 to lobby on numerous issues, including biofuels, bankruptcy, trade and immigration.
The company spent $740,000 in the second half of 2007 to lobby the federal government, according to a 25-page disclosure report posted online Feb. 8 by the Senate's public records office.
Deere also lobbied Congress and the Agriculture and Homeland Security departments on other issues legislation related to patent reform, security of chemical facilities and protecting sensitive information and many other matters.
The Moline, Ill.-based company also spent $780,000 in the first six months of 2007 to lobby on similar issues.
Lobbyists are required to disclose activities that could influence members of the executive and legislative branches, under a federal law enacted in 1995.
WASHINGTON (AP) -- Deere & Co., the world's largest manufacturer of agricultural machinery, spent more than $1.5 million in 2007 to lobby on numerous issues, including biofuels, bankruptcy, trade and immigration.
The company spent $740,000 in the second half of 2007 to lobby the federal government, according to a 25-page disclosure report posted online Feb. 8 by the Senate's public records office.
Deere also lobbied Congress and the Agriculture and Homeland Security departments on other issues legislation related to patent reform, security of chemical facilities and protecting sensitive information and many other matters.
The Moline, Ill.-based company also spent $780,000 in the first six months of 2007 to lobby on similar issues.
Lobbyists are required to disclose activities that could influence members of the executive and legislative branches, under a federal law enacted in 1995.
CF Industries Spent $460,000 Lobbying
CF Industries Spent $460,000 in 2007 to Lobby Government on Energy-Related Legislation
WASHINGTON (AP) -- Fertilizer maker CF Industries Holdings Inc. spent $460,000 in 2007 to lobby on legislation related to natural gas, U.S. energy independence and renewable fuels.
The Deerfield, Ill.-based company spent $240,000 in the second half of 2007 to lobby the federal government, according to a disclosure form posted online Feb. 7 by the Senate's public records office. The company also lobbied on the security of chemical facilities and greenhouse gas-reduction legislation.
CF Industries spent $220,000 in the first six months of 2007 to lobby on the same issues.
Lobbyists are required to disclose activities that could influence members of the executive and legislative branches, under a federal law enacted in 1995.
WASHINGTON (AP) -- Fertilizer maker CF Industries Holdings Inc. spent $460,000 in 2007 to lobby on legislation related to natural gas, U.S. energy independence and renewable fuels.
The Deerfield, Ill.-based company spent $240,000 in the second half of 2007 to lobby the federal government, according to a disclosure form posted online Feb. 7 by the Senate's public records office. The company also lobbied on the security of chemical facilities and greenhouse gas-reduction legislation.
CF Industries spent $220,000 in the first six months of 2007 to lobby on the same issues.
Lobbyists are required to disclose activities that could influence members of the executive and legislative branches, under a federal law enacted in 1995.
Soros posted large increases in stakes in fertilizer producer Potash
Hedge fund pioneer and billionaire George Soros increases stake in POT
Friday, February 15, 2008
IDG's Computerworld Recognizes Monsanto as Top Green IT Company
ST. LOUIS, Feb. 15 /PRNewswire-FirstCall/ -- Monsanto (NYSE: MON - News) has been ranked one of 12 green IT companies in IDG's Computerworld top Green-IT Companies for 2008. Computerworld recognized Monsanto, the only agriculture company on the list, for working to reduce energy consumption in IT equipment and using technology to conserve energy and lower carbon emissions. This honor is part of Computerworld's first Top Green-IT Companies feature.
"On behalf of Monsanto and its employees, we're honored and excited to receive this great recognition," said Mark Showers, chief information officer for Monsanto. "A strong environment is essential to our business success and our mission of making farmers more productive and more efficient. Monsanto has a good track record of being on the cutting edge of technology, and we're pleased we can continue that trend by keeping energy efficiency in mind at all times within our IT organization."
In the fall of 2007, Monsanto completed a new, state-of-the-art, energy efficient data center that saves more than 25 percent of building energy compared to a conventionally designed data center. The company anticipates receiving Leadership in Energy Efficiency and Design certification this spring, making it the first LEED registered data center in the state of Missouri, and the third LEED certified data center in the country. Monsanto also has a strong focus on server consolidation and virtualization, has committed to purchase ten percent of total energy consumption at its headquarters from renewable sources such as wind power, and has a concerted effort to work in an efficient and effective telecommuting model.
Computerworld worked to identify companies implementing smart, efficient strategies to achieve "green IT." Computerworld reached out to select green IT experts to develop a set of criteria that would best identify green IT companies. Based on the weighting scheme developed, the top 12 Green-IT Users were chosen.
"On behalf of Monsanto and its employees, we're honored and excited to receive this great recognition," said Mark Showers, chief information officer for Monsanto. "A strong environment is essential to our business success and our mission of making farmers more productive and more efficient. Monsanto has a good track record of being on the cutting edge of technology, and we're pleased we can continue that trend by keeping energy efficiency in mind at all times within our IT organization."
In the fall of 2007, Monsanto completed a new, state-of-the-art, energy efficient data center that saves more than 25 percent of building energy compared to a conventionally designed data center. The company anticipates receiving Leadership in Energy Efficiency and Design certification this spring, making it the first LEED registered data center in the state of Missouri, and the third LEED certified data center in the country. Monsanto also has a strong focus on server consolidation and virtualization, has committed to purchase ten percent of total energy consumption at its headquarters from renewable sources such as wind power, and has a concerted effort to work in an efficient and effective telecommuting model.
