In recent weeks it was reported that Bill Gross, head of Pimco, the largest bond shop in the world sold all Treasuries in the massive Pimco total return fund. Pimco is as close as one can get to the Treasury and the Federal Reserve. Former Fed Chairman Alan Greenspan became a special advisor to Pimco and being the largest bond shop in the world, Pimco is instrumental in ensuring funding for Uncle Sam and was also instrumental in the bailouts of Freddie and Fannie.
However, Pimco and Gross are notoriously flaky in their public statements and behavior. In the wake of the financial crisis, it was Pimco who clamored for increased government spending and for a bailout for Freddie and Fannie. Pimco invested heavily in those higher yielding bonds on the basis that the government would bail out bondholders. Only a few years later, we have Gross at the other end of the spectrum, noting the obvious about our deficits and national debt.
So we should all take Gross’ comments at face value and dump our bonds?
The picture shows TLT (NYSE:TLT) and the CCI (Commodities). Interesting how Bonds have put in another bottom and have continued their pattern of higher lows. We also note the negative correlation between Bonds and Commodities. Its not a perfect correlation but its an important indicator. The fact that Bonds have put in another bottom and Commodities are well above their long-term moving averages, is reason why we are near-term cautious on Commodities.
The bottom line is one has to study the charts, sentiment indicators and macroeconomic factors rather than listen to so-called experts like Bill Gross, Warren Buffet or any Federal Reserve member. For all we know, Gross could have sold his holdings six months ago and went long days after his public statement.
Thursday, March 24, 2011
10 Stocks Hitting 52-Week Lows As Their Share Prices Disappear Like Houdini
Here are 10 stocks that hit their lowest price in the past 12 months. Note that this list excludes all stocks with a market capitalization less than $300 million:
Cbeyond, Inc. (NASDAQ:CBEY): Up 1.03% to $11.77. Cbeyond, Inc. offers telecommunications services to small businesses. The Company offers local and long distance telephone services, T-1 Internet access, and Internet-based applications.
Cree Inc. (NASDAQ:CREE): Down 12.45% to $42.90. Cree, Inc. develops and manufactures semiconductor materials and electronic devices made from silicon carbide (SiC). The Company uses proprietary technology to make enabling compound semiconductors such as blue and green light emitting diodes, SiC crystals used in the production of unique gemstones, and SiC wafers that are sold for device production and research.
Dolby Laboratories Inc. (NYSE:DLB): Up 1.14% to $48.09. Dolby Laboratories Inc. develops audio signal processing systems for the motion picture, broadcasting, and music recording industries, as well as the consumer market.
General Motors Corporation (NYSE:GM): Up 1.37% to $31.16. Ford’s (NYSE:F) major U.S. competitor, General Motors Co. manufactures and markets new cars and trucks. The Company offers features for special needs drivers, OnStar vehicle protection, service, parts, accessories, maintenance, XM satellite radio, features for commercial owners, and more. General Motors offers its vehicles and services worldwide.
hhgregg, Inc. (NYSE:HGG): Down 0.38% to $13.27. hhgregg, Inc. retails video products, brand name appliances, audio products and accessories.
Micromet, Inc. (NASDAQ:MITI): Up 4.77% to $5.05. Micromet, Inc. is a biotechnology company. The Company develops novel antibody-based drugs for the treatment of cancer, inflammation and autoimmune diseases.
Nektar Therapeutics (NASDAQ:NKTR): Up 0.7% to $8.66. Nektar Therapeutics is a clinical-stage biopharmaceutical company which develops a pipeline of drug candidates that utilize company platforms. The Company’s product pipeline is comprised of early to late stage drug candidates across a number of therapeutic areas including oncology, pain, anti-infectives, anti-viral and immunology.
PAETEC Holding Corp. (NASDAQ:PAET): Down 3.15% to $3.07. PAETEC Holding Corporation offers communications services to businesses. The Company offers medium and large businesses in metropolitan areas of the United States local and long distance voice services, data services, and Internet services.
RadioShack Corp. (NYSE:RSH): Up 0.43% to $14.01. RadioShack Corporation operates a chain of retail consumer electronics goods and services stores located throughout the United States and Mexico, along with wireless phone kiosks in the US, and dealer outlets worldwide. The Company offers consumers wireless phone and other electronic products and services from national brands and exclusive private brands and wireless carriers.
Yongye International, Inc. (NASDAQ:YONG): Down 10.09% to $5.70. Yongye International, Inc. researches, develops, produces and sells fulvic acid based liquids and powder nutrient compounds used in the agriculture industry. The Company’s product acts as a transport agent helping plant cells absorb the minerals and elements for growth.
Cbeyond, Inc. (NASDAQ:CBEY): Up 1.03% to $11.77. Cbeyond, Inc. offers telecommunications services to small businesses. The Company offers local and long distance telephone services, T-1 Internet access, and Internet-based applications.
Cree Inc. (NASDAQ:CREE): Down 12.45% to $42.90. Cree, Inc. develops and manufactures semiconductor materials and electronic devices made from silicon carbide (SiC). The Company uses proprietary technology to make enabling compound semiconductors such as blue and green light emitting diodes, SiC crystals used in the production of unique gemstones, and SiC wafers that are sold for device production and research.
Dolby Laboratories Inc. (NYSE:DLB): Up 1.14% to $48.09. Dolby Laboratories Inc. develops audio signal processing systems for the motion picture, broadcasting, and music recording industries, as well as the consumer market.
General Motors Corporation (NYSE:GM): Up 1.37% to $31.16. Ford’s (NYSE:F) major U.S. competitor, General Motors Co. manufactures and markets new cars and trucks. The Company offers features for special needs drivers, OnStar vehicle protection, service, parts, accessories, maintenance, XM satellite radio, features for commercial owners, and more. General Motors offers its vehicles and services worldwide.
hhgregg, Inc. (NYSE:HGG): Down 0.38% to $13.27. hhgregg, Inc. retails video products, brand name appliances, audio products and accessories.
Micromet, Inc. (NASDAQ:MITI): Up 4.77% to $5.05. Micromet, Inc. is a biotechnology company. The Company develops novel antibody-based drugs for the treatment of cancer, inflammation and autoimmune diseases.
Nektar Therapeutics (NASDAQ:NKTR): Up 0.7% to $8.66. Nektar Therapeutics is a clinical-stage biopharmaceutical company which develops a pipeline of drug candidates that utilize company platforms. The Company’s product pipeline is comprised of early to late stage drug candidates across a number of therapeutic areas including oncology, pain, anti-infectives, anti-viral and immunology.
PAETEC Holding Corp. (NASDAQ:PAET): Down 3.15% to $3.07. PAETEC Holding Corporation offers communications services to businesses. The Company offers medium and large businesses in metropolitan areas of the United States local and long distance voice services, data services, and Internet services.
RadioShack Corp. (NYSE:RSH): Up 0.43% to $14.01. RadioShack Corporation operates a chain of retail consumer electronics goods and services stores located throughout the United States and Mexico, along with wireless phone kiosks in the US, and dealer outlets worldwide. The Company offers consumers wireless phone and other electronic products and services from national brands and exclusive private brands and wireless carriers.
Yongye International, Inc. (NASDAQ:YONG): Down 10.09% to $5.70. Yongye International, Inc. researches, develops, produces and sells fulvic acid based liquids and powder nutrient compounds used in the agriculture industry. The Company’s product acts as a transport agent helping plant cells absorb the minerals and elements for growth.
18 Commodity Stocks Jim Rogers Might Consider Now
Commodities permabull Jim Rogers recently said he foresees $150/per barrel oil. Then there's his well-known distaste for the U.S. dollar and his love off all things agriculture. With that in mind, we decided to look at some names in the commodity space that we think Jim Rogers would consider. Here’s what we came up with, plus some commentary on each.
The Mosaic Company (MOS) With a market capitalization just over $34 billion, this giant of the fertilizer world is prepared to feed to the soil that grows the world’s agricultural diet. Why would Rogers like it? It vertically integrates the production of two of the three core inputs, potash and phosphate, that go into its fertilizer product. Despite a very bullish run in the past year, as recently as late January, RBC Capital Markets reiterated its outperform rating for the company. However, we believe shares are overvalued on a discounted cash flow basis, and investors would be advised to add a position on a pullback.
