Potash Corp. of Saskatchewan Inc., the world’s largest crop-nutrient maker by market value, led fertilizer stocks higher after Credit Suisse Group AG increased its estimates for nutrient prices on “robust” grain demand.
Potash Corp. climbed 6.5 percent to C$49.44 in Toronto, while Plymouth, Minnesota-based Mosaic Co. (MOS), the world’s largest maker of phosphate fertilizer, rose 4.3 percent to $55.77 in New York.
“The outlook for grain prices looks robust,” London-based analyst Lars Kjellberg said today in a note to clients.
Kjellberg expects the price of granular potash, a form of potassium, in the U.S. Midwest to rise to $557 per short ton this year, up from a previous estimate of $546, according to the note. Diammonium phosphate on the U.S. Gulf Coast will rise to $631 a metric ton, more than the previous estimate of $603.
Kjellberg expects higher fertilizer prices to lift industry-wide net profit by 3 percent this year, 17 percent next year and 23 percent in 2013, buoyed by robust grain prices and tight supplies of crop nutrients.
The price of urea, a nitrogen-based fertilizer, in the U.S. cornbelt will rise to $475 a ton this year, up from a previous estimate of $462.
“On the back of the recent market sell off, valuations for the fertilizer sector look highly compelling,” Kjellberg said in the note. “We recommend investors take advantage of the sell off to build a position in the sector.”
Potash Corp. is based in Saskatoon, Saskatchewan.
Tuesday, October 11, 2011
Ag ETFs Jump As Traders Don’t Wait For Data; MOS, DE, POT Rise
Agriculture ETFs are hopping Tuesday on renewed optimism that prices are going higher ahead of a pair of government reports that could pump markets up even more.
The broad PowerShares DB Agriculture Fund (DBA) is up 1.4%. Also, the stock-minded Market Vectors Agribusiness ETF (MOO) has gained 1.8% so far.
Grain futures are rallying ahead of two reports by the USDA expected to be made public on Wednesday morning. Analysts are expecting that the department’s estimates on both U.S. crop production and world agricultural supply as well as demand should show a strongly bullish picture across most major markets.
In particular, demand for corn, soybeans, wheat and even gasoline is expected to tighten, prompting greater buying activities from both investment and commercial traders, according to a report by Dow Jones Newswires. The recent sell-off has made prices more attractive and traders said that many investors weren’t waiting for tomorrow’s numbers to put into black and white what’s widely being assumed.
Shares of fertilizer companies CF Industries Holdings (CF) and Mosaic (MOS) are up more than 4% on the day. Also, ag machinery maker Deere & Co. (DE) is ahead by 3%-plus.
Also prompting a more confident mood is a report by Credit Suisse. The firm’s ag analysts raised their fertilizer price outlook based on expectations of robust grain prices and strong demand from emerging markets.
Shares of Potash (POT), the world’s largest fertilizer producer, are up close to 3%.
The broad PowerShares DB Agriculture Fund (DBA) is up 1.4%. Also, the stock-minded Market Vectors Agribusiness ETF (MOO) has gained 1.8% so far.
Grain futures are rallying ahead of two reports by the USDA expected to be made public on Wednesday morning. Analysts are expecting that the department’s estimates on both U.S. crop production and world agricultural supply as well as demand should show a strongly bullish picture across most major markets.
In particular, demand for corn, soybeans, wheat and even gasoline is expected to tighten, prompting greater buying activities from both investment and commercial traders, according to a report by Dow Jones Newswires. The recent sell-off has made prices more attractive and traders said that many investors weren’t waiting for tomorrow’s numbers to put into black and white what’s widely being assumed.
Shares of fertilizer companies CF Industries Holdings (CF) and Mosaic (MOS) are up more than 4% on the day. Also, ag machinery maker Deere & Co. (DE) is ahead by 3%-plus.
Also prompting a more confident mood is a report by Credit Suisse. The firm’s ag analysts raised their fertilizer price outlook based on expectations of robust grain prices and strong demand from emerging markets.
Shares of Potash (POT), the world’s largest fertilizer producer, are up close to 3%.
Thursday, October 6, 2011
Stormy Agricultural Headwinds Give Buying Opportunities
Agriculture companies have been in crashing mode recently. Fertilizers, crop protectors and seeds makers are still an attractive investment for the years to come.
Agri investors with a longer-term view of more than several months know that longer-term trends will dominate (secular trends concerning food scarcity, demographics, climate change, industrialization) and short-term moves provide buying opportunities.
Important issues
Parallel to the situation in 2008, where a sharp sell-off of Agro related stocks and of grain prices was immediately followed by a steady uptrend, you would expect the same to happen in this correction phase.
Low investment in increasing agricultural output has been in place for many years and the catch up trend keeps being interrupted by fears that investments may not pay off. This led to very low inventory levels in 2009 and 2010 and will happen again if current investment in higher yields (by applying fertilizers, crop protectors and especially now new Biotech seeds) is stopped.
The latest USDA report is one reason for the shorter-term oriented farmers to halt investment, with more inventory shortfalls as a consequence in the months ahead.
Why were inventories so much higher all of a sudden in September? No one knows, since no factual explanation was given by the USDA; inventories are counted on estimates for both supply and demand, not on hard facts. Let's face it : who is going to check the contents of grain silos in the Midwest US plains, let alone in the Chinese countryside on a monthly basis? It is possible that October reports will show much lower inventories again, moving in line again with the annual trend.
Pricing for the main crop, corn, is still at almost double the levels seen a year ago, so a slight correction based on fears for demand destruction is not unusual.
Three companies are worthy to buy on dips and provide enough opportunity for the near future.
Company Ticker Price 3M(%) YTD(%) P/ECurrYr P/ENxtYr DivYield
AGRIUM AGU 68.18 -23.6 -25.7 7.3 7.2 0.2
MONSANTO MON 66.25 -10.2 -4.9 20.9 17.7 1.9
MOSAIC MOS 52.18 -24.1 -31.7 8.7 7.8 0.4
Agrium (AGU)
Agrium reported very strong results for Q2 2011 with EPS up by 39% to USD 4.54 and sales up 40% to USD 6.2 bln on higher fertilizer demand and pricing and very good demand for seeds in its retail business.
Mike Wilson, CEO, states: "Crop markets and crop nutrients markets remain tight." (Meaning, that grain inventories are at very low levels and fertilizer demand cannot be met by current supply.)
This was all achieved in a quite difficult quarter for agro chemical makers as plantings had to be delayed due to very bad weather conditions globally (too wet in the West, too dry in the Middle and the East).
Besides being highly profitable with very high free cash flows, Agrium is also an active acquisition seeker, doing deals in Australia and South America lately.
Strong results with more to come in H2 as the South American season starts and China imports even more grains. Agrium is a solid company with less volatile earnings than some of its peers due to the 50% exposure to Retail.
Mosaic (MOS)
Mosaic reported better-than-expected figures for the last quarter of its fiscal year 2010/11, with an EPS of 1.52 per share earned and USD 1.38 anticipated by consensus. Revenue rose by 54% to USD 2.86 bln with USD 2.6 bln expected.
Higher prices and solid demand for fertilizers N (phosphate) and P (potash) were the main reasons here. Prices for phosphate rose by 31% year-over-year (YoY) in this latest quarter; potash prices rose by 20%.
The outlook for the first quarter of the fiscal year 2011/12, remains very upbeat with demand for global fertilizers high, according to CEO James Prokopanko.
The balance sheet is also improving (short term debt - 72%, LT - 39%) rapidly.
Mosaic is in the process of de coupling itself from Cargill, which held a 64% stake in Mosaic.
This gives price pressure to the shares from time to time, but once a stand alone operation, Mosaic can become much more profitable and use its strong balance sheet for more acquisitions.
On the basis of consensus 2011/12 estimates the shares now trade at a PE of 8.7x, falling to 7.8x for the following fiscal year. Cash flow is very high at an estimated USD 6.50 per share for 2011/12 (EPS at USD 5.77 est.) This will allow for more acquisitions (hard to find though, mainly to be found among competitors) or for share buy backs.
In the end, the attractiveness of the underlying assets is what drives the share prices of specialized fertilizer makers like Mosaic, Potash Corp. (POT) and Agrium.
Monsanto (MON)
Monsanto published Q4 numbers for its broken book year 2010/11. These were better than expected at an EPS loss (seeds companies make money in the spring and summer).of 22 cents with minus 27 cents estimated.
Guidance for the next quarter (also typically a weak one) is now raised to an EPS of 10 to 15 cents with 8 cents anticipated. For the fiscal year 2011/12, an EPS of USD 3.34 to 3.44 is now guided for with consensus at USD 3.42. The main reason here is the good demand situation in Latin America. This implies an annual growth rate for EPS of some 16%.
Sales in Q4 reached USD 2.25 bln.