Computerworld worked to identify companies implementing smart, efficient strategies to achieve "green IT." Computerworld reached out to select green IT experts to develop a set of criteria that would best identify green IT companies. Based on the weighting scheme developed, the top 12 Green-IT Users were chosen.
Before the Bell: The Ag Trade; Greenspan Glum
Morning Perspective: The Ag Trade According to The WSJ, farmers are living in the “golden age” of agriculture, with grain prices surging to historic levels. Prices of corn, wheat, and soybeans are all trading 25% or more above their levels a year ago, due in part to increased demand from biofuel producers and the soaring demand from the emerging markets such as China and India. Further, economists expect net farm income to grow to $92.3 bln in the next year – a 51% increase over the 10-year average of $61.1 billion. Professor Ryan Krueger mentioned this long-term secular story back in November in The Ag-Trade.
From the Bull Pen:
Bulls can play the upside in Monsanto (MON) with near-term sell-stops below $110. Another alternative is Deere & Co. (DE). Bulls believe the company will benefit with the increase in farming income. Sell-stops may be set below $81.50. From the Bear Cave: Bears know these high prices are pressuring the margins of companies like Kellogg (K). Buy-stops may be set above $52.50 on downside attempts. Greenspan Glum According to Bloomberg, Former Fed Chairman Alan Greenspan said the U.S. economy is on brink of a recession. At a conference with energy executives, Greenspan said the U.S. is “clearly on the edge” with chances being “50% or better.” The statement is a stark contrast to his view a year ago when he said there was only a 33.3% chance the U.S. would enter a recession. Further, current Fed Chairman Ben Bernanke testified before Congress yesterday that downside risks to growth had increased with the job market and high energy costs taking a toll in spending.
For context, read Mr. Practical’s Minyan Mailbag: Fed’s Fix. From the Bull Pen: Bulls can look to Molson Coors (TAP) in a slowing environment. Near-term sell-stops may be set below $48. From the Bear Cave: Bears see a short play in Caterpillar (CAT). Buy-stops may be set above $72 (above the double top) or $75 for those with a higher risk profile.
From the Bull Pen:
Bulls can play the upside in Monsanto (MON) with near-term sell-stops below $110. Another alternative is Deere & Co. (DE). Bulls believe the company will benefit with the increase in farming income. Sell-stops may be set below $81.50. From the Bear Cave: Bears know these high prices are pressuring the margins of companies like Kellogg (K). Buy-stops may be set above $52.50 on downside attempts. Greenspan Glum According to Bloomberg, Former Fed Chairman Alan Greenspan said the U.S. economy is on brink of a recession. At a conference with energy executives, Greenspan said the U.S. is “clearly on the edge” with chances being “50% or better.” The statement is a stark contrast to his view a year ago when he said there was only a 33.3% chance the U.S. would enter a recession. Further, current Fed Chairman Ben Bernanke testified before Congress yesterday that downside risks to growth had increased with the job market and high energy costs taking a toll in spending.
For context, read Mr. Practical’s Minyan Mailbag: Fed’s Fix. From the Bull Pen: Bulls can look to Molson Coors (TAP) in a slowing environment. Near-term sell-stops may be set below $48. From the Bear Cave: Bears see a short play in Caterpillar (CAT). Buy-stops may be set above $72 (above the double top) or $75 for those with a higher risk profile.
Thursday, February 14, 2008
A Stock for All Seasons
With the market getting beaten up in anticipation of a possible recession, it would be criminal for us Fools to ignore the distinction between cyclical and non-cyclical companies.
A salt and batteryWhile I'd be hard-pressed to precisely quantify their characteristics, cyclicals are the companies most sensitive to economic cycles, and they're not particularly conducive to a long-term buy-and-hold investment strategy. They're challenging to value and nearly impossible to bottom-fish.
To explore this theme further, I've chosen a salt miner and an industrial battery maker, both of which recently reported excellent results. These companies offer indispensable products, which would appear to cushion the companies from a spending slowdown. As we'll see, spotting cyclicality isn't always that simple.
A stock that won't get lickedCompass Minerals (NYSE: CMP), which was spun out of Mosaic (NYSE: MOS) earlier this decade, is a sultan of salt. Its rock salt mine in Goderich, Ontario, is the largest in the world, and Compass' various facilities spit out more than 10 million tons of salt per year. The company's highway deicing segment accounts for the majority of sales volume, but higher prices for more refined consumer and industrial salts make for a relatively even revenue split.
My main takeaways from Compass' annual report filed with the SEC are that its salt business offers:
stable demand and cash flows across economic cycles
low-cost, high-grade mines with long reserve lives, and
the ability to steadily raise prices over time
These factors add up to a very attractive base business and make me pretty comfortable with an otherwise debilitating amount of debt, which was piled onto Compass as part of its separation from Mosaic.