CNOOC Limited (CEO): CNOOC has averaged a 26.3% return on equity over the last five operating years and the company sports a PEG ratio around 0.6. Shares yield 2.4% with a modest 35% payout ratio. The company maintains four areas of production in China at Bohai Bay, Western South China Sea, Eastern South China Sea and the East China Sea. Further, the company also maintains offshore production in Indonesia. Upstream assets operate in Nigeria, Australia and throughout China. At year-end 2009, the company's net proved reserves totaled 2.68 billion barrels of oil equivalent with net production of 624,000 per diem. CNOOC subsidiaries include CNOOC China Limited, CNOOC International Limited, China Offshore Oil of Singapore. CNOOC Finance which provide ancillary regional services to the parent company.
CF Industries Holdings Inc. (CF) CF Holdings is a smaller player with a regionally concentrated market in the central United States. CF is another fertilizer name that has steady growth prospects for the long term. Its 5-year projected EPS are 8.5%. it should be noted that it, like others in the sector, the company has experienced a marked run up in its stock price recently.
Chesapeake Energy Corporation (CHK): Chesapeake Energy Corporation focuses on developing conventional and unconventional natural gas reserves onshore in the U.S. Carl Icahn was also a buyer during the most recent reporting period. The company sports a beta of 1.33, a trailing P/E of 13.35, and a forward P/E of 11.22. Profit and operating margins currently stand at 18.94% and 28.71%. Recently, BHP Billiton (BHP) paid $4.75 billion for Chesapeake Energy Corporation’s gas assets in the Fayetteville shale formation
Gazprom (OGZPY.PK) Opportunely seizing on the theme of Mideast instability, Alexey Miller, Chairman of the Gazprom Management Committee stated “The situation emerging in foreign markets makes the South Stream project even more essential, desired and ever timely.” The Russian name that's synonymous with energy, Gazprom, has just joined forces with another: Lukoil (LUKOY.PK). The companies will cooperate in natural gas extraction and delivery from the Bolshekhetskaya Depression and the Northern Caspian Sea. Additionally, the company is making major progress on its Sakhalin facilities. Broadly speaking, Gazprom is a direct buy into Russian oil and gas at this moment.
Monsanto (MON): Monsanto, with a market cap of $36.41B, is one of the largest agricultural product companies in the world. The firm offers chemicals and genetically modified seeds to boost farm production across a wide variety of crops. Although the stock is currently trading at a somewhat expensive P/E ratio of 32.95, the company has top-notch profitability, with an operating margin of 16.01%. The company also has a ROE of 11.28%, and offers a $1.12 (1.70%) dividend.
In addition to rising food prices, there are a few factors that appear to be in Monsanto’s favor. First of all, Monsanto has a global presence, and should benefit from increased food demand in emerging markets, especially Latin America, where Monsanto has already experienced significant growth. Second, low investment in agriculture over the last decade means that products like Monsanto’s will become more important to improve farm productivity. Finally, Monsanto has always been at the forefront of agricultural breakthroughs, and currently has nine products in the developmental pipeline.
Exxon (XOM): With a market cap of just over $400B, Exxon is the largest company in the world. Trading at a P/E of 13, the energy giant pays a $1.76 (2.10%) dividend. Exxon is undoubtedly a leader in the energy business, and operates at an above-average 12.01% operating margin. Over the last 12 months, XOM also has an outstanding 23.43% ROE, better than 90% of the companies in the industry. If the Fed decides to withdraw QE2, we think Exxon will survive, as we wrote here.
Potash (POT): Another agricultural giant, Potash has a market cap of $46.57B. Smart money investors such as David Einhorn like it. The stock is trading at a 27.54 P/E ratio, and offers a $0.29 (0.50%) dividend. Over the last year, POT has an unbelievable 38.03% operating margin that is among the best in the industry, with a 27.28% ROE.
Primarily a fertilizer producer, Potash should benefit from many of the same factors as MON and other agricultural product companies. That is to say, reduced farm productivity and increased food demand in developing countries will help boost profits moving forward. Goldman Sachs also just upgraded its rating on POT to “buy”, saying that Potash may have the most favorable demand prospects among the fertilizer group.
Agrium (AGU): Agrium, which offers agricultural products and services, has a market cap of $13.96B and pays a small dividend of $0.11 (0.10%). Trading at a 19.53 P/E ratio, the company has a 9.32% operating margin and 14.68% ROE. Agrium also has a low valuation in terms of forward PEG, at only .6. The company is coming off of a record fourth quarter in 2010, when its quarterly earnings quadrupled those of Q4 in 2009. Additionally, Agrium has been active in taking over smaller companies, which should help it take advantage of rising food prices in the future. Agrium will benefit from the same factors mentioned for other chemical companies, namely increased global demand for food.
ATP Oil and Gas (ATPG): ATPG is an offshore oil and gas production company, with a market cap of $950.58M. The company was hit hard by the Gulf drilling moratorium, and as a result had negative earnings last year. Nonetheless, ATPG was just awarded the third deepwater drilling permit in the Gulf of Mexico, and will resume drilling this week at its well 90 miles south of Louisiana. ATP owns 100% of the well, and will use its ATP Titan drilling platform for drilling. Additionally, despite the negative earnings, the company had positive EBITDA of $208.44M over the last year. ATP has also made a push into Israel for drilling opportunities due to the slow permitting in the Gulf of Mexico, and could benefit from this diversification. Click here to read more on ATPG and the important permitting updates which will continue to help this offshore driller.
Chevron (CVX): Chevron is another large, diversified oil and gas company. With a market cap of $210.48B, the stock pays a $2.88 (2.90%) yearly dividend and is trading at an 11.06 P/E ratio. The company has strong earnings, with a 13.51% operating margin, and also has an impressive 19.29% ROE over the last year. The company currently has more than enough cash to cover its total debt, and has experienced solid growth lately. Like Exxon, Chevron made a big move into natural gas with its multi-billion dollar acquisition of Atlas Energy. Finally, the company has exposure to many potential high growth opportunities, both in emerging markets and within alternative energy.
MarketVectors Agribusiness ETF (MOO): This ETF is a good way to buy exposure into the agricultural space that diversifies your company-by-company allocation, as it is strongly geared toward the big names of the industry. Its top holdings include, in order, Monsanto, Potash, Mosaic, Deere & Co. and Singapore-traded Wilmar International. Indicative of the interest in the sector generally, the daily volume of MOO shares has spiked significantly over the past month and half.
Deere (DE): Deere, maker of tractors and other agricultural and forestry products, has a market cap of $38.57B, and is trading at an 18.40 P/E multiple. The company offers a $1.40 (1.60%) dividend and has shown a ROE of 37.03% over the last year.
As a cyclical stock, continued economic recovery would only boost DE, even after the strong recovery that the stock has already shown. If more good news about the economy keeps piling up, the stock should continue its rise. On March 10th, Deere announced major new investment in Russia, one of the four main emerging market nations. The company could see major growth through this investment, as Russia is a huge country with tons of land available for farming and forestry. Finally, as with other agriculture stocks, DE should benefit from increasing food prices, since higher farming margins will more easily allow farmers to invest in new machinery.
Syngenta Corp. (SYT) With over 4 billion dollars of cash on hand and a one-year forward EPS projection of nearly 25% Syngenta is a solid name. This Swiss company competes in two major agricultural arenas: Crop protection and seed production. It is an underdog amongst the more established genetically-modified seed producers, Monsanto and DuPont (DD). It may well be this underdog mentality that drives it to continue its aggressive investment in R&D and succeed in closing that gap and sating global appetites.
Archer-Daniels Midland Company (ADM): Archer-Daniels' income and revenue have jumped nearly a third YoY, with a 5-year EPS projection of a very steady and respectable 8%. The company is heavily involved in ethanol so investors strongly committed to this play or those simply looking to add a bit of ethanol exposure to their books without direct commodities investments might be attracted to this venerable name.
Brasil Foods S.A. (BRF) Brasil Foods distributes thousands of products to over 100 countries. It is a leader amongst Brazilian food companies. To the many consumers of its frozen food products it is more commonly known by its public-facing name of Perdigao. With a middle class constituting a majority of the population for the first time in Brazil, it bodes well for demand of the pre-made meals on offer.