Biotech Seeds prices are set to rise by 10% in 2011/12.
Comments by Hugh Grant, CEO of Monsanto: "It is clear that we have turned a corner and returned to growth mode."
Good numbers with a very confident outlook by management for the year ahead. Valuation is in line with growth at 17x 2012/13 but margin expansion is set to accelerate as new biotech seeds come to market.
Balance sheet strength is assured with high free cash flows generated.
It's a stock for future increased demand trends for agricultural products, food, feed and for bio-based materials and bio fuels.
Agri investors with a longer-term view of more than several months know that longer-term trends will dominate (secular trends concerning food scarcity, demographics, climate change, industrialization) and short-term moves provide buying opportunities.
Important issues
Parallel to the situation in 2008, where a sharp sell-off of Agro related stocks and of grain prices was immediately followed by a steady uptrend, you would expect the same to happen in this correction phase.
Low investment in increasing agricultural output has been in place for many years and the catch up trend keeps being interrupted by fears that investments may not pay off. This led to very low inventory levels in 2009 and 2010 and will happen again if current investment in higher yields (by applying fertilizers, crop protectors and especially now new Biotech seeds) is stopped.
The latest USDA report is one reason for the shorter-term oriented farmers to halt investment, with more inventory shortfalls as a consequence in the months ahead.
Why were inventories so much higher all of a sudden in September? No one knows, since no factual explanation was given by the USDA; inventories are counted on estimates for both supply and demand, not on hard facts. Let's face it : who is going to check the contents of grain silos in the Midwest US plains, let alone in the Chinese countryside on a monthly basis? It is possible that October reports will show much lower inventories again, moving in line again with the annual trend.
Pricing for the main crop, corn, is still at almost double the levels seen a year ago, so a slight correction based on fears for demand destruction is not unusual.
Three companies are worthy to buy on dips and provide enough opportunity for the near future.
Company Ticker Price 3M(%) YTD(%) P/ECurrYr P/ENxtYr DivYield
AGRIUM AGU 68.18 -23.6 -25.7 7.3 7.2 0.2
MONSANTO MON 66.25 -10.2 -4.9 20.9 17.7 1.9
MOSAIC MOS 52.18 -24.1 -31.7 8.7 7.8 0.4
Agrium (AGU)
Agrium reported very strong results for Q2 2011 with EPS up by 39% to USD 4.54 and sales up 40% to USD 6.2 bln on higher fertilizer demand and pricing and very good demand for seeds in its retail business.
Mike Wilson, CEO, states: "Crop markets and crop nutrients markets remain tight." (Meaning, that grain inventories are at very low levels and fertilizer demand cannot be met by current supply.)
This was all achieved in a quite difficult quarter for agro chemical makers as plantings had to be delayed due to very bad weather conditions globally (too wet in the West, too dry in the Middle and the East).
Besides being highly profitable with very high free cash flows, Agrium is also an active acquisition seeker, doing deals in Australia and South America lately.
Strong results with more to come in H2 as the South American season starts and China imports even more grains. Agrium is a solid company with less volatile earnings than some of its peers due to the 50% exposure to Retail.
Mosaic (MOS)
Mosaic reported better-than-expected figures for the last quarter of its fiscal year 2010/11, with an EPS of 1.52 per share earned and USD 1.38 anticipated by consensus. Revenue rose by 54% to USD 2.86 bln with USD 2.6 bln expected.
Higher prices and solid demand for fertilizers N (phosphate) and P (potash) were the main reasons here. Prices for phosphate rose by 31% year-over-year (YoY) in this latest quarter; potash prices rose by 20%.
The outlook for the first quarter of the fiscal year 2011/12, remains very upbeat with demand for global fertilizers high, according to CEO James Prokopanko.
The balance sheet is also improving (short term debt - 72%, LT - 39%) rapidly.
Mosaic is in the process of de coupling itself from Cargill, which held a 64% stake in Mosaic.
This gives price pressure to the shares from time to time, but once a stand alone operation, Mosaic can become much more profitable and use its strong balance sheet for more acquisitions.
On the basis of consensus 2011/12 estimates the shares now trade at a PE of 8.7x, falling to 7.8x for the following fiscal year. Cash flow is very high at an estimated USD 6.50 per share for 2011/12 (EPS at USD 5.77 est.) This will allow for more acquisitions (hard to find though, mainly to be found among competitors) or for share buy backs.
In the end, the attractiveness of the underlying assets is what drives the share prices of specialized fertilizer makers like Mosaic, Potash Corp. (POT) and Agrium.
Monsanto (MON)
Monsanto published Q4 numbers for its broken book year 2010/11. These were better than expected at an EPS loss (seeds companies make money in the spring and summer).of 22 cents with minus 27 cents estimated.
Guidance for the next quarter (also typically a weak one) is now raised to an EPS of 10 to 15 cents with 8 cents anticipated. For the fiscal year 2011/12, an EPS of USD 3.34 to 3.44 is now guided for with consensus at USD 3.42. The main reason here is the good demand situation in Latin America. This implies an annual growth rate for EPS of some 16%.
Sales in Q4 reached USD 2.25 bln.
Biotech Seeds prices are set to rise by 10% in 2011/12.
Comments by Hugh Grant, CEO of Monsanto: "It is clear that we have turned a corner and returned to growth mode."
Good numbers with a very confident outlook by management for the year ahead. Valuation is in line with growth at 17x 2012/13 but margin expansion is set to accelerate as new biotech seeds come to market.
Balance sheet strength is assured with high free cash flows generated.
It's a stock for future increased demand trends for agricultural products, food, feed and for bio-based materials and bio fuels.
Fertilizer Stocks a Growth & Value Harvest
Companies that provide vital soil nutrients will be key investments in the global agricultural megatrend now underway. And now is an especially good time to look at some of the top names as their share prices have come down so hard recently and created some real values.
Doing some stock screening this morning, I found two fertilizers companies that kept popping up. Agrium (NYSE: AGU - News) made it through the Zacks #1 Rank Growth Stocks Screen, which requires more than the top earnings momentum rating reserved for only 220 stocks in a universe of 4,400.
This screen also demands the following growth metrics: a minimum 20% historical growth rate and a minimum 20% projected growth rate.
And AGU joined CF Industries (NYSE: CF - News), also a #1 Rank stock, on the Zacks Growth & Value Screen because both names have very compelling valuations of around 7 times forward earnings.
It should not surprise you that AGU also shows up on the Undervalued Zacks #1 Ranks Stocks Screen.
Won't Recession Plow Ag Stock Estimates?
This is an important question to address before buying any cyclical stock as the valuations on industrial, materials, and energy companies can look really attractive as their prices drop.
But when a recession, or even just a slowdown, is getting priced-in, stock prices get hit bad long before the estimates come down. And so what looks 'cheap' today may be about to get more expensive as the earnings estimate revisions roll in.
This is a theme I have been writing about since the first week of August. I said the downward earnings revisions would come in September and October. So far, they haven't been that bad.
Before I address the global-macro perspective that might help you decide if estimates could hold, or still come down further, let me show you the current consensus estimates that make these two stocks so attractive, along with their price history and recent moves...
AGU: 52wk Low - High 60.15 - 99.14 The stock has been in a slow sideways channel downtrend since the high, but traded back up to $90 in early September and then hit $60 on Tuesday's market sell-off. Now trading above $71 on this recovery rally. The company is scheduled to report earnings on November 2.
The bottom table is a rough sketch of recent analyst action. With about 16 analysts covering AGU, 2 have raised their estimates for the current quarter and for next year within the past 30 days, and 1 analyst upped their targets in the past week. This is one part of the 'intel' that goes into the Zacks Rank along with the magnitude of the revision and accuracy of the analyst.
CF: 52wk Low - High 97.79 - 192.68 Made its surge from $150 to $190 in August when the rest of the market was melting down. Dropped below $120 this week and now trading $140. Earnings are expected Nov 1.
CF also has a couple of recent upward revisions. But you may also notice that next year's consensus reflects a drop in EPS. If the high estimates near $24 are correct, this stock could indeed be an extreme value here. Time and further revisions will tell.
Where's the Big Guy?
You didn't think I was going to write about fertilizer stocks and leave out Potash of Saskatchewan (NYSE: POT - News)? The behemoth of the essential soil nutrient it is named for has also had some recent earnings estimate revisions which basically balance out as the current quarter was taken down and next quarter raised.
Based on consensus estimates, POT looks poised to grow EPS at 16% next year after hitting 85% growth this year. 2011 and 2012 projected earnings of $3.79 and $4.42, respectively, combine to create a forward P/E multiple of 12 times for this Zacks #2 Rank (buy) stock. POT is due to report on October 27.