Now, you may be familiar with the latter company as one of the freakishly fast-growing fertilizer foursome, including Potash (NYSE: POT), Agrium (NYSE: AGU), and Terra Industries (NYSE: TRA). Compass, as the largest North American producer of sulfate of potash (SOP), is a lesser-known fertilizer play. With the segment contributing about a quarter of Compass' operating income for the past two years, this piece of the business is more than just icing on the deicing cake.
Now, if you believe that a fundamental shift has occurred in global agriculture, you might conclude that the market for fertilizer has come untethered from cyclicality. The companies in the space are certainly valued that way, with Potash and Mosaic both valued at around 24 times EBITDA. Note, however, that Compass makes no such claim in its filings with the Securities and Exchange Commission. Gone are the salt-related claims of steady demand and decades-long pricing power.
The fertilizer segment, having recently raised SOP prices by stunning amounts, looks to be invincible today, but I have my doubts that this is a sustainable trend. Fertilizer froth appears to be overwhelming a nice and boring countercyclical base business.
Don't get too charged up, nowBatteries, like salt, are another ubiquitous product. EnerSys (NYSE: ENS) says it has more than 10,000 customers in more than 100 countries, which would appear to be quite a cushion against regional softness. But unlike Energizer Holdings (NYSE: ENR), EnerSys is geared toward industrial battery users demanding reserve or motive power.
For that reason, when an important end-use sector turns down, EnerSys feels the pinch. An example is the ebullient build-out of telecommunication systems, which require battery reserve power. When that capital spending dried up, so did EnerSys' sales.
Not only do Enersys' customers face cyclicality, but EnerSys itself has to contend with volatile prices for its own raw materials, such as lead, steel, and copper. Spot lead prices, for example, have roughly doubled over the past year.
Once you factor in EnerSys' lack of pricing power due to fierce competition, it becomes clear that the company can really be hurt in several different ways. Demand can fall, material costs can cut into profits, and low-cost competitors can undercut the firm on price. There's also a legion of material science companies and well-funded start-ups seeking next-generation stored energy solutions, but that's a longer-term threat.
Everything is going EnerSys' way at the moment, but this is exactly the sort of stock I would not want to be holding when the music stops.
A salt and batteryWhile I'd be hard-pressed to precisely quantify their characteristics, cyclicals are the companies most sensitive to economic cycles, and they're not particularly conducive to a long-term buy-and-hold investment strategy. They're challenging to value and nearly impossible to bottom-fish.
To explore this theme further, I've chosen a salt miner and an industrial battery maker, both of which recently reported excellent results. These companies offer indispensable products, which would appear to cushion the companies from a spending slowdown. As we'll see, spotting cyclicality isn't always that simple.
A stock that won't get lickedCompass Minerals (NYSE: CMP), which was spun out of Mosaic (NYSE: MOS) earlier this decade, is a sultan of salt. Its rock salt mine in Goderich, Ontario, is the largest in the world, and Compass' various facilities spit out more than 10 million tons of salt per year. The company's highway deicing segment accounts for the majority of sales volume, but higher prices for more refined consumer and industrial salts make for a relatively even revenue split.
My main takeaways from Compass' annual report filed with the SEC are that its salt business offers:
stable demand and cash flows across economic cycles
low-cost, high-grade mines with long reserve lives, and
the ability to steadily raise prices over time
These factors add up to a very attractive base business and make me pretty comfortable with an otherwise debilitating amount of debt, which was piled onto Compass as part of its separation from Mosaic.
Now, you may be familiar with the latter company as one of the freakishly fast-growing fertilizer foursome, including Potash (NYSE: POT), Agrium (NYSE: AGU), and Terra Industries (NYSE: TRA). Compass, as the largest North American producer of sulfate of potash (SOP), is a lesser-known fertilizer play. With the segment contributing about a quarter of Compass' operating income for the past two years, this piece of the business is more than just icing on the deicing cake.
Now, if you believe that a fundamental shift has occurred in global agriculture, you might conclude that the market for fertilizer has come untethered from cyclicality. The companies in the space are certainly valued that way, with Potash and Mosaic both valued at around 24 times EBITDA. Note, however, that Compass makes no such claim in its filings with the Securities and Exchange Commission. Gone are the salt-related claims of steady demand and decades-long pricing power.
The fertilizer segment, having recently raised SOP prices by stunning amounts, looks to be invincible today, but I have my doubts that this is a sustainable trend. Fertilizer froth appears to be overwhelming a nice and boring countercyclical base business.
Don't get too charged up, nowBatteries, like salt, are another ubiquitous product. EnerSys (NYSE: ENS) says it has more than 10,000 customers in more than 100 countries, which would appear to be quite a cushion against regional softness. But unlike Energizer Holdings (NYSE: ENR), EnerSys is geared toward industrial battery users demanding reserve or motive power.
For that reason, when an important end-use sector turns down, EnerSys feels the pinch. An example is the ebullient build-out of telecommunication systems, which require battery reserve power. When that capital spending dried up, so did EnerSys' sales.
Not only do Enersys' customers face cyclicality, but EnerSys itself has to contend with volatile prices for its own raw materials, such as lead, steel, and copper. Spot lead prices, for example, have roughly doubled over the past year.