The Mosaic Company (MOS) With a market capitalization just over $34 billion, this giant of the fertilizer world is prepared to feed to the soil that grows the world’s agricultural diet. Why would Rogers like it? It vertically integrates the production of two of the three core inputs, potash and phosphate, that go into its fertilizer product. Despite a very bullish run in the past year, as recently as late January, RBC Capital Markets reiterated its outperform rating for the company. However, we believe shares are overvalued on a discounted cash flow basis, and investors would be advised to add a position on a pullback.
CNOOC Limited (CEO): CNOOC has averaged a 26.3% return on equity over the last five operating years and the company sports a PEG ratio around 0.6. Shares yield 2.4% with a modest 35% payout ratio. The company maintains four areas of production in China at Bohai Bay, Western South China Sea, Eastern South China Sea and the East China Sea. Further, the company also maintains offshore production in Indonesia. Upstream assets operate in Nigeria, Australia and throughout China. At year-end 2009, the company's net proved reserves totaled 2.68 billion barrels of oil equivalent with net production of 624,000 per diem. CNOOC subsidiaries include CNOOC China Limited, CNOOC International Limited, China Offshore Oil of Singapore. CNOOC Finance which provide ancillary regional services to the parent company.
CF Industries Holdings Inc. (CF) CF Holdings is a smaller player with a regionally concentrated market in the central United States. CF is another fertilizer name that has steady growth prospects for the long term. Its 5-year projected EPS are 8.5%. it should be noted that it, like others in the sector, the company has experienced a marked run up in its stock price recently.
Chesapeake Energy Corporation (CHK): Chesapeake Energy Corporation focuses on developing conventional and unconventional natural gas reserves onshore in the U.S. Carl Icahn was also a buyer during the most recent reporting period. The company sports a beta of 1.33, a trailing P/E of 13.35, and a forward P/E of 11.22. Profit and operating margins currently stand at 18.94% and 28.71%. Recently, BHP Billiton (BHP) paid $4.75 billion for Chesapeake Energy Corporation’s gas assets in the Fayetteville shale formation
Gazprom (OGZPY.PK) Opportunely seizing on the theme of Mideast instability, Alexey Miller, Chairman of the Gazprom Management Committee stated “The situation emerging in foreign markets makes the South Stream project even more essential, desired and ever timely.” The Russian name that's synonymous with energy, Gazprom, has just joined forces with another: Lukoil (LUKOY.PK). The companies will cooperate in natural gas extraction and delivery from the Bolshekhetskaya Depression and the Northern Caspian Sea. Additionally, the company is making major progress on its Sakhalin facilities. Broadly speaking, Gazprom is a direct buy into Russian oil and gas at this moment.
Monsanto (MON): Monsanto, with a market cap of $36.41B, is one of the largest agricultural product companies in the world. The firm offers chemicals and genetically modified seeds to boost farm production across a wide variety of crops. Although the stock is currently trading at a somewhat expensive P/E ratio of 32.95, the company has top-notch profitability, with an operating margin of 16.01%. The company also has a ROE of 11.28%, and offers a $1.12 (1.70%) dividend.
In addition to rising food prices, there are a few factors that appear to be in Monsanto’s favor. First of all, Monsanto has a global presence, and should benefit from increased food demand in emerging markets, especially Latin America, where Monsanto has already experienced significant growth. Second, low investment in agriculture over the last decade means that products like Monsanto’s will become more important to improve farm productivity. Finally, Monsanto has always been at the forefront of agricultural breakthroughs, and currently has nine products in the developmental pipeline.
Exxon (XOM): With a market cap of just over $400B, Exxon is the largest company in the world. Trading at a P/E of 13, the energy giant pays a $1.76 (2.10%) dividend. Exxon is undoubtedly a leader in the energy business, and operates at an above-average 12.01% operating margin. Over the last 12 months, XOM also has an outstanding 23.43% ROE, better than 90% of the companies in the industry. If the Fed decides to withdraw QE2, we think Exxon will survive, as we wrote here.
Potash (POT): Another agricultural giant, Potash has a market cap of $46.57B. Smart money investors such as David Einhorn like it. The stock is trading at a 27.54 P/E ratio, and offers a $0.29 (0.50%) dividend. Over the last year, POT has an unbelievable 38.03% operating margin that is among the best in the industry, with a 27.28% ROE.
Primarily a fertilizer producer, Potash should benefit from many of the same factors as MON and other agricultural product companies. That is to say, reduced farm productivity and increased food demand in developing countries will help boost profits moving forward. Goldman Sachs also just upgraded its rating on POT to “buy”, saying that Potash may have the most favorable demand prospects among the fertilizer group.
Agrium (AGU): Agrium, which offers agricultural products and services, has a market cap of $13.96B and pays a small dividend of $0.11 (0.10%). Trading at a 19.53 P/E ratio, the company has a 9.32% operating margin and 14.68% ROE. Agrium also has a low valuation in terms of forward PEG, at only .6. The company is coming off of a record fourth quarter in 2010, when its quarterly earnings quadrupled those of Q4 in 2009. Additionally, Agrium has been active in taking over smaller companies, which should help it take advantage of rising food prices in the future. Agrium will benefit from the same factors mentioned for other chemical companies, namely increased global demand for food.
ATP Oil and Gas (ATPG): ATPG is an offshore oil and gas production company, with a market cap of $950.58M. The company was hit hard by the Gulf drilling moratorium, and as a result had negative earnings last year. Nonetheless, ATPG was just awarded the third deepwater drilling permit in the Gulf of Mexico, and will resume drilling this week at its well 90 miles south of Louisiana. ATP owns 100% of the well, and will use its ATP Titan drilling platform for drilling. Additionally, despite the negative earnings, the company had positive EBITDA of $208.44M over the last year. ATP has also made a push into Israel for drilling opportunities due to the slow permitting in the Gulf of Mexico, and could benefit from this diversification. Click here to read more on ATPG and the important permitting updates which will continue to help this offshore driller.
Chevron (CVX): Chevron is another large, diversified oil and gas company. With a market cap of $210.48B, the stock pays a $2.88 (2.90%) yearly dividend and is trading at an 11.06 P/E ratio. The company has strong earnings, with a 13.51% operating margin, and also has an impressive 19.29% ROE over the last year. The company currently has more than enough cash to cover its total debt, and has experienced solid growth lately. Like Exxon, Chevron made a big move into natural gas with its multi-billion dollar acquisition of Atlas Energy. Finally, the company has exposure to many potential high growth opportunities, both in emerging markets and within alternative energy.
MarketVectors Agribusiness ETF (MOO): This ETF is a good way to buy exposure into the agricultural space that diversifies your company-by-company allocation, as it is strongly geared toward the big names of the industry. Its top holdings include, in order, Monsanto, Potash, Mosaic, Deere & Co. and Singapore-traded Wilmar International. Indicative of the interest in the sector generally, the daily volume of MOO shares has spiked significantly over the past month and half.
Deere (DE): Deere, maker of tractors and other agricultural and forestry products, has a market cap of $38.57B, and is trading at an 18.40 P/E multiple. The company offers a $1.40 (1.60%) dividend and has shown a ROE of 37.03% over the last year.
As a cyclical stock, continued economic recovery would only boost DE, even after the strong recovery that the stock has already shown. If more good news about the economy keeps piling up, the stock should continue its rise. On March 10th, Deere announced major new investment in Russia, one of the four main emerging market nations. The company could see major growth through this investment, as Russia is a huge country with tons of land available for farming and forestry. Finally, as with other agriculture stocks, DE should benefit from increasing food prices, since higher farming margins will more easily allow farmers to invest in new machinery.
Syngenta Corp. (SYT) With over 4 billion dollars of cash on hand and a one-year forward EPS projection of nearly 25% Syngenta is a solid name. This Swiss company competes in two major agricultural arenas: Crop protection and seed production. It is an underdog amongst the more established genetically-modified seed producers, Monsanto and DuPont (DD). It may well be this underdog mentality that drives it to continue its aggressive investment in R&D and succeed in closing that gap and sating global appetites.