Finally we should mention Mosaic (NYSE: MOS - News) as their outlook has softened. Since they missed their EPS number for the most recent quarter when they reported last week, most analysts (12 of 14) have lowered estimates for the current year while 4 vs. 7 have raised vs. lowered their outlook for next year. This mixed bag knocked the stock down to a Zacks #3 Rank (hold) on September 27.
The Global Ag Megatrend
I have written often about the global megatrend of food demand, even calling this the 'decade of food' as the world population tops 7 billion on its way to a projected 9 billion by 2050.
It's not just population growth driving agricultural trends. Emerging economies have billions of people who also aspire to raise their food choices along with their living standards. More meat-based diets mean more grain than ever will be demanded.
Okay, so that's the big secular trend driving things for the next several years. But what about the next six months, especially if recession becomes reality? According analysts at Macquarie Equities Research, generally 'the demand for agriculture commodities has been immune to economic downturns with lower income elasticities of demand compared to either industrial metals or energy.'
My outlook is that there will be no recession and that with these important stocks so cheap, one or two should be considered for the commodity portion of one's portfolio. And this isn't about 'buy and hold' for years either.
With the excellent trading swings the fertilizer stocks tend to make, their resurgent bull markets should offer some good opportunities over the next several years to capture 10-30% gains every few months.
Doing some stock screening this morning, I found two fertilizers companies that kept popping up. Agrium (NYSE: AGU - News) made it through the Zacks #1 Rank Growth Stocks Screen, which requires more than the top earnings momentum rating reserved for only 220 stocks in a universe of 4,400.
This screen also demands the following growth metrics: a minimum 20% historical growth rate and a minimum 20% projected growth rate.
And AGU joined CF Industries (NYSE: CF - News), also a #1 Rank stock, on the Zacks Growth & Value Screen because both names have very compelling valuations of around 7 times forward earnings.
It should not surprise you that AGU also shows up on the Undervalued Zacks #1 Ranks Stocks Screen.
Won't Recession Plow Ag Stock Estimates?
This is an important question to address before buying any cyclical stock as the valuations on industrial, materials, and energy companies can look really attractive as their prices drop.
But when a recession, or even just a slowdown, is getting priced-in, stock prices get hit bad long before the estimates come down. And so what looks 'cheap' today may be about to get more expensive as the earnings estimate revisions roll in.
This is a theme I have been writing about since the first week of August. I said the downward earnings revisions would come in September and October. So far, they haven't been that bad.
Before I address the global-macro perspective that might help you decide if estimates could hold, or still come down further, let me show you the current consensus estimates that make these two stocks so attractive, along with their price history and recent moves...
AGU: 52wk Low - High 60.15 - 99.14 The stock has been in a slow sideways channel downtrend since the high, but traded back up to $90 in early September and then hit $60 on Tuesday's market sell-off. Now trading above $71 on this recovery rally. The company is scheduled to report earnings on November 2.
The bottom table is a rough sketch of recent analyst action. With about 16 analysts covering AGU, 2 have raised their estimates for the current quarter and for next year within the past 30 days, and 1 analyst upped their targets in the past week. This is one part of the 'intel' that goes into the Zacks Rank along with the magnitude of the revision and accuracy of the analyst.
CF: 52wk Low - High 97.79 - 192.68 Made its surge from $150 to $190 in August when the rest of the market was melting down. Dropped below $120 this week and now trading $140. Earnings are expected Nov 1.
CF also has a couple of recent upward revisions. But you may also notice that next year's consensus reflects a drop in EPS. If the high estimates near $24 are correct, this stock could indeed be an extreme value here. Time and further revisions will tell.
Where's the Big Guy?
You didn't think I was going to write about fertilizer stocks and leave out Potash of Saskatchewan (NYSE: POT - News)? The behemoth of the essential soil nutrient it is named for has also had some recent earnings estimate revisions which basically balance out as the current quarter was taken down and next quarter raised.
Based on consensus estimates, POT looks poised to grow EPS at 16% next year after hitting 85% growth this year. 2011 and 2012 projected earnings of $3.79 and $4.42, respectively, combine to create a forward P/E multiple of 12 times for this Zacks #2 Rank (buy) stock. POT is due to report on October 27.
Finally we should mention Mosaic (NYSE: MOS - News) as their outlook has softened. Since they missed their EPS number for the most recent quarter when they reported last week, most analysts (12 of 14) have lowered estimates for the current year while 4 vs. 7 have raised vs. lowered their outlook for next year. This mixed bag knocked the stock down to a Zacks #3 Rank (hold) on September 27.
The Global Ag Megatrend
I have written often about the global megatrend of food demand, even calling this the 'decade of food' as the world population tops 7 billion on its way to a projected 9 billion by 2050.
It's not just population growth driving agricultural trends. Emerging economies have billions of people who also aspire to raise their food choices along with their living standards. More meat-based diets mean more grain than ever will be demanded.
Okay, so that's the big secular trend driving things for the next several years. But what about the next six months, especially if recession becomes reality? According analysts at Macquarie Equities Research, generally 'the demand for agriculture commodities has been immune to economic downturns with lower income elasticities of demand compared to either industrial metals or energy.'
My outlook is that there will be no recession and that with these important stocks so cheap, one or two should be considered for the commodity portion of one's portfolio. And this isn't about 'buy and hold' for years either.
With the excellent trading swings the fertilizer stocks tend to make, their resurgent bull markets should offer some good opportunities over the next several years to capture 10-30% gains every few months.
Don't Dismiss Fertilizer
With the economy pulling back, commodities are usually first on the chopping block. As the basic elements of society, any concerns that economic growth is contracting leads the market to believe that demand for commodities - copper, iron ore and oil - will decline. As a result, commodity prices retreat quickly, which in turn causes the market to sell shares in the companies that make or sell the underlying commodities.
Fundamentally StrongNo commodities have been spared; not even fertilizer. Ironically, fertilizers prices continue to remain strong and have not pulled back as much as other commodities. However, prices of agricultural commodities, like corn and wheat, have slipped a little, and investors use those commodity prices to extrapolate future fertilizer demand. Lower grain prices suggests that farmer profits will decline; lower farming profits suggests that farmers will buy less fertilizer in order to reduce expenses. That's the scenario that occurred in 2008, and indeed sent fertilizer prices spiraling downward, and taking the valuations of the company's that make fertilizer along for the ride.
There's no question that another recession will depress shares further. But fertilizer helps increase food production, the most essential need for society. The long-term demand for food continues to remain robust, thus the long-term outlook for fertilizer remains strong.
Price Vs. ValueFertilizer shares have been getting hammered in the past month, and valuations are beginning to look interesting again. Prices are still off from 2008 and 2009 lows, but investors should keep a close watch on this industry, as it offers the greatest potential going forward. Nitrogen producer CF Industries (NYSE:CF) was trading for as high as $192 a few months ago, and shares have since pulled back to $120 trading at 8.5 times current earnings. Phosphate and potash giant Mosaic (NYSE:MOS) has pulled back from nearly $90 to $46 today. Shares fell over 3% after the company announced earnings as high sulfur costs hurt margins. Mosaic has a pristine balance sheet with over $3 billion in net cash against a market cap of $21 billion.
For those investors who want a basket bet, Market Vectors Agribusiness ETF (NYSE:MOO) has holdings in all of the major fertilizer stocks; along with interests in other high quality names like farm equipment giant Deere (NYSE:DE) and seed company Monsanto (NYSE:MON). MOO offers greater diversity which helps on the downside, but that also means if a name like CF or Mosaic begin to climb higher again, MOO will likely under perform.
In any regard, the long-term outlook for agriculture and fertilizer remains as strong as ever. There are always going to be pullbacks when the economy stutters, or investors get nervous. However, as long as investors buy in at the right price, the upside value will take care of itself. (For additional reading, also see Water: The Ultimate Commodity.)
Fundamentally StrongNo commodities have been spared; not even fertilizer. Ironically, fertilizers prices continue to remain strong and have not pulled back as much as other commodities. However, prices of agricultural commodities, like corn and wheat, have slipped a little, and investors use those commodity prices to extrapolate future fertilizer demand. Lower grain prices suggests that farmer profits will decline; lower farming profits suggests that farmers will buy less fertilizer in order to reduce expenses. That's the scenario that occurred in 2008, and indeed sent fertilizer prices spiraling downward, and taking the valuations of the company's that make fertilizer along for the ride.
There's no question that another recession will depress shares further. But fertilizer helps increase food production, the most essential need for society. The long-term demand for food continues to remain robust, thus the long-term outlook for fertilizer remains strong.
Price Vs. ValueFertilizer shares have been getting hammered in the past month, and valuations are beginning to look interesting again. Prices are still off from 2008 and 2009 lows, but investors should keep a close watch on this industry, as it offers the greatest potential going forward. Nitrogen producer CF Industries (NYSE:CF) was trading for as high as $192 a few months ago, and shares have since pulled back to $120 trading at 8.5 times current earnings. Phosphate and potash giant Mosaic (NYSE:MOS) has pulled back from nearly $90 to $46 today. Shares fell over 3% after the company announced earnings as high sulfur costs hurt margins. Mosaic has a pristine balance sheet with over $3 billion in net cash against a market cap of $21 billion.