Once you factor in EnerSys' lack of pricing power due to fierce competition, it becomes clear that the company can really be hurt in several different ways. Demand can fall, material costs can cut into profits, and low-cost competitors can undercut the firm on price. There's also a legion of material science companies and well-funded start-ups seeking next-generation stored energy solutions, but that's a longer-term threat.
Everything is going EnerSys' way at the moment, but this is exactly the sort of stock I would not want to be holding when the music stops.
Deere Shares Rise on 1Q Earnings
Shares of Deere Post Gains a Day After Reporting Strong 1st-Quarter Results
NEW YORK (AP) -- Shares of Deere & Co., the world's largest farm equipment company, rose Thursday, a day after reporting fiscal first-quarter results that beat Wall Street predictions.
Deere shares rose as much as $2.25, or 2.6 percent, to $87.79, before falling back to close up 80 cents at $86.34. Over the past 52 weeks, the company's shares have traded between $51.59 and $94.76.
The company said its sales outside of North America jumped 37 percent during the quarter, boosted by rising global crop prices and the decline in the U.S. dollar. It also boosted its fiscal 2008 guidance.
But Deere also issued a fiscal second-quarter profit prediction below average analysts' estimates, sending its shares down 94 cents to $85.54 on Wednesday.
Banc of America Securities analyst Seth R. Weber backed his "Buy" rating for the company and boosted his price target by $1 to $94, saying that the company's increased profit expectations for 2008 show that the global agricultural cycle should remain strong.
"We expect rising farm income, high crop prices, low global crop inventories, and bio-fuel-related crop demand to support farm equipment demand in 2008, with a ramp up in large machines particularly favorable for Deere," Weber wrote in a note to investors.
The analyst said he expects Deere shares to continue to rise as a result of improving global agriculture industry fundamentals and the company's top position in the farm equipment industry.
NEW YORK (AP) -- Shares of Deere & Co., the world's largest farm equipment company, rose Thursday, a day after reporting fiscal first-quarter results that beat Wall Street predictions.
Deere shares rose as much as $2.25, or 2.6 percent, to $87.79, before falling back to close up 80 cents at $86.34. Over the past 52 weeks, the company's shares have traded between $51.59 and $94.76.
The company said its sales outside of North America jumped 37 percent during the quarter, boosted by rising global crop prices and the decline in the U.S. dollar. It also boosted its fiscal 2008 guidance.
But Deere also issued a fiscal second-quarter profit prediction below average analysts' estimates, sending its shares down 94 cents to $85.54 on Wednesday.
Banc of America Securities analyst Seth R. Weber backed his "Buy" rating for the company and boosted his price target by $1 to $94, saying that the company's increased profit expectations for 2008 show that the global agricultural cycle should remain strong.
"We expect rising farm income, high crop prices, low global crop inventories, and bio-fuel-related crop demand to support farm equipment demand in 2008, with a ramp up in large machines particularly favorable for Deere," Weber wrote in a note to investors.
The analyst said he expects Deere shares to continue to rise as a result of improving global agriculture industry fundamentals and the company's top position in the farm equipment industry.
Wednesday, February 13, 2008
Origin Agritech Limited Schedules 2007 Fourth Quarter and Year End Financial Results
BEIJING--(BUSINESS WIRE)--Origin Agritech Limited ("Origin") (NasdaqGS: SEED - News) today announced that it will issue financial results for the three months and year ended September 30, 2007 after the close of the stock market on Wednesday, February 27, 2008. Management will conduct a conference call on Thursday, February 28, 2008 at 9:00 am Eastern Standard Time to discuss these results. A question and answer session will follow management's presentation
About Origin
Founded in 1997 and headquartered in Beijing, Origin Agritech Limited (NasdaqGS: SEED - News) is one of China’s leading, vertically-integrated agricultural technology company specializing in hybrid seed research, development and production to supply the growing populations of China and Southeast Asia. Origin develops, grows, processes, and markets hybrid seeds to farmers throughout China and parts of Southeast Asia via a network of approximately 3,200 distributors. The hybrid seed industry is estimated at US$2 billion and that is expected to double by 2010. The Company currently operates facilities in 30 of China’s 32 provinces as well as Beijing. Since Origin launched its first entirely internally developed seed in 2003, the Company has developed and commercialized a proprietary seed portfolio of ten corn hybrids, six rice hybrids and two canola hybrids. For further information, please log on www.originagritech.com.
About Origin
Founded in 1997 and headquartered in Beijing, Origin Agritech Limited (NasdaqGS: SEED - News) is one of China’s leading, vertically-integrated agricultural technology company specializing in hybrid seed research, development and production to supply the growing populations of China and Southeast Asia. Origin develops, grows, processes, and markets hybrid seeds to farmers throughout China and parts of Southeast Asia via a network of approximately 3,200 distributors. The hybrid seed industry is estimated at US$2 billion and that is expected to double by 2010. The Company currently operates facilities in 30 of China’s 32 provinces as well as Beijing. Since Origin launched its first entirely internally developed seed in 2003, the Company has developed and commercialized a proprietary seed portfolio of ten corn hybrids, six rice hybrids and two canola hybrids. For further information, please log on www.originagritech.com.