Archer-Daniels Midland Company (ADM): Archer-Daniels' income and revenue have jumped nearly a third YoY, with a 5-year EPS projection of a very steady and respectable 8%. The company is heavily involved in ethanol so investors strongly committed to this play or those simply looking to add a bit of ethanol exposure to their books without direct commodities investments might be attracted to this venerable name.
Brasil Foods S.A. (BRF) Brasil Foods distributes thousands of products to over 100 countries. It is a leader amongst Brazilian food companies. To the many consumers of its frozen food products it is more commonly known by its public-facing name of Perdigao. With a middle class constituting a majority of the population for the first time in Brazil, it bodes well for demand of the pre-made meals on offer.
New Agribusiness ETF's Small-Cap Appeal
NEW YORK (TheStreet) - In light of the rampant run up in food prices, the agricultural industry has been a closely watched and sought-after slice of the global marketplace.
Investors looking for ways to satisfy their appetite for food and the farming industry have turned to a variety of ETF products which are designed to track the performance of either crop futures contracts or agricultural equities such as Deere and Potash of Saskatchewan.
Interestingly, there is currently a large number of futures-based ETFs and ETNs which allow investors to target the industry from a variety of perspectives. For instance, investors can track individual crops such as sugar, livestock, and corn through products such as the iPath Dow Jones UBS Sugar Subindex Total Return ETN, the iPath Dow Jones UBS Livestock Subindex Total Return ETN or the Teucrium Corn ETF.
Meanwhile, more conservative individuals looking to tap into agriculture futures can turn to the broadly diversified PowerShares DB Agriculture Fund to get their fix.
When it comes to tracking agriculture-related equities, however, the number of available options has traditionally been limited. Market Vectors Agribusiness ETF has long been my fund of choice for this region of the market.
Other funds such as the PowerShares Global Agriculture Portfolio exist. However, they haven't generated the same level of interest and therefore could run the risk of facing illiquidity issues down the road.
This week, IndexIQ unveiled a new product which takes an alternative approach to accessing companies heavily involved in the farming industry: the IQ Global Agribusiness Small Cap ETF. On the fund's opening day it appears to have generated some respectable interest, changing hands over 200,000 times.
As its name implies, CROP is designed to expose investors to the global agribusiness industry through a small- and mid-cap lens. By exercising this unique investing strategy, CROP provides investors with a noticeably different take on the industry.
For one, CROP's sector breakdown varies considerably from its large cap cousin. MOO's index is heavily weighted towards agricultural chemicals companies which, together, account for nearly half of the fund's index. This same aspect of the agriculture industry accounts for only 7% of CROP's index.
Rather than focusing on chemicals, the new fund is heavily positioned to benefit from companies involved in supplies and logistics, and machinery. Together, these two slices represent half of the fund's portfolio.
CROP's index is slightly less top heavy than MOO, with 55% of its portfolio concentrated in its top 10 positions. Within MOO, these large holdings represent two thirds of its index. What is concerning, however, is the fact that CROP's largest position, Viterra, accounts for nearly 10% of the portfolio alone. Small- and mid-caps tend to move more dramatically from day to day and focusing too heavily on a single holding may cause the fund to behave erratically.
Other top holdings include Tractor Supply, Smithfield Foods, Nutreco, and Ebro Foods.
Given CROP's dedicated exposure to such a small slice of the agriculture industry, it is not surprising that the fund's expense ratio, 0.75%, is higher than MOO's which stands at 0.59%. Increased risks and higher costs are two factors that must be taken into account before diving into this new fund.
In the end, IndexIQ could have a hit on its hands with CROP in the event that food prices remain on the minds of investors. Despite its strong start, it will be important to keep an eye on the fund's liquidity over the near future to ensure that interest does not wane.
Investors looking for ways to satisfy their appetite for food and the farming industry have turned to a variety of ETF products which are designed to track the performance of either crop futures contracts or agricultural equities such as Deere and Potash of Saskatchewan.
Interestingly, there is currently a large number of futures-based ETFs and ETNs which allow investors to target the industry from a variety of perspectives. For instance, investors can track individual crops such as sugar, livestock, and corn through products such as the iPath Dow Jones UBS Sugar Subindex Total Return ETN, the iPath Dow Jones UBS Livestock Subindex Total Return ETN or the Teucrium Corn ETF.
Meanwhile, more conservative individuals looking to tap into agriculture futures can turn to the broadly diversified PowerShares DB Agriculture Fund to get their fix.
When it comes to tracking agriculture-related equities, however, the number of available options has traditionally been limited. Market Vectors Agribusiness ETF has long been my fund of choice for this region of the market.
Other funds such as the PowerShares Global Agriculture Portfolio exist. However, they haven't generated the same level of interest and therefore could run the risk of facing illiquidity issues down the road.
This week, IndexIQ unveiled a new product which takes an alternative approach to accessing companies heavily involved in the farming industry: the IQ Global Agribusiness Small Cap ETF. On the fund's opening day it appears to have generated some respectable interest, changing hands over 200,000 times.
As its name implies, CROP is designed to expose investors to the global agribusiness industry through a small- and mid-cap lens. By exercising this unique investing strategy, CROP provides investors with a noticeably different take on the industry.
For one, CROP's sector breakdown varies considerably from its large cap cousin. MOO's index is heavily weighted towards agricultural chemicals companies which, together, account for nearly half of the fund's index. This same aspect of the agriculture industry accounts for only 7% of CROP's index.
Rather than focusing on chemicals, the new fund is heavily positioned to benefit from companies involved in supplies and logistics, and machinery. Together, these two slices represent half of the fund's portfolio.
CROP's index is slightly less top heavy than MOO, with 55% of its portfolio concentrated in its top 10 positions. Within MOO, these large holdings represent two thirds of its index. What is concerning, however, is the fact that CROP's largest position, Viterra, accounts for nearly 10% of the portfolio alone. Small- and mid-caps tend to move more dramatically from day to day and focusing too heavily on a single holding may cause the fund to behave erratically.
Other top holdings include Tractor Supply, Smithfield Foods, Nutreco, and Ebro Foods.
Given CROP's dedicated exposure to such a small slice of the agriculture industry, it is not surprising that the fund's expense ratio, 0.75%, is higher than MOO's which stands at 0.59%. Increased risks and higher costs are two factors that must be taken into account before diving into this new fund.
In the end, IndexIQ could have a hit on its hands with CROP in the event that food prices remain on the minds of investors. Despite its strong start, it will be important to keep an eye on the fund's liquidity over the near future to ensure that interest does not wane.
5 Agriculture Stocks With Which to Fertilize a Profitable Portfolio
The world is seeing a rapidly developing middle class in countries such as Brazil, India, and China, and their demand for quality food is heading north. Global population, especially in emerging markets, continues to rise. A gain in wealth in these markets has fueled a demand for more and higher quality food. There is a need for an acre of land to yield more produce. Prices of soybeans, wheat, and corn are rising, with corn prices up 86% from a year ago. Major fertilizers like phosphate, sulfur and ammonia have been rising in price since mid-2010.
CF Industries (CF) is a North American manufacturer and distributor of agricultural fertilizers, based in Deerfield, Illinois. Its IPO came in 2005. Its current P/E is at 23.44, with a dividend yield of 0.40 (0.30%), and is trading at $125.19. Investors should anticipate falling nitrogen prices to weigh on stock prices for CF industries, as well as other fertilizer companies.
Potash Corporation of Saskatchewan (POT) is the world's largest potash producer and the second and third largest producers of nitrogen and phosphate, three primary crop nutrients used to produce fertilizer. The world’s largest consumers of these products are China, the United States, Brazil and India. Their current P/E ratio is 28.11, with a dividend yield of 0.29 (0.50%), and is trading at $55.66. Goldman Sachs has upgraded Potash Corporation of Saskatchewan Inc to buy from neutral. Potash is the 6th fastest-growing stock in this segment of the market. Its longer-term annual EPS growth is expected to be 20.9%. This number is based on the average estimate of three brokerage analysts.
Agrium Inc. (AGU) is a major retail supplier of agricultural products and service in North and South America, a leading global wholesale producer and marketer of all three major agricultural nutrients and the premier supplier of specialty fertilizers in North America through its Advanced Technologies business unit. Agrium’s strategy is to grow the value chain through acquisition, incremental expansion of its existing operations and through the development, commercialization and marketing of new products and international opportunities. Its current P/E is 19.49, with a dividend yield of 0.11 (0.10%), and is currently trading at $88.11. Last month Agrium reported 4th quarter net earnings of $158 million as compared to $30 million for the same period last year.