For those investors who want a basket bet, Market Vectors Agribusiness ETF (NYSE:MOO) has holdings in all of the major fertilizer stocks; along with interests in other high quality names like farm equipment giant Deere (NYSE:DE) and seed company Monsanto (NYSE:MON). MOO offers greater diversity which helps on the downside, but that also means if a name like CF or Mosaic begin to climb higher again, MOO will likely under perform.
In any regard, the long-term outlook for agriculture and fertilizer remains as strong as ever. There are always going to be pullbacks when the economy stutters, or investors get nervous. However, as long as investors buy in at the right price, the upside value will take care of itself. (For additional reading, also see Water: The Ultimate Commodity.)
Thursday, March 24, 2011
Is The Commodities Bull Market Signaling A Pause?
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.
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.
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.
Tuesday, February 22, 2011
9 Agriculture Stocks to Consider Before the Middle East Dust Settles
As the dust settles in Tahrir Square and investors try to make sense of the messages sent by protestors, it is important to take a step back to gain insight. While the main take-away from these protests is seemingly that citizens are fed up with having their rights abused and voices stifled by autocratic regimes, if one takes a simple look at the very beginnings of these protests one can easily find a call to the market and subsequently to investors: Inflation is sending food prices higher throughout the developing world. The UN reported that prices for food commodities are up 28% over the past year. This has a huge impact in the developing world. On average, 80% of incomes in developing countries goes on food.
As agricultural commodities prices have risen, households have felt a severe pinch. Thus, before chants became overtly political, protestors in the Maghreb—where the events sweeping the entire region took root—were reclaiming basic commodities at more reasonable prices.
The events in the Middle East, while a very visible catalyst of commodities prices, are in no way isolated indicators of a massive growth in demand for agricultural commodities and the products and services rendered to producers of these commodities. To once again beat a dead horse, the population is growing and not only that, it is getting richer. With increased population and purchasing power there is a steady, growing demand for food. It is as simple as that. While one could try to play the demographics game more tightly and focus investments in companies with outsized exposure to certain growth markets, we feel confident that the traditional players we’ve found along with a Brazilian name offer a good first look for investors who are committed to this investment thesis.
We don’t advocate speculating on the agricultural commodities market, but rather suggest that investors might find opportunities to invest with companies that benefit from these two “mega trends” Amongst the many lessons we can pull from the events unfolding on the streets of the Middle East, from Tunis to Manama, is that commodity prices are rising and the world is going to need more food over the next century. Here are some names that will continue to respond to the world’s food needs. We believe these names are a good starting point for your research but think many are currently trading at high multiples. Investors would be well advised to wait for a pullback before picking up shares. If you’re looking for 2 other ideas to profit from the Middle East uprising, check out the article we published on Friday.
The Mosaic Company (MOS) With a market capitalization just over $37 billion this giant of the fertilizer world is prepared to feed to the soil that grows the world’s agricultural diet. What’s more, 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.
Potash Corporation of Saskatchewan (POT) The eponymous producer of the fertilizer input, PotashCorp, maintains its number one position globally in the potash game. If you listen to the analysts over at UBS, which as with all analysts we would caution you to do with prudence, PotashCorp might well be gold. Despite a massive run up in the price of the stock, UBS reiterated a buy rating for the stock at the end of January. Its quick rise might mean it is due for a price correction in the short term, but it remains a fundamentally sound name in its space.
CF Industries Holdings Inc. (CF) A smaller player with a regionally concentrated market in the central United States, CF Holdings 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, has experienced a marked run up in its stock price recently. Investors may want to keep an eye on it to see if its price comes in line with their own calculations for an allocation in their portfolios.
Monsanto Company (MON) Generating revenues in excess of $10 billion in 2010, this Midwest firm with global reach defined the space that it operates in: seed production. Seed production, specifically the R&D that goes into seed engineering, may well hold the answer to increasing crop yields. With fixed land inputs and growing demand it may well be the investment best aligned with alleviating hunger in the world. As we detailed here, we think Monsanto should be a name on investors’ watchlists.
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. Given that it is an underdog amongst the more established genetically modified seed producers, Monsanto and DuPont (DD), it may well be this 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) Income and revenue have jumped nearly a third YoY for ADM 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.
Deere & Company (DE) If ever there was a name brand in the agriculture business the iconic John Deere tractor is it. This behemoth of agricultural machinery manufacturing controls more than 50% of the US market, but has seen the growth of its non-US sales rate tear upward and away from its US sales rate in recent years. The company has outperformed over the past 12 months, but so long as you believe in the broader macro thesis and subscribe to the brand loyalty Deere has built and its long history of competitive innovation you might consider adding it to your portfolio.
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. It should be noted though, that the stock itself has performed well and is currently trading at the top of its 52-week band.
MarketVectors Agribusiness ETF (MOO) A good way to buy exposure into the agricultural space that diversifies your company-by-company allocation is this ETF that is strongly geared toward the big names of the industry. Its top holdings include, in order, Monsanto, Potash, Mosaic, Deere & Co. and Singapor 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.
As agricultural commodities prices have risen, households have felt a severe pinch. Thus, before chants became overtly political, protestors in the Maghreb—where the events sweeping the entire region took root—were reclaiming basic commodities at more reasonable prices.
The events in the Middle East, while a very visible catalyst of commodities prices, are in no way isolated indicators of a massive growth in demand for agricultural commodities and the products and services rendered to producers of these commodities. To once again beat a dead horse, the population is growing and not only that, it is getting richer. With increased population and purchasing power there is a steady, growing demand for food. It is as simple as that. While one could try to play the demographics game more tightly and focus investments in companies with outsized exposure to certain growth markets, we feel confident that the traditional players we’ve found along with a Brazilian name offer a good first look for investors who are committed to this investment thesis.
We don’t advocate speculating on the agricultural commodities market, but rather suggest that investors might find opportunities to invest with companies that benefit from these two “mega trends” Amongst the many lessons we can pull from the events unfolding on the streets of the Middle East, from Tunis to Manama, is that commodity prices are rising and the world is going to need more food over the next century. Here are some names that will continue to respond to the world’s food needs. We believe these names are a good starting point for your research but think many are currently trading at high multiples. Investors would be well advised to wait for a pullback before picking up shares. If you’re looking for 2 other ideas to profit from the Middle East uprising, check out the article we published on Friday.
The Mosaic Company (MOS) With a market capitalization just over $37 billion this giant of the fertilizer world is prepared to feed to the soil that grows the world’s agricultural diet. What’s more, 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.
Potash Corporation of Saskatchewan (POT) The eponymous producer of the fertilizer input, PotashCorp, maintains its number one position globally in the potash game. If you listen to the analysts over at UBS, which as with all analysts we would caution you to do with prudence, PotashCorp might well be gold. Despite a massive run up in the price of the stock, UBS reiterated a buy rating for the stock at the end of January. Its quick rise might mean it is due for a price correction in the short term, but it remains a fundamentally sound name in its space.
CF Industries Holdings Inc. (CF) A smaller player with a regionally concentrated market in the central United States, CF Holdings 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, has experienced a marked run up in its stock price recently. Investors may want to keep an eye on it to see if its price comes in line with their own calculations for an allocation in their portfolios.
Monsanto Company (MON) Generating revenues in excess of $10 billion in 2010, this Midwest firm with global reach defined the space that it operates in: seed production. Seed production, specifically the R&D that goes into seed engineering, may well hold the answer to increasing crop yields. With fixed land inputs and growing demand it may well be the investment best aligned with alleviating hunger in the world. As we detailed here, we think Monsanto should be a name on investors’ watchlists.
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. Given that it is an underdog amongst the more established genetically modified seed producers, Monsanto and DuPont (DD), it may well be this 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) Income and revenue have jumped nearly a third YoY for ADM 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.
Deere & Company (DE) If ever there was a name brand in the agriculture business the iconic John Deere tractor is it. This behemoth of agricultural machinery manufacturing controls more than 50% of the US market, but has seen the growth of its non-US sales rate tear upward and away from its US sales rate in recent years. The company has outperformed over the past 12 months, but so long as you believe in the broader macro thesis and subscribe to the brand loyalty Deere has built and its long history of competitive innovation you might consider adding it to your portfolio.
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. It should be noted though, that the stock itself has performed well and is currently trading at the top of its 52-week band.
MarketVectors Agribusiness ETF (MOO) A good way to buy exposure into the agricultural space that diversifies your company-by-company allocation is this ETF that is strongly geared toward the big names of the industry. Its top holdings include, in order, Monsanto, Potash, Mosaic, Deere & Co. and Singapor 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.