Report Raises Alarm over 'Superweeds'
Use of herbicides such as Monsanto's Roundup is on the rise. As weeds become resistant, environmental activists blame genetically modified crops
It's been 12 years since the first genetically modified crop was sown in the U.S., and controversy has raged since. Now, another salvo has been launched, in the form of a new report from environmental activist organization Friends of the Earth International and the Center for Food Safety, a Washington (D.C.) advocacy group. Called Who Benefits from GM Crops?, the study examines the emergence of "superweeds" that have developed a resistance to conventional herbicides such as Monsanto's (MON) Roundup. The culprits, says the report, are plants like corn, soybeans, and cotton that have been genetically modified to survive Roundup. Farmers can spray their fields and the weeds will die but the crops will thrive.
As more acres of "Roundup Ready" crops are planted, the use of the pesticide has increased. The increased application has led some weeds to develop a resistance to glyphosate, the generic term for the chemical in Roundup. And, in turn, farmers have had to apply stronger doses of pesticide to kill the superweeds.
According to the report, the amount of weed-killing herbicides used by farmers has exploded, rising fifteenfold since biotech crops were first planted. The report lists eight weeds in the U.S.—among them horseweed, common waterhemp, and hairy fleabane—that have developed resistance to glyphosate, the most commonly applied pesticide. The next generations of biotech seeds include some that have been modified to withstand stronger doses of herbicides, while another strategy has been to develop tolerances to different herbicides and to combine multiple types of resistance in the same seed. "It's a chemical arms race against these weeds," says Bill Freese, a policy analyst at the Center for Food Safety and a co-author of the report.
Monsanto Profit Forecast Up
In response, Monsanto said in an e-mailed statement: "The Friends of the Earth report makes numerous inaccurate and false claims. Information sources cited are rarely from peer reviewed scientific journals or research and are not representative of actual impacts." Apropos weed resistance, the company said, in part, "Monsanto takes product stewardship and claims of resistance to glyphosate very seriously.…Monsanto also sponsors internal and external research to understand the various aspects of glyphosate-resistant weeds, and research on best management practices in Roundup Ready crops."
The boost in herbicide use is proving to be a financial boon for Monsanto. Its Roundup business was thought to be an albatross, as the pesticide came off patent in 2000 and revenue quickly plunged. Chief Executive Hugh Grant hastened the company's shift away from reliance on Roundup sales to an emphasis on GMO (genetically modified organism) seeds—in particular, commodity crops such as corn and soy, which are the grist for animal feed, food processing, and biofuels. As demand for agricultural commodities has soared in recent years, stoked by growing wealth and changing diets in developing nations, so too have the plantings of GMOs (BusinessWeek, 12/6/07).
But as more seeds with a baked-in resistance to Roundup are planted around the world, it's helping prop up sales of the herbicide. Some 80% of biotech seeds have herbicide-tolerance in them, and the vast majority of those tolerate Roundup specifically. In fact, on Feb. 12, Monsanto Executive Vice-President Brett Begemann told investors at a conference that the company would raise its 2008 earnings guidance, thanks in part to better-than-anticipated Roundup sales. In the company's first fiscal quarter, sales of Roundup and other chemicals jumped 47%. The company expects up to $1. 4 billion in gross profit for the year from its chemicals business, Begemann said, which would be a 10% increase from 2007. (Monsanto forecasts $3.5 billion in gross profit from its seeds businesses, a 16% increase.)
Environmental Impact Unclear
Superweeds are most directly a nuisance for farmers, who have to work harder to tend their fields and spend more on buying and applying herbicides. But the impact reaches consumers, too, argues Freese, as increased levels of chemicals hit plants and can work their way into groundwater. So far, the concerns have not hindered the adoption of biotech crops: On Feb. 13, a biotech industry group, the International Service for the Acquisition of Agri-Biotech Applications, is expected to release its own report showing an uptick in plantings of GMO crops around the world.
But many of the side effects, both actual and potential, continue to stir debate. Companies such as Monsanto, DuPont's (DD) Pioneer, and Syngenta (SYT) must submit environmental assessments to the U.S. Agriculture Dept.'s Animal & Plant Health Inspection Service (APHIS) before a biotech plant can be approved for commercial use. Freese argues, however, that more rigorous regulatory evaluations of biotech crops' impact can stave off environmental side effects. In March, 2007, a federal judge in Northern California halted plantings of biotech alfalfa, ruling that the USDA's oversight was inadequate.
For its part, Monsanto said in the Feb. 12 statement: "As part of the petition for deregulation, Monsanto includes information on glyphosate-resistant weeds and Monsanto's weed resistance stewardship program. USDA reviews that information, along with other information such as research journal articles, in preparing their environmental assessment."
Academics have been studying the impact of GMOs, but the research is still nascent. Just last November, the National Academy of Sciences convened a workshop of entomologists, geneticists, biologists, and others to discuss research priorities on how genetically engineered plants and animals impact the environment. The results are expected later in the year.
It's been 12 years since the first genetically modified crop was sown in the U.S., and controversy has raged since. Now, another salvo has been launched, in the form of a new report from environmental activist organization Friends of the Earth International and the Center for Food Safety, a Washington (D.C.) advocacy group. Called Who Benefits from GM Crops?, the study examines the emergence of "superweeds" that have developed a resistance to conventional herbicides such as Monsanto's (MON) Roundup. The culprits, says the report, are plants like corn, soybeans, and cotton that have been genetically modified to survive Roundup. Farmers can spray their fields and the weeds will die but the crops will thrive.