Mosaic Company (MOS) launched in October of 2004, and was formed by a merger between the crop nutrition division of Cargill, Inc. and IMC Global Inc. Mosaic is currently the world’s largest producer of phosphate and the second-largest producer of potash. Its current P/E ratio is 17.77, with a dividend yield of 0.20 (0.30%), and is trading at $77.13.
Intrepid Potash, Inc. (IPI) is based in Denver, Colorado, is the largest producer of potassium chloride, also known as muriate of potash, in the United States. It owns three mines, all in the Western U.S., near the cities of Carlsbad, New Mexico, Moab, Utah, and Wendover, Utah. Its current P/E ratio is 55.85, and is trading at $33.51. Intrepid is the 10th fastest-growing stock in this segment of the market. Its longer-term annual EPS growth is expected to be 16.0%. This number is based on the average estimate of two brokerage analysts.
CF Industries (CF) is a North American manufacturer and distributor of agricultural fertilizers, based in Deerfield, Illinois. Its IPO came in 2005. Its current P/E is at 23.44, with a dividend yield of 0.40 (0.30%), and is trading at $125.19. Investors should anticipate falling nitrogen prices to weigh on stock prices for CF industries, as well as other fertilizer companies.
Potash Corporation of Saskatchewan (POT) is the world's largest potash producer and the second and third largest producers of nitrogen and phosphate, three primary crop nutrients used to produce fertilizer. The world’s largest consumers of these products are China, the United States, Brazil and India. Their current P/E ratio is 28.11, with a dividend yield of 0.29 (0.50%), and is trading at $55.66. Goldman Sachs has upgraded Potash Corporation of Saskatchewan Inc to buy from neutral. Potash is the 6th fastest-growing stock in this segment of the market. Its longer-term annual EPS growth is expected to be 20.9%. This number is based on the average estimate of three brokerage analysts.
Agrium Inc. (AGU) is a major retail supplier of agricultural products and service in North and South America, a leading global wholesale producer and marketer of all three major agricultural nutrients and the premier supplier of specialty fertilizers in North America through its Advanced Technologies business unit. Agrium’s strategy is to grow the value chain through acquisition, incremental expansion of its existing operations and through the development, commercialization and marketing of new products and international opportunities. Its current P/E is 19.49, with a dividend yield of 0.11 (0.10%), and is currently trading at $88.11. Last month Agrium reported 4th quarter net earnings of $158 million as compared to $30 million for the same period last year.
Mosaic Company (MOS) launched in October of 2004, and was formed by a merger between the crop nutrition division of Cargill, Inc. and IMC Global Inc. Mosaic is currently the world’s largest producer of phosphate and the second-largest producer of potash. Its current P/E ratio is 17.77, with a dividend yield of 0.20 (0.30%), and is trading at $77.13.
Intrepid Potash, Inc. (IPI) is based in Denver, Colorado, is the largest producer of potassium chloride, also known as muriate of potash, in the United States. It owns three mines, all in the Western U.S., near the cities of Carlsbad, New Mexico, Moab, Utah, and Wendover, Utah. Its current P/E ratio is 55.85, and is trading at $33.51. Intrepid is the 10th fastest-growing stock in this segment of the market. Its longer-term annual EPS growth is expected to be 16.0%. This number is based on the average estimate of two brokerage analysts.
New ETF For The Small Guys In Agribusiness
The IQ Global Agribusiness Small Cap ETF began trading this week; an exchange traded fund (ETF) that represents the smaller companies involved in agribusiness. Neil Anderson for Mutual Fund Wire reports that Adam Patti, CEO of Index IQ, describes the timing of the launch in lock step with volatile food prices.[ Commodities Get New ETF Players. ]
February saw the largest jump yet in food prices, up 3.9%, the largest since 1974. The changing supply and demand food chain represents the opportunity for the small cap companies, specializing in agribusiness, to generate significant growth.[ New ETFs For Specific Areas Of The Market. ] Factors such as changing dietary demands, global supply shortages and growing populations are encouraging food prices to rise.
CROP joins other agriculture related ETFs including:
Market Vectors Agribusiness (NYSEArca:MOO)
PowerShares DB Agriculture (NYSEArca: DBA )
February saw the largest jump yet in food prices, up 3.9%, the largest since 1974. The changing supply and demand food chain represents the opportunity for the small cap companies, specializing in agribusiness, to generate significant growth.[ New ETFs For Specific Areas Of The Market. ] Factors such as changing dietary demands, global supply shortages and growing populations are encouraging food prices to rise.
CROP joins other agriculture related ETFs including:
Market Vectors Agribusiness (NYSEArca:MOO)
PowerShares DB Agriculture (NYSEArca: DBA )
Wall Street is Loving These Basic Materials Stocks
Despite a horrendous new home sales report, sellers have been unable to keep the market down as Basic Materials (NYSE:XLB) have been catching a nice bid. Freeport-McMoRan (NYSE:FCX) CEO Richard Adkerson said the company is in a position to make acquisitions. The news clearly has a lot of investors making bets on which companies will get in the deal game.
Here are some stocks you may want to add to your investing or trading watch list:
Silver Wheaton Corp. (NYSE:SLW): The stock has traded 10.65 million shares, and up 4.8%. Silver Wheaton Corporation purchases and sells by-product silver from operating mines. The Company has long term contracts to purchase all or a portion of the silver production from mines in Mexico, Sweden, Peru, Greece and the United States.
United States Steel Corporation (NYSE:X): The stock has traded 6.3 million shares, and is up 1.7%. United States Steel Corporation is an integrated steel producer with production operations in North America and Europe. The Company’s operations include coke production in both North America and Europe and iron ore pellets in North America, transportation services (railroad and barge operations), real estate operations, and engineering and consulting services in North America.
BHP Billiton Limited (NYSE:BHP): The stock has traded 3 million shares, and is up 1.4%. BHP Billiton Limited is an international resources company. The Company’s principal business lines are mineral exploration and production, including coal, iron ore, gold, titanium, ferroalloys, nickel and copper concentrate, as well as petroleum exploration, production, and refining.
Vale (NYSE:VALE): The stock has traded 13 million shares, and is up 1.8%. Vale SA produces and sells iron ore, pellets, manganese, alloys, gold, nickel, copper, kaolin, bauxite, alumina, aluminum, and potash. The Company is based in Brazil, where it owns and operates railroads and maritime terminals.
Rio Tinto (NYSE:RIO): The stock has traded 2.35 million shares, and is up 2.39%. Rio Tinto PLC is an international mining company. The Company has interests in mining for aluminum, borax, coal, copper, gold, iron ore, lead, silver, tin, uranium, zinc, titanium dioxide feedstock, diamonds, talc and zircon. Rio Tinto’s various mining operations are located in Australia, New Zealand, South Africa, the United States, South America, Europe, and Indonesia.
ArcelorMittal (NYSE:MT): The stock has traded 2.25 million shares, and is up 1%. ArcelorMittal produces steel. The Company manufactures cold rolled, electrogalvanized and coated steels, slabs, special quality bars, and wire rods. Arcelor Mittal has steel making operations in Europe, the Americas, Asia, and Africa.
Barrick Gold Corporation (NYSE:ABX): The stock has traded 6.4 million shares, and is up 3%. Barrick Gold Corporation is an international gold company with operating mines and development projects in the United States, Canada, South America, Australia, and Africa.
Newmont Mining Corporation (NYSE:NEM): The stock has traded 7.15 million shares, and is up 1.4%. Newmont Mining Corporation acquires, explores, and develops mineral properties. The Company produces gold from operations in the United States, Australia, Peru, Indonesia, Ghana, Canada, New Zealand and Mexico. Newmont also mines and processes copper in Indonesia.
Cliffs Natural Resources Inc (NYSE:CLF): The stock has traded 2.5 million shares, and is up 3%. Cliffs Natural Resources Inc. is a diversified mining and natural resources company. The Company mines for iron ore and coal in locations across North America, South America, and Australia.