Fertilizer Kings Agrium, Potash Fall To 10-Week Lines
Three Canadian fertilizer makers, all on the uptrend, may be building entry points. Yet one of the three must first regain its 10-week moving average, where on Tuesday they all retreated.
Grain prices have been rising for months. Bad crops have restricted supply, while new consumers among the populations of China, India and other emerging markets are boosting demand. Ethanol, too, is a driving force for corn, especially as oil prices move higher.
Those high grain prices translated into bigger demand for fertilizer, even as those prices climbed.
Farmers, watching corn, wheat and bean prices double and triple, scrambled to put more acreage into production.
But ag markets suffered a big reversal Tuesday on speculation that Ukraine may remove export restrictions for wheat. Profit taking pushed that market to steep losses, and the urge to purge long positions spread to corn and soybeans.
Are these grains entering a bear market? Is the ride over for fertilizer makers? Maybe, but you're best off letting the market guide you into, or away from, Potash Corp. of Saskatchewan (POT), Mosaic (MOS) and Agrium (AGU).
These three highly rated stocks fell to their 10-week lines on Tuesday in heavy volume, not the best way to show such a retreat.
Potash's 10-week line came in at 169.78, Mosaic's at 79.48 and Agrium's at 91.31.
This is the second such retreat for Agrium and Mosaic since they broke out from cup-shaped bases on Dec. 29. Mosaic's volume didn't kick in until Jan. 5 in response to the company's fiscal Q2 report for the period ended in November.
Potash achieved its first 10-week-line retreat since its breakout, also on Dec. 29.
Potash, the target of a failed takeover bid by BHP Billiton (BHP), boosted its EPS in the past four quarters by 224%, 154%, 61% and 124%. Sales rose 43% to 86% in those periods, all compared with weak year-earlier results.
Potash leads its two rivals by annual pretax margin (38% in 2010) and return on equity (28%).
Consensus estimates peg Potash's EPS gain at 52% for 2011.
Mosaic logged triple-digit profit gains in three of the past four quarters, with one result compared with a year-earlier loss. Sales rose in the past four quarters 17% to 56%.
Mosaic is expected to improve its bottom line 113% in fiscal 2011, which ends in May. For 2012, look for 27% growth.
Agrium, with a December-ending fiscal year, is expected to boost its EPS 52% in 2011. Its EPS growth accelerated the past two quarters, from 30% to 78% to 225%.
When the closing bell rang, Potash finished 6% lower, Mosaic 3% lower, both barely above their 10-week line.
Agrium also lost 3% and is about 1% below its 10-week line. But the approach is the same for all three: Buying so near the line after a high-volume fall is perilous. Look for a bounce with solid turnover to confirm that buyers are coming in.
Grain prices have been rising for months. Bad crops have restricted supply, while new consumers among the populations of China, India and other emerging markets are boosting demand. Ethanol, too, is a driving force for corn, especially as oil prices move higher.
Those high grain prices translated into bigger demand for fertilizer, even as those prices climbed.
Farmers, watching corn, wheat and bean prices double and triple, scrambled to put more acreage into production.
But ag markets suffered a big reversal Tuesday on speculation that Ukraine may remove export restrictions for wheat. Profit taking pushed that market to steep losses, and the urge to purge long positions spread to corn and soybeans.
Are these grains entering a bear market? Is the ride over for fertilizer makers? Maybe, but you're best off letting the market guide you into, or away from, Potash Corp. of Saskatchewan (POT), Mosaic (MOS) and Agrium (AGU).
These three highly rated stocks fell to their 10-week lines on Tuesday in heavy volume, not the best way to show such a retreat.
Potash's 10-week line came in at 169.78, Mosaic's at 79.48 and Agrium's at 91.31.
This is the second such retreat for Agrium and Mosaic since they broke out from cup-shaped bases on Dec. 29. Mosaic's volume didn't kick in until Jan. 5 in response to the company's fiscal Q2 report for the period ended in November.
Potash achieved its first 10-week-line retreat since its breakout, also on Dec. 29.
Potash, the target of a failed takeover bid by BHP Billiton (BHP), boosted its EPS in the past four quarters by 224%, 154%, 61% and 124%. Sales rose 43% to 86% in those periods, all compared with weak year-earlier results.
Potash leads its two rivals by annual pretax margin (38% in 2010) and return on equity (28%).
Consensus estimates peg Potash's EPS gain at 52% for 2011.
Mosaic logged triple-digit profit gains in three of the past four quarters, with one result compared with a year-earlier loss. Sales rose in the past four quarters 17% to 56%.
Mosaic is expected to improve its bottom line 113% in fiscal 2011, which ends in May. For 2012, look for 27% growth.
Agrium, with a December-ending fiscal year, is expected to boost its EPS 52% in 2011. Its EPS growth accelerated the past two quarters, from 30% to 78% to 225%.
When the closing bell rang, Potash finished 6% lower, Mosaic 3% lower, both barely above their 10-week line.
Agrium also lost 3% and is about 1% below its 10-week line. But the approach is the same for all three: Buying so near the line after a high-volume fall is perilous. Look for a bounce with solid turnover to confirm that buyers are coming in.
Running Like A Deere
When crop prices are high, there is a go-to line-up of stocks for theme investors to play. Fertilizer names like Potash (NYSE:POT) and Mosiac (NYSE:MOS) usually catch a bid, as do seed companies like Syngenta (NYSE:SYT). And then there are the machinery companies - stocks like AGCO (Nasdaq:AGCO), CNH Global (NYSE:CNH) and the biggest of them all, Deere (NYSE:DE). Whether the logic always works out as expected (high crop prices produce more cash for farmers who can buy new equipment) or not, these have been bullish times for crops and bullish times for Deere's stock.
The Quarter That WasWhether the byproduct of high crop prices, better credit access, more optimism among farmers, or some combination, Deere delivered another strong quarter. Revenue rose 30% this period to over $5.5 billion, with agriculture (and turf) up 21% and construction (and forestry) up 81% from a low base. Although that was a solid jump in sales, it was nevertheless below the average analyst estimate of $5.67 billion.
Like most heavy machinery manufacturers, Deere's business is more profitable when the factories have solid throughput. To that end, higher revenue helped enable improved gross margin (up about 150 basis points from last year). Deere's management also deserves praise for holding the line on operating expenses, as operating income more than doubled and the operating margin expanded by more the four points. As a result, though Deere came up short on revenue the company handily surpassed the average EPS estimate. (For more, see 4 Things to Know About Earnings Season.)
The Look AheadThese are good times to be a farmer in the western hemisphere. Floods have damaged crops in Australia and Africa, while droughts have severely damaged yields in Russia and Ukraine this year. That has all contributed to much-publicized jumps in food prices and unrest in many parts of the world. Couple that with improved credit conditions in North America and Brazil's ongoing willingness to subsidize loans for its farmers, and the demand picture over here is rather healthy.
At some point, though, it is worth wondering if Deere is going to see a squeeze from cost inputs. Companies like AK Steel (NYSE:AKS) and Nucor (NYSE:NUE) have pushed through steel price increases and they seem to be sticking. What's more, component companies like Eaton (NYSE:ETN) and Titan (NYSE:TWI) are looking to pass on their own cost/price increases as well. So with Deere having increased its production tonnage by 41% this last quarter, how long will it be before costs squeeze margins? (For more, see Prepare Your Portfolio For Higher Food Prices.)
The Bottom LineWhen a theme trade is running, it is almost pointless to talk at much length about valuation and fair prices for stocks. Deere is the biggest and quite possibly the best-run agricultural machinery company out there, so it seems pretty clear that the stock is going to attract buyers when investors want ag exposure. AGCO, CNH and Kubota (NYSE:KUB) all look cheaper than Deere, but there is no particular reason to think there will be a big catch-up trade on the basis of valuation.
If investors have a particular notion that European demand will pick up (relatively better news for CNH) or that Asian demand will be strong (good for Kubota), that could be a valid reason to trade away from Deere. Failing that, so long as the ag trade remains popular, it's likely that Deere's stock will stay popular. (For more, see Deere Keeps Plowing.)
The Quarter That WasWhether the byproduct of high crop prices, better credit access, more optimism among farmers, or some combination, Deere delivered another strong quarter. Revenue rose 30% this period to over $5.5 billion, with agriculture (and turf) up 21% and construction (and forestry) up 81% from a low base. Although that was a solid jump in sales, it was nevertheless below the average analyst estimate of $5.67 billion.
Like most heavy machinery manufacturers, Deere's business is more profitable when the factories have solid throughput. To that end, higher revenue helped enable improved gross margin (up about 150 basis points from last year). Deere's management also deserves praise for holding the line on operating expenses, as operating income more than doubled and the operating margin expanded by more the four points. As a result, though Deere came up short on revenue the company handily surpassed the average EPS estimate. (For more, see 4 Things to Know About Earnings Season.)