As more acres of "Roundup Ready" crops are planted, the use of the pesticide has increased. The increased application has led some weeds to develop a resistance to glyphosate, the generic term for the chemical in Roundup. And, in turn, farmers have had to apply stronger doses of pesticide to kill the superweeds.
According to the report, the amount of weed-killing herbicides used by farmers has exploded, rising fifteenfold since biotech crops were first planted. The report lists eight weeds in the U.S.—among them horseweed, common waterhemp, and hairy fleabane—that have developed resistance to glyphosate, the most commonly applied pesticide. The next generations of biotech seeds include some that have been modified to withstand stronger doses of herbicides, while another strategy has been to develop tolerances to different herbicides and to combine multiple types of resistance in the same seed. "It's a chemical arms race against these weeds," says Bill Freese, a policy analyst at the Center for Food Safety and a co-author of the report.
Monsanto Profit Forecast Up
In response, Monsanto said in an e-mailed statement: "The Friends of the Earth report makes numerous inaccurate and false claims. Information sources cited are rarely from peer reviewed scientific journals or research and are not representative of actual impacts." Apropos weed resistance, the company said, in part, "Monsanto takes product stewardship and claims of resistance to glyphosate very seriously.…Monsanto also sponsors internal and external research to understand the various aspects of glyphosate-resistant weeds, and research on best management practices in Roundup Ready crops."
The boost in herbicide use is proving to be a financial boon for Monsanto. Its Roundup business was thought to be an albatross, as the pesticide came off patent in 2000 and revenue quickly plunged. Chief Executive Hugh Grant hastened the company's shift away from reliance on Roundup sales to an emphasis on GMO (genetically modified organism) seeds—in particular, commodity crops such as corn and soy, which are the grist for animal feed, food processing, and biofuels. As demand for agricultural commodities has soared in recent years, stoked by growing wealth and changing diets in developing nations, so too have the plantings of GMOs (BusinessWeek, 12/6/07).
But as more seeds with a baked-in resistance to Roundup are planted around the world, it's helping prop up sales of the herbicide. Some 80% of biotech seeds have herbicide-tolerance in them, and the vast majority of those tolerate Roundup specifically. In fact, on Feb. 12, Monsanto Executive Vice-President Brett Begemann told investors at a conference that the company would raise its 2008 earnings guidance, thanks in part to better-than-anticipated Roundup sales. In the company's first fiscal quarter, sales of Roundup and other chemicals jumped 47%. The company expects up to $1. 4 billion in gross profit for the year from its chemicals business, Begemann said, which would be a 10% increase from 2007. (Monsanto forecasts $3.5 billion in gross profit from its seeds businesses, a 16% increase.)
Environmental Impact Unclear
Superweeds are most directly a nuisance for farmers, who have to work harder to tend their fields and spend more on buying and applying herbicides. But the impact reaches consumers, too, argues Freese, as increased levels of chemicals hit plants and can work their way into groundwater. So far, the concerns have not hindered the adoption of biotech crops: On Feb. 13, a biotech industry group, the International Service for the Acquisition of Agri-Biotech Applications, is expected to release its own report showing an uptick in plantings of GMO crops around the world.
But many of the side effects, both actual and potential, continue to stir debate. Companies such as Monsanto, DuPont's (DD) Pioneer, and Syngenta (SYT) must submit environmental assessments to the U.S. Agriculture Dept.'s Animal & Plant Health Inspection Service (APHIS) before a biotech plant can be approved for commercial use. Freese argues, however, that more rigorous regulatory evaluations of biotech crops' impact can stave off environmental side effects. In March, 2007, a federal judge in Northern California halted plantings of biotech alfalfa, ruling that the USDA's oversight was inadequate.
For its part, Monsanto said in the Feb. 12 statement: "As part of the petition for deregulation, Monsanto includes information on glyphosate-resistant weeds and Monsanto's weed resistance stewardship program. USDA reviews that information, along with other information such as research journal articles, in preparing their environmental assessment."
Academics have been studying the impact of GMOs, but the research is still nascent. Just last November, the National Academy of Sciences convened a workshop of entomologists, geneticists, biologists, and others to discuss research priorities on how genetically engineered plants and animals impact the environment. The results are expected later in the year.
Agrium Swings to Profit on Strong Prices
Agrium Swings to 4th-Qtr Profit on Strong Demand, Prices; Calls 2008 Outlook "Oustanding"
NEW YORK (AP) -- Agrium Inc. swung to a fourth-quarter profit on strong global demand and prices for agricultural products and said the outlook for 2008 is "outstanding."
The Canadian plant-nutrient and fertilizer producer posted a profit of $172 million, or $1.24 per share, compared with a loss of $62 million, or 47 cents per share, a year earlier. Net sales jumped 58.6 percent to $1.43 billion from $899 million.
Gross profits for all three of its crop nutrients posted records, more than doubling from year-ago levels.
Chief Executive Mike Wilson said prices for "virtually all" major crops are "record high," and that strong demand and limited capacity additions will support those prices.