Goldcorp Inc. (NYSE:GG): The stock has traded 4.45 million shares, and is up 3%. Goldcorp, Inc. is a North American gold producer. The Company has gold mining operations in the United States, Canada, Mexico, Brazil, Argentina, and Australia. Goldcorp owns the Red Lake mine in Ontario.
AngloGold Ashanti Limited (NYSE:AU): The stock has traded 1 million shares, and is up 2.8%. AngloGold Ashanti Limited is a holding company for a group of companies which explore for and mine gold internationally. The Group has operations in the Vaal River and West Witwatersrand areas of South Africa as well as Namibia, Mali, Brazil, Argentina, Australia, Tanzania and the United States.
U.S. Gold Corporation (NYSE:UXG): The stock has traded 2.8 million shares, and is up 9.5%. US Gold Corporation explores for, develops, produces, and sells gold. The Company operates primarily in Nevada.
Southern Copper Corporation (NYSE:SCCO): The stock has traded 2.7 million shares, and is up 2.7%. Southern Copper Corporation conducts mining operations in Peru and Mexico. The Company owns and operates open pit mines and metallurgical complexes that produce copper, molybdenum, zinc, and precious metals.
China Shen Zhou Mining & Resources Inc. (AMEX:SHZ): The stock has traded 7.5 million shares, and is up 12%. China Shen Zhou Mining & Resources Inc. acquires, explores, extracts, and develops mining properties in the inner Mongolia region of the People’s Republic of China. The Company mines for minerals that include fluorite, copper, zinc, and lead.
Potash Corp./Saskatchewan (NYSE:POT): The stock has traded 4.2 million shares, and is up 1.6%. Potash Corporation of Saskatchewan Inc. produces potash, phosphate, and nitrogen to the agricultural and industrial industries worldwide. The Company conducts operations in Canada, Chile, the United States, Brazil, and Trinidad.
The Mosaic Company (NYSE:MOS): The stock has traded 2.1 million shares, and is up 1.7%. The Mosaic Company produces and distributes crop nutrients to the agricultural communities located in North America and other countries. The Company’s principal products include concentrated phosphates, and potash.
Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX): The stock has traded 19.6 million shares, and is up 5.1%. Freeport-McMoRan Copper & Gold Inc., through its subsidiary, is a copper, gold and molybdenum mining company. The Company primarily mines for copper and owns mining interests in Chile and Indonesia. Freeport-McMoRan Copper & Gold also, through a subsidiary, is involved in smelting and refining of copper concentrates.
Northern Dynasty Minerals Ltd. (AMEX:NAK): The stock has traded 1 million shares, and is up 3%. Northern Dynasty Minerals Ltd. explores for gold, copper, and molybdenum in Alaska.
Silvercorp Metals Inc . (NYSE:SVM): The stock has traded 2.45 million shares, and is up 5.8%. Silvercorp Metals Inc. acquires, explores, and develops mineral properties in China. The Company is developing its Ying Silver project located in the People’s Republic of China.
NovaGold Resources Inc. (AMEX:NG): The stock has traded 2.35 million shares, and is up 3.5%. NovaGold Resources Inc. is a mineral exploration company. The Company, through its subsidiaries, explores and develops mineral properties in North America. NovaGold primarily focuses on gold properties, which may include copper, silver and zinc resources.
If you’re looking for a low risk way to invest in or trade the related Industrial and Capital Goods sector, take a look at Wall St. Cheat Sheet’s feature “Industrial and Capital Goods ETF: The Top Exchange Traded Fund for Your Investing Watchlist“.
Here are some stocks you may want to add to your investing or trading watch list:
Silver Wheaton Corp. (NYSE:SLW): The stock has traded 10.65 million shares, and up 4.8%. Silver Wheaton Corporation purchases and sells by-product silver from operating mines. The Company has long term contracts to purchase all or a portion of the silver production from mines in Mexico, Sweden, Peru, Greece and the United States.
United States Steel Corporation (NYSE:X): The stock has traded 6.3 million shares, and is up 1.7%. United States Steel Corporation is an integrated steel producer with production operations in North America and Europe. The Company’s operations include coke production in both North America and Europe and iron ore pellets in North America, transportation services (railroad and barge operations), real estate operations, and engineering and consulting services in North America.
BHP Billiton Limited (NYSE:BHP): The stock has traded 3 million shares, and is up 1.4%. BHP Billiton Limited is an international resources company. The Company’s principal business lines are mineral exploration and production, including coal, iron ore, gold, titanium, ferroalloys, nickel and copper concentrate, as well as petroleum exploration, production, and refining.
Vale (NYSE:VALE): The stock has traded 13 million shares, and is up 1.8%. Vale SA produces and sells iron ore, pellets, manganese, alloys, gold, nickel, copper, kaolin, bauxite, alumina, aluminum, and potash. The Company is based in Brazil, where it owns and operates railroads and maritime terminals.
Rio Tinto (NYSE:RIO): The stock has traded 2.35 million shares, and is up 2.39%. Rio Tinto PLC is an international mining company. The Company has interests in mining for aluminum, borax, coal, copper, gold, iron ore, lead, silver, tin, uranium, zinc, titanium dioxide feedstock, diamonds, talc and zircon. Rio Tinto’s various mining operations are located in Australia, New Zealand, South Africa, the United States, South America, Europe, and Indonesia.
ArcelorMittal (NYSE:MT): The stock has traded 2.25 million shares, and is up 1%. ArcelorMittal produces steel. The Company manufactures cold rolled, electrogalvanized and coated steels, slabs, special quality bars, and wire rods. Arcelor Mittal has steel making operations in Europe, the Americas, Asia, and Africa.
Barrick Gold Corporation (NYSE:ABX): The stock has traded 6.4 million shares, and is up 3%. Barrick Gold Corporation is an international gold company with operating mines and development projects in the United States, Canada, South America, Australia, and Africa.
Newmont Mining Corporation (NYSE:NEM): The stock has traded 7.15 million shares, and is up 1.4%. Newmont Mining Corporation acquires, explores, and develops mineral properties. The Company produces gold from operations in the United States, Australia, Peru, Indonesia, Ghana, Canada, New Zealand and Mexico. Newmont also mines and processes copper in Indonesia.
Cliffs Natural Resources Inc (NYSE:CLF): The stock has traded 2.5 million shares, and is up 3%. Cliffs Natural Resources Inc. is a diversified mining and natural resources company. The Company mines for iron ore and coal in locations across North America, South America, and Australia.
Goldcorp Inc. (NYSE:GG): The stock has traded 4.45 million shares, and is up 3%. Goldcorp, Inc. is a North American gold producer. The Company has gold mining operations in the United States, Canada, Mexico, Brazil, Argentina, and Australia. Goldcorp owns the Red Lake mine in Ontario.
AngloGold Ashanti Limited (NYSE:AU): The stock has traded 1 million shares, and is up 2.8%. AngloGold Ashanti Limited is a holding company for a group of companies which explore for and mine gold internationally. The Group has operations in the Vaal River and West Witwatersrand areas of South Africa as well as Namibia, Mali, Brazil, Argentina, Australia, Tanzania and the United States.
U.S. Gold Corporation (NYSE:UXG): The stock has traded 2.8 million shares, and is up 9.5%. US Gold Corporation explores for, develops, produces, and sells gold. The Company operates primarily in Nevada.
Southern Copper Corporation (NYSE:SCCO): The stock has traded 2.7 million shares, and is up 2.7%. Southern Copper Corporation conducts mining operations in Peru and Mexico. The Company owns and operates open pit mines and metallurgical complexes that produce copper, molybdenum, zinc, and precious metals.
China Shen Zhou Mining & Resources Inc. (AMEX:SHZ): The stock has traded 7.5 million shares, and is up 12%. China Shen Zhou Mining & Resources Inc. acquires, explores, extracts, and develops mining properties in the inner Mongolia region of the People’s Republic of China. The Company mines for minerals that include fluorite, copper, zinc, and lead.
Potash Corp./Saskatchewan (NYSE:POT): The stock has traded 4.2 million shares, and is up 1.6%. Potash Corporation of Saskatchewan Inc. produces potash, phosphate, and nitrogen to the agricultural and industrial industries worldwide. The Company conducts operations in Canada, Chile, the United States, Brazil, and Trinidad.