The Look AheadThese are good times to be a farmer in the western hemisphere. Floods have damaged crops in Australia and Africa, while droughts have severely damaged yields in Russia and Ukraine this year. That has all contributed to much-publicized jumps in food prices and unrest in many parts of the world. Couple that with improved credit conditions in North America and Brazil's ongoing willingness to subsidize loans for its farmers, and the demand picture over here is rather healthy.
At some point, though, it is worth wondering if Deere is going to see a squeeze from cost inputs. Companies like AK Steel (NYSE:AKS) and Nucor (NYSE:NUE) have pushed through steel price increases and they seem to be sticking. What's more, component companies like Eaton (NYSE:ETN) and Titan (NYSE:TWI) are looking to pass on their own cost/price increases as well. So with Deere having increased its production tonnage by 41% this last quarter, how long will it be before costs squeeze margins? (For more, see Prepare Your Portfolio For Higher Food Prices.)
The Bottom LineWhen a theme trade is running, it is almost pointless to talk at much length about valuation and fair prices for stocks. Deere is the biggest and quite possibly the best-run agricultural machinery company out there, so it seems pretty clear that the stock is going to attract buyers when investors want ag exposure. AGCO, CNH and Kubota (NYSE:KUB) all look cheaper than Deere, but there is no particular reason to think there will be a big catch-up trade on the basis of valuation.
If investors have a particular notion that European demand will pick up (relatively better news for CNH) or that Asian demand will be strong (good for Kubota), that could be a valid reason to trade away from Deere. Failing that, so long as the ag trade remains popular, it's likely that Deere's stock will stay popular. (For more, see Deere Keeps Plowing.)
Saturday, February 12, 2011
3 China Agriculture Stocks for 2011
NEW YORK (TheStreet) -- In 2011, agricultural commodities prices will depend on crop prospects, according to a Food and Agriculture Organization (FAO) report. A sharp deterioration in crop outlook will affect price movements adversely. The FAO's index of 55 food commodities rose for the fifth straight month in November, touching two-year highs. Unless the global output of agricultural commodities improves in 2011, food prices will continue to spiral up, according to FAO.
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OpinionMarket Activity
Monsanto Company| MON Potash Corporation of Saskatchewan Inc.| POT Yongye International Inc.| YONG Prices of agricultural commodities will rally next year, driven by rising demand from emerging markets, as per Rabobank Group. In addition, surging crude oil prices, depleting global food stockpiles and a weakening dollar may push prices higher.
If energy and food prices surge, it would raise the attractiveness of biofuels, made from farm commodities, pushing fertilizer prices higher. Down the value chain of commodities, any upward movement in energy prices affects sugar and corn prices.
A recent Chinese commerce ministry statement said as pressure mounts due to escalating prices and tight supplies, acquiring new supplies will play a key role in softening inflation and curbing speculation. For this, China has decided to tap international markets for sugar, cotton and meat, especially from India and the U.S., among others.
While China's CPI closely correlates to food prices, the country recorded a 5.1% CPI growth in November, with food and household expenses contributing 92%. Among agricultural commodities, as grain prices increase, food production costs and beverage processing costs rise.
We have identified three China agriculture stocks that will likely provide attractive returns to investors. These stocks are stacked base on upside potential.
China Agritech(CAGC), operating through its subsidiaries, manufactures and sells organic liquid compound fertilizers, organic granular compound fertilizers, and related agricultural products in China. Of all the analysts covering the stock, 75% recommend a buy. The stock has a 32.5% upside based on the consensus target price.
During the first nine months of 2010, the company posted a 41% year-over-year increase in net revenue, while cash equivalents more than doubled, indicating a strong financial base. Looking ahead into the fourth quarter and upcoming year, Agritech said prices of agricultural products are on a roll and it is leveraging the favorable trend to achieve its annual target. Analysts at Bloomberg estimate Agritech's fourth quarter revenue at $31.3 million, compared to $23.9 million recorded in the third quarter.
Agritech recently opened the first branded large-scale distribution center in Henan province and plans to construct more such facilities in 2011. Each of these would cover 85-100 franchised stores, which will sell 50% of the company's products and 50% of third-party products. On one hand, the cost of building one distribution center is almost $1 million, while on the other, annual revenue contribution is estimated at $3.7 million, once the plant becomes operational.
Zhongpin(HOGS_) is engaged in the processing and distribution of meat and food products in China. Of all the analysts covering the stock, 78% recommend a buy. While there is no sell rating on the stock, the remaining analysts recommend a hold. Zhongpin has a 36.4% upside based on the consensus target price. Based on the positive trend in pork prices and the company's significant capex plans, the stock seems attractive and is likely to generate handsome returns in 2011.
Zhongpin has filed a registration for a potential equity offer, debt, and/or other instruments to raise up to $250 million, as per company sources. The main aim of the registration is gaining additional flexibility for raising funds from equity in 2011, in the event of interest rate hikes and a credit crunch. Meanwhile, timing and offer price have not been disclosed in the registration filed.
Zhongpin recently announced plans to build a production, research and development, test, and training complex in its home city Changge in Henan, China. The company plans to invest $58.5 million on the facility and construction for the first phase with a capacity of 50,000 metric tons is scheduled to start in the first quarter of 2011 and will be completed in third quarter of 2011. With this facility, the company will be adding 100,000 metric tons of capacity for prepared pork products.
Yongye International(YONG_) operating through its subsidiary, is engaged in the manufacture, research and development, and sale of fulvic acid-based liquid and powder nutrient compounds used in the agriculture industry. Of all the analysts covering the stock, 80% recommend a buy. Yongye has a 85.4% upside based on the consensus target price.
At the end of 2010 third quarter, the company had a gross margin of 58.7%, sales growth of 145.1%, and a trailing 12-month sale of $196.2 million. Among peers in the fertilizer and agricultural chemical industries, Yongye has the highest gross margin, indicating investment potential. In comparison, Monsanto(MON_) and Potash Corporation of Saskatchewan(POT_) have gross margins of 44.1% and 35.8%, respectively.
After reporting third quarter results, the company achieved its set target for the full year 2010 within a span of three quarters. For 2010, the company sees revenues ranging between $200 and $205 million, and adjusted net income to increase in the range of 90.8% to 98.4% from prior year levels. Looking ahead, the company estimates at least a 50% annual growth rate in its revenue in 2011 and 2012.
Chinese Reverse Mergers
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OpinionMarket Activity
Monsanto Company| MON Potash Corporation of Saskatchewan Inc.| POT Yongye International Inc.| YONG Prices of agricultural commodities will rally next year, driven by rising demand from emerging markets, as per Rabobank Group. In addition, surging crude oil prices, depleting global food stockpiles and a weakening dollar may push prices higher.
If energy and food prices surge, it would raise the attractiveness of biofuels, made from farm commodities, pushing fertilizer prices higher. Down the value chain of commodities, any upward movement in energy prices affects sugar and corn prices.
A recent Chinese commerce ministry statement said as pressure mounts due to escalating prices and tight supplies, acquiring new supplies will play a key role in softening inflation and curbing speculation. For this, China has decided to tap international markets for sugar, cotton and meat, especially from India and the U.S., among others.
While China's CPI closely correlates to food prices, the country recorded a 5.1% CPI growth in November, with food and household expenses contributing 92%. Among agricultural commodities, as grain prices increase, food production costs and beverage processing costs rise.
We have identified three China agriculture stocks that will likely provide attractive returns to investors. These stocks are stacked base on upside potential.
China Agritech(CAGC), operating through its subsidiaries, manufactures and sells organic liquid compound fertilizers, organic granular compound fertilizers, and related agricultural products in China. Of all the analysts covering the stock, 75% recommend a buy. The stock has a 32.5% upside based on the consensus target price.
During the first nine months of 2010, the company posted a 41% year-over-year increase in net revenue, while cash equivalents more than doubled, indicating a strong financial base. Looking ahead into the fourth quarter and upcoming year, Agritech said prices of agricultural products are on a roll and it is leveraging the favorable trend to achieve its annual target. Analysts at Bloomberg estimate Agritech's fourth quarter revenue at $31.3 million, compared to $23.9 million recorded in the third quarter.
Agritech recently opened the first branded large-scale distribution center in Henan province and plans to construct more such facilities in 2011. Each of these would cover 85-100 franchised stores, which will sell 50% of the company's products and 50% of third-party products. On one hand, the cost of building one distribution center is almost $1 million, while on the other, annual revenue contribution is estimated at $3.7 million, once the plant becomes operational.
Zhongpin(HOGS_) is engaged in the processing and distribution of meat and food products in China. Of all the analysts covering the stock, 78% recommend a buy. While there is no sell rating on the stock, the remaining analysts recommend a hold. Zhongpin has a 36.4% upside based on the consensus target price. Based on the positive trend in pork prices and the company's significant capex plans, the stock seems attractive and is likely to generate handsome returns in 2011.