For the full year, Agrium's profit surged to $441 million, or $3.25 per share, from $33 million, or 25 cents per share, in 2006. Sales climbed to $5.27 billion from $4.19 billion.
Agrium shares rose $2.40, or 3.9 percent, to $65.19 in morning trading.
NEW YORK (AP) -- Agrium Inc. swung to a fourth-quarter profit on strong global demand and prices for agricultural products and said the outlook for 2008 is "outstanding."
The Canadian plant-nutrient and fertilizer producer posted a profit of $172 million, or $1.24 per share, compared with a loss of $62 million, or 47 cents per share, a year earlier. Net sales jumped 58.6 percent to $1.43 billion from $899 million.
Gross profits for all three of its crop nutrients posted records, more than doubling from year-ago levels.
Chief Executive Mike Wilson said prices for "virtually all" major crops are "record high," and that strong demand and limited capacity additions will support those prices.
For the full year, Agrium's profit surged to $441 million, or $3.25 per share, from $33 million, or 25 cents per share, in 2006. Sales climbed to $5.27 billion from $4.19 billion.
Agrium shares rose $2.40, or 3.9 percent, to $65.19 in morning trading.
You Ask, Cramer answers
Potash (POT) -- Was today a key reversal around midday with a downtrend/pullback day to be expected tomorrow?
The take out of the high seemed relevant to me but i still think the group isdicey...lets watch Deere.
The take out of the high seemed relevant to me but i still think the group isdicey...lets watch Deere.
GMO plantings rise, greens cite environment risks
BRUSSELS, Feb 13 (Reuters) - Plantings of genetically modified (GMO) crops are increasingly widespread, a biotech industry body said on Wednesday, despite some public opposition and warnings by environmentalists that they may be unsafe.
"After a dozen years of commercialisation, biotech crops are still gaining ground with another year of growth and new countries joining the list of supporters," the biotech industry backed International Service for the Acquisition of Agri-Biotech Applications (ISAAA) said. "With rising food prices globally, the benefits of biotech crops have never been more important," it added ahead of the release of its annual report on GMO crops.
International environment lobby Friends of the Earth (FoE) said there was a growing tide of anti-GMO opinion, particularly in Europe.
"Less than 2 percent of the total maize grown in the EU is genetically modified and five EU countries have now banned (U.S. biotech company) Monsanto (MON.N: Quote, Profile, Research) maize because of growing evidence of its negative environmental impact," it said in a report timed to coincide with the ISAAA data.
FoE said GMO crops had not helped alleviate poverty and their yields were no higher than those of conventional crops -- a claim hotly disputed by the world's biotech companies.
"The vast majority of GM crops commercialised so far are destined for animal feed for the meat and livestock markets in rich industrialised nations rather than for feeding the poor," the FoE report said.
"After a dozen years of commercialisation, biotech crops are still gaining ground with another year of growth and new countries joining the list of supporters," the biotech industry backed International Service for the Acquisition of Agri-Biotech Applications (ISAAA) said. "With rising food prices globally, the benefits of biotech crops have never been more important," it added ahead of the release of its annual report on GMO crops.
International environment lobby Friends of the Earth (FoE) said there was a growing tide of anti-GMO opinion, particularly in Europe.
"Less than 2 percent of the total maize grown in the EU is genetically modified and five EU countries have now banned (U.S. biotech company) Monsanto (MON.N: Quote, Profile, Research) maize because of growing evidence of its negative environmental impact," it said in a report timed to coincide with the ISAAA data.
FoE said GMO crops had not helped alleviate poverty and their yields were no higher than those of conventional crops -- a claim hotly disputed by the world's biotech companies.
"The vast majority of GM crops commercialised so far are destined for animal feed for the meat and livestock markets in rich industrialised nations rather than for feeding the poor," the FoE report said.
Tuesday, February 12, 2008
POT CEO on CNBC's Fast Money
What’s the trade as agriculture stocks bounce after a rocky January? Find out from Bill Doyle, CEO of #1 fertilizer company Potash Corp.
Following is a synopsis of the main points made by Potash Corp. Chief Executive Bill Doyle on Fast Money.
You said in 2008 Potash gross margins will be 2.5 times larger than they were in 2007. How is that?
“It’s because we’re finally seeing leverage come into play,” says Doyle. “We have 75% of all the excess Potash capacity in the world and we’re bringing that excess capacity to market at higher prices.”
“Last year was our 4th record year and I think this year will be pretty good, too," he adds. "I the reason is that crop prices are up around the world. For example, for every dollar a farmer invests in palm oil in Malaysia and Indonesia they get back $9. Supply and demand fundamentals are very much in our favor. People don’t understand, yet, but there’s big demand out there.
What are you doing with all this money?
“We’re spending 5 billion over the next 4 years to bring back idle potash,” replies Doyle. “And we announced a share buy back.”
You’re buying back 5% of your shares, isn't that right?
“Amid this craziness we had in the middle of January when people said they wanted out of agriculture stocks, we bought back shares,” says Doyle. “(But) we buy back opportunistically.
Has anyone approached you about a buy-out?
I can’t tell you, says Doyle.
Traders, what do you think of this stock?
I like it, says Jeff Macke.
I think Potash could be a takeover target, speculates Guy Adami.
Following is a synopsis of the main points made by Potash Corp. Chief Executive Bill Doyle on Fast Money.