The Mosaic Company (NYSE:MOS): The stock has traded 2.1 million shares, and is up 1.7%. The Mosaic Company produces and distributes crop nutrients to the agricultural communities located in North America and other countries. The Company’s principal products include concentrated phosphates, and potash.
Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX): The stock has traded 19.6 million shares, and is up 5.1%. Freeport-McMoRan Copper & Gold Inc., through its subsidiary, is a copper, gold and molybdenum mining company. The Company primarily mines for copper and owns mining interests in Chile and Indonesia. Freeport-McMoRan Copper & Gold also, through a subsidiary, is involved in smelting and refining of copper concentrates.
Northern Dynasty Minerals Ltd. (AMEX:NAK): The stock has traded 1 million shares, and is up 3%. Northern Dynasty Minerals Ltd. explores for gold, copper, and molybdenum in Alaska.
Silvercorp Metals Inc . (NYSE:SVM): The stock has traded 2.45 million shares, and is up 5.8%. Silvercorp Metals Inc. acquires, explores, and develops mineral properties in China. The Company is developing its Ying Silver project located in the People’s Republic of China.
NovaGold Resources Inc. (AMEX:NG): The stock has traded 2.35 million shares, and is up 3.5%. NovaGold Resources Inc. is a mineral exploration company. The Company, through its subsidiaries, explores and develops mineral properties in North America. NovaGold primarily focuses on gold properties, which may include copper, silver and zinc resources.
If you’re looking for a low risk way to invest in or trade the related Industrial and Capital Goods sector, take a look at Wall St. Cheat Sheet’s feature “Industrial and Capital Goods ETF: The Top Exchange Traded Fund for Your Investing Watchlist“.
China As America’s Banker, America As China’s Farmer: Malthus Was Right
China’s agricultural problems, where a quickly growing and increasingly affluent population is putting pressure on food supplies, will eventually spill over to the U.S., says environmental and agriculture guru Lester Brown. With the U.S. the world’s largest grain producer and China the largest holder of U.S. debt, Lester asks, “with China now America’s banker, will America become China’s farmer?”
Thomas Malthus sparked one of the most heated debates in economics back in 1798 when he anonymously published his Essay on the Principle of Population in which he famously postulated that as population growth turned exponential and outstripped agricultural production, which grew at a linear rate, famine and poverty would lead to civil strife and war. In a teleconference on Wednesday, Lester Brown, head of the Earth Policy institute, echoes Malthus’ fears noting that the British economist “was right in the sense that we are having trouble feeding the world population.” Apocalyptically, he adds that he sees he sees “no prospect that we will be able to face rising demand.” (Read On The Verge Of A Global Food Crisis).
China, Brown explains, will put incredible strains on global grain markets and will force the American consumer to forget about cheap food. With news that China had quietly entered the U.S. grain market to buy corn in the last couple of weeks, a nightmare scenario is brewing up for both countries. The U.S., with grain production at around 400 million tons a year, is the world’s breadbasket, according to Brown, exporting more than Canada, Argentina, and Australia together, the next three largest exporters. China, with over $900 million in Treasuries, is the U.S.’ banker.
“Like it or not, we will have to share our grain with China,” says Brown, “which means the U.S. consumer will have to compete with a population of 1.3 billion with fast-growing incomes that is quickly moving up the food chain, demanding grain intensive products.” In the past the U.S. could resort to restricting exports, as Russia and Argentina did in the ’07 – ’08 food crisis, this is not an option now. China’s massive holdings of U.S. debt and its continued financing of an exploding deficit makes it politically impossible to not cooperate. “In a country that has been the world’s breadbasket for more than half a century, a country that has never known food shortages or runaway food prices, the world is about to change.” That country is the U.S.
Brown expects Chinese wheat imports from the U.S. will be close to 10 million tons, most of it corn. Those could rise to 20 million tons by the end of the decade. “[China] would’ve been in the market for more hadn’t it been for record grain and soy bean prices, but if they come in too big, they will rock the market,” explains the environmentalist. (Read Why World Food Prices Will Keep Climbing).
Food Price Index - UN FAO
Global food prices have been testing all-time highs since last December, according to data from the UN’s Food and Agriculture Organization, with eight consecutive months of increases. Stemming from bad policies and rampant population growth, the problem can’t be pinned down to any one nation. But China, with the largest population, is definitely a game changer. (Read Global Food Prices Hit New All Time High After 8 Consecutive Months Of Gains).
China’s agricultural policies have restructured the whole of the Western hemisphere’s agriculture. In the ‘80s, Chinese leadership was composed of survivors of the Great Famine of ’58 to ’61, where 20 to 43 million are estimated to have died. The psychological scars, notes Brown, led to an “all out effort in agriculture, including research to raise yields, investment incentives, and other things.” In a desperate attempt to become self-sufficient in grain, one of their policies was the abandonment of the soy bean. “In 1995 China produced and consumer 14 million tons of soy beans, by 2010 they continued to produce 14 million but consumed 70 million, making them heavily dependent on soy bean imports.”
Soy bean is now the most common crop from Canada to Argentina, explains Brown. The top three exporters, the U.S., Brazil, and Argentina, responsible for 80% of the world’s harvest and 90% of exports, essentially feed China, which imports 60% of global stock. “The U.S. has more land dedicated to soy beans than grains, Brazil has more land for soy beans than for all its grain products combined, and Argentina has doubled the amount of land for soy beans than for all grain products combined.”
While soy bean, intended to feed China, comes to dominate Western crop-land, at the expense of grains, China’s own grain production has begun to face problems of its own. Along with the U.S., China is the world’s greatest grain producer, each with about 400 million tons a year, according to Brown. Industrialization and modernization have had their toll, as agricultural production was moved to the wind-erosion prone North Western regions of the country, leading to falling yields. Urbanization has drained young workers from rural areas, sending rural wages skyrocketing and forcing the abandonment of smaller plots with no scale. Rampant growth in automobile demand, with China adding 14 million cars to its fleets in ’09, 18 million in ’10, and an expected 20 million in ’11, means paving millions of square miles.
Arguably China’s biggest problem, though, are over pumped aquifers. With four-fifths of its grain coming from irrigated fields (compared with one-fifth in the U.S.), the over pumping of China’s large North China plain fossil aquifer means it has been feeding approximately 130 million people more than it should with those supplies, it has inflated its capacity. “This will lead to catastrophic consequences for future generations, as inflated grain capacity is by definition a short-term solution,” says Brown, noting that 18 countries, including all four of the world’s largest grain producers, are depleting their aquifers.
Another major problem hitting the global food situation is the use of grain to make ethanol, according to Brown. “Malthus never anticipated that,” he says. “The price of grain is now tied to the price of oil, this is a situation we have never faced before,” notes Brown, “and as oil prices continue to rise, hitting $150 or maybe $200 a barrel according to some estimates, means that if producing ethanol is more profitable, people will turn to that.” Therefore, the simple equation is that as oil prices go up, ethanol prices go up, and so do grain prices, putting further strains on the global economy. Brown predicts ethanol production will face regulatory challenges in the near future in tandem with a substantial tightening of global food markets.
Brown puts the finger on what will become one of the biggest challenges facing the world. Spiking global food prices have been part of the catalyst behind recent unrest in the Middle East and North Africa, as real wages fall in the face of rising food-price inflation. With approximately one sixth of the world in “chronic hunger” according to the U.N and global population expected to hit 7 billion by the end 2011, it would be wise to pay more attention to people like Brown.
Thomas Malthus sparked one of the most heated debates in economics back in 1798 when he anonymously published his Essay on the Principle of Population in which he famously postulated that as population growth turned exponential and outstripped agricultural production, which grew at a linear rate, famine and poverty would lead to civil strife and war. In a teleconference on Wednesday, Lester Brown, head of the Earth Policy institute, echoes Malthus’ fears noting that the British economist “was right in the sense that we are having trouble feeding the world population.” Apocalyptically, he adds that he sees he sees “no prospect that we will be able to face rising demand.” (Read On The Verge Of A Global Food Crisis).