Zhongpin has filed a registration for a potential equity offer, debt, and/or other instruments to raise up to $250 million, as per company sources. The main aim of the registration is gaining additional flexibility for raising funds from equity in 2011, in the event of interest rate hikes and a credit crunch. Meanwhile, timing and offer price have not been disclosed in the registration filed.
Zhongpin recently announced plans to build a production, research and development, test, and training complex in its home city Changge in Henan, China. The company plans to invest $58.5 million on the facility and construction for the first phase with a capacity of 50,000 metric tons is scheduled to start in the first quarter of 2011 and will be completed in third quarter of 2011. With this facility, the company will be adding 100,000 metric tons of capacity for prepared pork products.
Yongye International(YONG_) operating through its subsidiary, is engaged in the manufacture, research and development, and sale of fulvic acid-based liquid and powder nutrient compounds used in the agriculture industry. Of all the analysts covering the stock, 80% recommend a buy. Yongye has a 85.4% upside based on the consensus target price.
At the end of 2010 third quarter, the company had a gross margin of 58.7%, sales growth of 145.1%, and a trailing 12-month sale of $196.2 million. Among peers in the fertilizer and agricultural chemical industries, Yongye has the highest gross margin, indicating investment potential. In comparison, Monsanto(MON_) and Potash Corporation of Saskatchewan(POT_) have gross margins of 44.1% and 35.8%, respectively.
After reporting third quarter results, the company achieved its set target for the full year 2010 within a span of three quarters. For 2010, the company sees revenues ranging between $200 and $205 million, and adjusted net income to increase in the range of 90.8% to 98.4% from prior year levels. Looking ahead, the company estimates at least a 50% annual growth rate in its revenue in 2011 and 2012.
Friday, February 11, 2011
How Long Can Mosaic's Dividends Last?
Whether you're a beginning investor or a near-retiree, the importance of purchasing stocks that pay dividends cannot be overstated. Not only do companies that have quarterly or annual payouts provide you with a steady stream of income, they also have the potential for capital appreciation. Simply put, dividend stocks can you give your portfolio what almost no other investment can -- both income and growth.
At The Motley Fool, we're avid fans of dividends -- and not just because we like that steady stream of cash. Studies have shown that from 1972 to 2006, stocks in the S&P 500 that don't pay dividends have earned an average annual return of 4.1%; dividend stocks, however, have averaged a whopping 10.1% per year. That is an incredible difference -- one that you'd be crazy to not take advantage of!
But investing in dividends can be dangerous -- companies can cut, slash, or suspend dividends at any time, often without notice. Fortunately, there are several warnings signs that may alert you, and these red flags could be the crucial factor in determining whether or not a company is likely to continue paying its dividend. Today, let's drill beneath the surface and check out Mosaic (NYSE: MOS).
What's on the surface?
Mosaic, which operates in the fertilizers and agricultural chemicals industry, currently pays a dividend of 0.23%. That dividend yield may not seem like much, but considering that over 100 companies in the S&P 500 don't pay anything at all, it's nothing to complain about. Plus, don't forget, dividends typically grow with time, so that 0.23% has the potential to skyrocket over time.
But what's more important than the dividend itself is Mosaic's ability to keep that cash rolling. The first thing to look at is the company's reported dividends versus its reported earnings. If you happen to see dividend payments that are growing faster than earnings per share, it may be an initial signal that something just isn't right. Check out the graph below for details of the last five years:
Clearly, there doesn't seem to be a problem, here. Mosaic has been able to boost its earnings at an adequate pace and keep its dividends in check at the same time.
The more secure, the better
One of the most common metrics that investors use to judge the safety of a dividend is the payout ratio. This number tells you what percentage of net income is paid out to investors in the form of a dividend. Normally, anything above 50% is cause to look a bit further. According to the most recent data, Mosaic's payout ratio is 4.60%. It's obvious that, at least on the surface, there aren't any problems with Mosaic generating enough income to support that nice dividend of 0.23%.
More important than checking out the payout ratio may be simply taking a peek at Mosaic's cash flow. Free cash flow -- all the cash left over after subtracting out capital expenditures -- is used by firms to make acquisitions, develop new products, and of course, pay dividends! We can use a simple metric called the cash flow coverage ratio, which is cash flow per share divided by dividends per share. Normally, anything above 1.2 should make you feel comfortable; anything less, and you may have a problem on your hands. Mosaic's coverage ratio is 7.67 -- which is more than enough cash on hand to keep pumping out that 0.23% yield. Barring any unforeseen circumstances, there really shouldn't be any major problems moving forward.
Either way, it's always beneficial to compare an investment with its most immediate competitors, so in the chart below, I've included the above metrics with those of Mosaic's closest competitors. In addition, I've included the five-year dividend growth rate, which is also a very important indicator. If Mosaic can illustrate that it's grown dividends over the past five years, then there's a good chance that it will continue to put shareholders first in the future.
The Foolish bottom line
Only you can decide what numbers you're comfortable with in the end; sometimes a higher yield and a higher reward means additional risk. However, when we look at Mosaic's payout ratio compared to its peer average, we see that it is a lower percentage, which illustrates that its dividend is probably more sustainable. The bottom line, however, is to make sure that with anything -- whether it be a dividend, a share repurchase, or an ordinary earnings report -- you do your own due diligence. Looking at all of the numbers in the best context possible is just the best place to start.
At The Motley Fool, we're avid fans of dividends -- and not just because we like that steady stream of cash. Studies have shown that from 1972 to 2006, stocks in the S&P 500 that don't pay dividends have earned an average annual return of 4.1%; dividend stocks, however, have averaged a whopping 10.1% per year. That is an incredible difference -- one that you'd be crazy to not take advantage of!
But investing in dividends can be dangerous -- companies can cut, slash, or suspend dividends at any time, often without notice. Fortunately, there are several warnings signs that may alert you, and these red flags could be the crucial factor in determining whether or not a company is likely to continue paying its dividend. Today, let's drill beneath the surface and check out Mosaic (NYSE: MOS).
What's on the surface?
Mosaic, which operates in the fertilizers and agricultural chemicals industry, currently pays a dividend of 0.23%. That dividend yield may not seem like much, but considering that over 100 companies in the S&P 500 don't pay anything at all, it's nothing to complain about. Plus, don't forget, dividends typically grow with time, so that 0.23% has the potential to skyrocket over time.
But what's more important than the dividend itself is Mosaic's ability to keep that cash rolling. The first thing to look at is the company's reported dividends versus its reported earnings. If you happen to see dividend payments that are growing faster than earnings per share, it may be an initial signal that something just isn't right. Check out the graph below for details of the last five years:
Clearly, there doesn't seem to be a problem, here. Mosaic has been able to boost its earnings at an adequate pace and keep its dividends in check at the same time.
The more secure, the better
One of the most common metrics that investors use to judge the safety of a dividend is the payout ratio. This number tells you what percentage of net income is paid out to investors in the form of a dividend. Normally, anything above 50% is cause to look a bit further. According to the most recent data, Mosaic's payout ratio is 4.60%. It's obvious that, at least on the surface, there aren't any problems with Mosaic generating enough income to support that nice dividend of 0.23%.
More important than checking out the payout ratio may be simply taking a peek at Mosaic's cash flow. Free cash flow -- all the cash left over after subtracting out capital expenditures -- is used by firms to make acquisitions, develop new products, and of course, pay dividends! We can use a simple metric called the cash flow coverage ratio, which is cash flow per share divided by dividends per share. Normally, anything above 1.2 should make you feel comfortable; anything less, and you may have a problem on your hands. Mosaic's coverage ratio is 7.67 -- which is more than enough cash on hand to keep pumping out that 0.23% yield. Barring any unforeseen circumstances, there really shouldn't be any major problems moving forward.
Either way, it's always beneficial to compare an investment with its most immediate competitors, so in the chart below, I've included the above metrics with those of Mosaic's closest competitors. In addition, I've included the five-year dividend growth rate, which is also a very important indicator. If Mosaic can illustrate that it's grown dividends over the past five years, then there's a good chance that it will continue to put shareholders first in the future.
The Foolish bottom line
Only you can decide what numbers you're comfortable with in the end; sometimes a higher yield and a higher reward means additional risk. However, when we look at Mosaic's payout ratio compared to its peer average, we see that it is a lower percentage, which illustrates that its dividend is probably more sustainable. The bottom line, however, is to make sure that with anything -- whether it be a dividend, a share repurchase, or an ordinary earnings report -- you do your own due diligence. Looking at all of the numbers in the best context possible is just the best place to start.