You said in 2008 Potash gross margins will be 2.5 times larger than they were in 2007. How is that?
“It’s because we’re finally seeing leverage come into play,” says Doyle. “We have 75% of all the excess Potash capacity in the world and we’re bringing that excess capacity to market at higher prices.”
“Last year was our 4th record year and I think this year will be pretty good, too," he adds. "I the reason is that crop prices are up around the world. For example, for every dollar a farmer invests in palm oil in Malaysia and Indonesia they get back $9. Supply and demand fundamentals are very much in our favor. People don’t understand, yet, but there’s big demand out there.
What are you doing with all this money?
“We’re spending 5 billion over the next 4 years to bring back idle potash,” replies Doyle. “And we announced a share buy back.”
You’re buying back 5% of your shares, isn't that right?
“Amid this craziness we had in the middle of January when people said they wanted out of agriculture stocks, we bought back shares,” says Doyle. “(But) we buy back opportunistically.
Has anyone approached you about a buy-out?
I can’t tell you, says Doyle.
Traders, what do you think of this stock?
I like it, says Jeff Macke.
I think Potash could be a takeover target, speculates Guy Adami.
Earnings Preview: Deere & Co.
Deere Expected to Post 1st-Quarter Profit of 78 Cents Per Share on $5.03 Billion in Revenue
NEW YORK (AP) -- Deere & Co., one of the world's largest producers of farm equipment, reports earnings for the fiscal first quarter on Wednesday. The following is a summary of key developments and analyst opinion related to the period.
OVERVIEW: Deere, like other manufacturers, has worked to boost its exports in the face of a slowing U.S. economy. At the same time, it's benefited from higher farm prices around the world that have been fueled by increased ethanol production.
Deere's results come after fourth-quarter earnings announcements by its chief competitors, CNH Global NV and Agco Corp. CNH's fourth-quarter profit fell short of Wall Street predictions and it also issued 2008 guidance that disappointed investors.
The Dutch company predicted a 10 percent to 15 percent increase in total equipment sales, but added that it expects North American sales of construction equipment to be down 5 percent to 10 percent as a result of the residential construction slump.
Meanwhile, Agco said it swung to a fourth-quarter profit, but issued a 2008 outlook below average estimates, projecting a modest industry increase in worldwide demand for farm equipment.
BY THE NUMBERS: Analysts polled by Thomson Financial expect a profit of 78 cents per share on $5.03 billion in revenue.
ANALYST TAKE: "Our Buy rating on Deere reflects our view that results will continue to be driven by improving global agriculture industry fundamentals and the company's leadership position in the farm machinery industry," Seth R. Weber of Banc of America Securities wrote in a recent note to investors.
"We expect rising farm income, sustained high crop prices, low global crop inventories, improvements in Brazil, and bio-fuel-related crop demand to continue to support strong farm equipment demand in 2008."
STOCK PERFORMANCE: During the quarter, Deere shares rose about 14 percent to peak at $177.04 on Dec. 3 before a 2-for-1 stock split the next day. After the split, Deere shares traded relatively flat and ended the quarter at $87.56.
Adjusted for dividends and stock splits, Deere shares rose about 13 percent during the quarter.
So far this calendar year, Deere shares are up about 11 percent to close Friday at $82.46.
NEW YORK (AP) -- Deere & Co., one of the world's largest producers of farm equipment, reports earnings for the fiscal first quarter on Wednesday. The following is a summary of key developments and analyst opinion related to the period.
OVERVIEW: Deere, like other manufacturers, has worked to boost its exports in the face of a slowing U.S. economy. At the same time, it's benefited from higher farm prices around the world that have been fueled by increased ethanol production.
Deere's results come after fourth-quarter earnings announcements by its chief competitors, CNH Global NV and Agco Corp. CNH's fourth-quarter profit fell short of Wall Street predictions and it also issued 2008 guidance that disappointed investors.
The Dutch company predicted a 10 percent to 15 percent increase in total equipment sales, but added that it expects North American sales of construction equipment to be down 5 percent to 10 percent as a result of the residential construction slump.
Meanwhile, Agco said it swung to a fourth-quarter profit, but issued a 2008 outlook below average estimates, projecting a modest industry increase in worldwide demand for farm equipment.
BY THE NUMBERS: Analysts polled by Thomson Financial expect a profit of 78 cents per share on $5.03 billion in revenue.
ANALYST TAKE: "Our Buy rating on Deere reflects our view that results will continue to be driven by improving global agriculture industry fundamentals and the company's leadership position in the farm machinery industry," Seth R. Weber of Banc of America Securities wrote in a recent note to investors.
"We expect rising farm income, sustained high crop prices, low global crop inventories, improvements in Brazil, and bio-fuel-related crop demand to continue to support strong farm equipment demand in 2008."
STOCK PERFORMANCE: During the quarter, Deere shares rose about 14 percent to peak at $177.04 on Dec. 3 before a 2-for-1 stock split the next day. After the split, Deere shares traded relatively flat and ended the quarter at $87.56.
Adjusted for dividends and stock splits, Deere shares rose about 13 percent during the quarter.
So far this calendar year, Deere shares are up about 11 percent to close Friday at $82.46.
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