China, Brown explains, will put incredible strains on global grain markets and will force the American consumer to forget about cheap food. With news that China had quietly entered the U.S. grain market to buy corn in the last couple of weeks, a nightmare scenario is brewing up for both countries. The U.S., with grain production at around 400 million tons a year, is the world’s breadbasket, according to Brown, exporting more than Canada, Argentina, and Australia together, the next three largest exporters. China, with over $900 million in Treasuries, is the U.S.’ banker.
“Like it or not, we will have to share our grain with China,” says Brown, “which means the U.S. consumer will have to compete with a population of 1.3 billion with fast-growing incomes that is quickly moving up the food chain, demanding grain intensive products.” In the past the U.S. could resort to restricting exports, as Russia and Argentina did in the ’07 – ’08 food crisis, this is not an option now. China’s massive holdings of U.S. debt and its continued financing of an exploding deficit makes it politically impossible to not cooperate. “In a country that has been the world’s breadbasket for more than half a century, a country that has never known food shortages or runaway food prices, the world is about to change.” That country is the U.S.
Brown expects Chinese wheat imports from the U.S. will be close to 10 million tons, most of it corn. Those could rise to 20 million tons by the end of the decade. “[China] would’ve been in the market for more hadn’t it been for record grain and soy bean prices, but if they come in too big, they will rock the market,” explains the environmentalist. (Read Why World Food Prices Will Keep Climbing).
Food Price Index - UN FAO
Global food prices have been testing all-time highs since last December, according to data from the UN’s Food and Agriculture Organization, with eight consecutive months of increases. Stemming from bad policies and rampant population growth, the problem can’t be pinned down to any one nation. But China, with the largest population, is definitely a game changer. (Read Global Food Prices Hit New All Time High After 8 Consecutive Months Of Gains).
China’s agricultural policies have restructured the whole of the Western hemisphere’s agriculture. In the ‘80s, Chinese leadership was composed of survivors of the Great Famine of ’58 to ’61, where 20 to 43 million are estimated to have died. The psychological scars, notes Brown, led to an “all out effort in agriculture, including research to raise yields, investment incentives, and other things.” In a desperate attempt to become self-sufficient in grain, one of their policies was the abandonment of the soy bean. “In 1995 China produced and consumer 14 million tons of soy beans, by 2010 they continued to produce 14 million but consumed 70 million, making them heavily dependent on soy bean imports.”
Soy bean is now the most common crop from Canada to Argentina, explains Brown. The top three exporters, the U.S., Brazil, and Argentina, responsible for 80% of the world’s harvest and 90% of exports, essentially feed China, which imports 60% of global stock. “The U.S. has more land dedicated to soy beans than grains, Brazil has more land for soy beans than for all its grain products combined, and Argentina has doubled the amount of land for soy beans than for all grain products combined.”
While soy bean, intended to feed China, comes to dominate Western crop-land, at the expense of grains, China’s own grain production has begun to face problems of its own. Along with the U.S., China is the world’s greatest grain producer, each with about 400 million tons a year, according to Brown. Industrialization and modernization have had their toll, as agricultural production was moved to the wind-erosion prone North Western regions of the country, leading to falling yields. Urbanization has drained young workers from rural areas, sending rural wages skyrocketing and forcing the abandonment of smaller plots with no scale. Rampant growth in automobile demand, with China adding 14 million cars to its fleets in ’09, 18 million in ’10, and an expected 20 million in ’11, means paving millions of square miles.
Arguably China’s biggest problem, though, are over pumped aquifers. With four-fifths of its grain coming from irrigated fields (compared with one-fifth in the U.S.), the over pumping of China’s large North China plain fossil aquifer means it has been feeding approximately 130 million people more than it should with those supplies, it has inflated its capacity. “This will lead to catastrophic consequences for future generations, as inflated grain capacity is by definition a short-term solution,” says Brown, noting that 18 countries, including all four of the world’s largest grain producers, are depleting their aquifers.
Another major problem hitting the global food situation is the use of grain to make ethanol, according to Brown. “Malthus never anticipated that,” he says. “The price of grain is now tied to the price of oil, this is a situation we have never faced before,” notes Brown, “and as oil prices continue to rise, hitting $150 or maybe $200 a barrel according to some estimates, means that if producing ethanol is more profitable, people will turn to that.” Therefore, the simple equation is that as oil prices go up, ethanol prices go up, and so do grain prices, putting further strains on the global economy. Brown predicts ethanol production will face regulatory challenges in the near future in tandem with a substantial tightening of global food markets.
Brown puts the finger on what will become one of the biggest challenges facing the world. Spiking global food prices have been part of the catalyst behind recent unrest in the Middle East and North Africa, as real wages fall in the face of rising food-price inflation. With approximately one sixth of the world in “chronic hunger” according to the U.N and global population expected to hit 7 billion by the end 2011, it would be wise to pay more attention to people like Brown.
Monsanto Company (MON): Zacks Rank Buy
The USDA recently raised its forecasts for planted corn acreage this year. This is great news for agricultural biotech company Monsanto (NYSE: MON - News).
Earnings estimates have been rising to reflect this increase, sending the stock to a Zacks #2 Rank (Buy).
The company also generates strong cash flows, which it has used to steadily raise its dividend. It currently yields 1.6%.
Company Description
Monsanto provides technology-based solutions and agricultural products to improve farm productivity and food quality. It is headquartered in St. Louis, Missouri and has a market cap of $37.3 billion.
First Quarter Results
Monsanto reported first quarter earnings per share of $0.02, 1 penny ahead of the Zacks Consensus Estimate. This was up from a $0.02 per share loss in the same quarter in 2010.
Net sales were up 7.8% year-over-year as growth was strong across all major crops in the seeds and genomics segment. Cotton seed and traits surged 89.8% driven by an increase in planted acres in Australia. Corn seed and traits, which accounts for one-third of total revenue, was up 7.9%.
The gross profit expanded from 43.5% to 44.7% of sales. Selling, general and administrative expenses declined as a percentage of sales from 29% to 25% due in part to corporate restructuring.
Strong EPS Growth Ahead
Management reiterated its EPS guidance of $2.72 to $2.82 per share in 2011. The Zacks Consensus Estimate is at the upper end of this range at $2.82. This represents 17% growth over 2010 EPS.
The 2012 consensus estimate is currently $3.32, equating to 18% EPS growth.
It is a Zacks #2 Rank (Buy).
Solid Dividend History
Monsanto also expects to generate between $800 million and $900 million in free cash flow in 2011. The company has been using its strong cash flows to return value to its shareholders through consistent dividend increases.
It currently yields 1.6%.
Valuation
Shares are trading at 25.4x forward earnings, a premium to the industry average of 14.0x. Its PEG ratio is more attractive, however, at 1.05.
Earnings estimates have been rising to reflect this increase, sending the stock to a Zacks #2 Rank (Buy).
The company also generates strong cash flows, which it has used to steadily raise its dividend. It currently yields 1.6%.
Company Description
Monsanto provides technology-based solutions and agricultural products to improve farm productivity and food quality. It is headquartered in St. Louis, Missouri and has a market cap of $37.3 billion.
First Quarter Results
Monsanto reported first quarter earnings per share of $0.02, 1 penny ahead of the Zacks Consensus Estimate. This was up from a $0.02 per share loss in the same quarter in 2010.
Net sales were up 7.8% year-over-year as growth was strong across all major crops in the seeds and genomics segment. Cotton seed and traits surged 89.8% driven by an increase in planted acres in Australia. Corn seed and traits, which accounts for one-third of total revenue, was up 7.9%.
The gross profit expanded from 43.5% to 44.7% of sales. Selling, general and administrative expenses declined as a percentage of sales from 29% to 25% due in part to corporate restructuring.
Strong EPS Growth Ahead
Management reiterated its EPS guidance of $2.72 to $2.82 per share in 2011. The Zacks Consensus Estimate is at the upper end of this range at $2.82. This represents 17% growth over 2010 EPS.
The 2012 consensus estimate is currently $3.32, equating to 18% EPS growth.
It is a Zacks #2 Rank (Buy).
Solid Dividend History
Monsanto also expects to generate between $800 million and $900 million in free cash flow in 2011. The company has been using its strong cash flows to return value to its shareholders through consistent dividend increases.
It currently yields 1.6%.
Valuation
Shares are trading at 25.4x forward earnings, a premium to the industry average of 14.0x. Its PEG ratio is more attractive, however, at 1.05.
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