5-Star Stocks Poised to Pop: Chemical & Mining Co. of Chile
Based on the aggregated intelligence of 170,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, Latin fertilizer giant Chemical & Mining Co. of Chile (NYSE: SQM) has earned a coveted five-star ranking.
With that in mind, let's take a closer look at SQM's business and see what CAPS investors are saying about the stock right now.
Chemical & Mining Co. of Chile facts
Headquarters (Founded)
Santiago, Chile (1968)
Market Cap
$14.58 billion
Industry
Fertilizers and agricultural chemicals
Trailing-12-Month Revenue
$1.71 billion
Management
CEO Patricio Contesse (since 1990)
CFO Ricardo Ramos (since 1994)
Return on Equity (Average, Past 3 Years)
26.4%
Cash/Debt
$615.85 million / $1.3 billion
Dividend Yield
1.2%
Competitors
Agrium (NYSE: AGU)
Mosaic (NYSE: MOS)
PotashCorp (NYSE: POT)
Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.
On CAPS, 98% of the 1,251 members who have rated Chemical & Mining Co. of Chile believe the stock will outperform the S&P 500 going forward. These bulls include All-Stars DarthMaul09 and marc64, both of whom are ranked in the top 5% of our community.
Just last month, DarthMaul09 tapped Chemical & Mining Co. of Chile as a particularly powerful opportunity:
Lithium only represents a small part of the company's profits, most of it comes from fertilizer and other industrial chemicals. Lithium therefore has the potential to dramatically improve the company's revenue, especially if that next generation "miracle" battery ever becomes a reality. But for now the company will likely rise with the food commodity rally that may extend for most of this year.
Over the past three years, Chemical & Mining Co. of Chile has even grown its bottom line at a faster pace (27.7% per annum) than listed rivals Agrium (17.4%), FMC (NYSE: FMC) (9.2%), and PotashCorp (17.8%), as well as other fertilizer plays like Intrepid Potash (NYSE: IPI) (-7.9%) and Mosaic (27.2%).
CAPS member marc64 expands on the outperform case:
SQM is a potash fertilizer play in what looks to be a crunch year for food supplies, and maybe into the future. Whatever actually happens to food commodities, the farmer will be tempted to increase output.
Add to the fertilizer play, the sweet coincidence of electric cars hitting the market in a fairly big way this year. Count me among those who think the hum/whoosh of an all-electric car is much cooler than the din of exploding fossil fuels. ... It will take a while, but electric is compelling, and lithium is the high-performance choice for batteries.
The fact that SQM is the low-cost leader in lithium leverages up profit growth potential, and makes me feel a lot better about the high PE.
With that in mind, let's take a closer look at SQM's business and see what CAPS investors are saying about the stock right now.
Chemical & Mining Co. of Chile facts
Headquarters (Founded)
Santiago, Chile (1968)
Market Cap
$14.58 billion
Industry
Fertilizers and agricultural chemicals
Trailing-12-Month Revenue
$1.71 billion
Management
CEO Patricio Contesse (since 1990)
CFO Ricardo Ramos (since 1994)
Return on Equity (Average, Past 3 Years)
26.4%
Cash/Debt
$615.85 million / $1.3 billion
Dividend Yield
1.2%
Competitors
Agrium (NYSE: AGU)
Mosaic (NYSE: MOS)
PotashCorp (NYSE: POT)
Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.
On CAPS, 98% of the 1,251 members who have rated Chemical & Mining Co. of Chile believe the stock will outperform the S&P 500 going forward. These bulls include All-Stars DarthMaul09 and marc64, both of whom are ranked in the top 5% of our community.
Just last month, DarthMaul09 tapped Chemical & Mining Co. of Chile as a particularly powerful opportunity:
Lithium only represents a small part of the company's profits, most of it comes from fertilizer and other industrial chemicals. Lithium therefore has the potential to dramatically improve the company's revenue, especially if that next generation "miracle" battery ever becomes a reality. But for now the company will likely rise with the food commodity rally that may extend for most of this year.
Over the past three years, Chemical & Mining Co. of Chile has even grown its bottom line at a faster pace (27.7% per annum) than listed rivals Agrium (17.4%), FMC (NYSE: FMC) (9.2%), and PotashCorp (17.8%), as well as other fertilizer plays like Intrepid Potash (NYSE: IPI) (-7.9%) and Mosaic (27.2%).
CAPS member marc64 expands on the outperform case:
SQM is a potash fertilizer play in what looks to be a crunch year for food supplies, and maybe into the future. Whatever actually happens to food commodities, the farmer will be tempted to increase output.
Add to the fertilizer play, the sweet coincidence of electric cars hitting the market in a fairly big way this year. Count me among those who think the hum/whoosh of an all-electric car is much cooler than the din of exploding fossil fuels. ... It will take a while, but electric is compelling, and lithium is the high-performance choice for batteries.
The fact that SQM is the low-cost leader in lithium leverages up profit growth potential, and makes me feel a lot better about the high PE.
Investors warm up to big deals
The big takeover deal has come back, reflecting increased corporate confidence and economic recovery. What should hearten prospective deal makers is how the stock market has reacted to the transactions: It has loved them.
Across the globe, deal volume stands at $338 billion so far this year, a rate 25% higher than in the same period last year. And in the U.S., deal volume is more than double last year's rate, which makes 2011 the most active since 2008.
The deals are getting bigger, too. In 2011, there have been 12 deals valued above $5 billion, eight of them in the U.S., according to Dealogic. There were only two such deals in the U.S. at the same time last year.
For all their size, the deals have had little sizzle, serving to consolidate mostly coal-mining, utilities and exchange companies. There was Alpha Natural Resources Inc.'s $7.1 billion deal to buy Massey Energy Co., a $13.7 billion merger of utility companies Duke Energy Corp. and Progress Energy Inc., and this week, the planned deal between London Stock Exchange Group PLC and Canada's TMX Group Inc., the company that owns the Toronto and Montreal exchanges.
One of the big differences from past merger run-ups: Investors are sending the acquirers' stock prices up, not down, after the deals are made public.
Shareholder Approval
Stock owners of acquiring companies are showing support for big transactions.
Shares of iron-ore producer Cliffs Natural Resources Inc. rose nearly 3% on Jan. 11 after it announced a deal for rival iron-ore producer Consolidated Thompson Iron Mines Ltd. for about $5 billion.
On Monday, Danaher Corp. agreed to pay $5.87 billion for Beckman Coulter Inc., which makes diagnostic equipment used in medical testing. Danaher is paying a 45% premium on Beckman shares, usually a sum that sparks acquiring-company shareholders to fear the company is spending too much. But Danaher stock rose on the news, as investors cheered the industrial conglomerate's move into a new, high-growth sector of life sciences. Swelling middle-class populations in emerging markets such as China and India are expected to drive demand for preventive medical care, of which clinical testing is a central feature.
Deutsche Bank analyst Nigel Coe called the deal "strategically coherent" and said the low cost of financing the deal, given the state of credit markets right now, will add more to Danaher's earnings.
Wall Street has welcomed these deals because many of these industries were ripe for consolidation before the recession, but deal-making was put on hold as the debt markets shut down and companies preferred to hold on to their cash.
For instance, Deutsche Börse AG and NYSE Euronext talked seriously about a deal in 2008 and 2009, but the fragile global economy discouraged a cross-border merger. The two are now close to a tie-up to form a company with a putative market value of $25 billion, and a deal could be sealed next week. The Big Board's stock shot up as much as 18% on news of the latest talks, which followed Tuesday's merger news between the owners of the London and Toronto exchanges. Shares of those companies climbed 9% and 4%, respectively.
"We saw a time period in 2009 and even in early 2010 when CEOs were primarily focused on tactical opportunities, but today they're focused more on strategic opportunities," said Jack MacDonald, co-head of Americas M&A at Bank of America Merrill Lynch.
Danaher, for instance, has had its eye on diagnostics companies for years. It was a confluence of factors, including the improving economy, with "headwinds dissipating, tailwinds getting stronger," that helped it seal a deal for Beckman, Danaher Chief Executive Lawrence Culp said in an interview Monday.
Low interest rates, strong corporate performance in 2010 and a sense that the global economy is moving forward have put companies "back in the M&A game," he added.
Still, some deal makers noted that there is reason to be cautious, given the worries about the finances of some European governments as well as unexpected crises like the protests in the Middle East.
"Transformational deals are back," said Mark Shafir, head of global M&A at Citigroup. "Companies are willing to take more risks. But with six weeks behind us, it's early to declare victory."
In 2010, there were 65 deals around the world valued at more than $5 billion, compared to 132 such transactions in 2007, considered the heyday of the last merger wave.
Last month, agribusiness giant Cargill Inc. said it plans to give up its majority stake in fertilizer company Mosaic Co. in a transaction valued at about $24.3 billion. The move could make Mosaic, a leading seller of potash and phosphate, a more attractive takeover target.
Although private-equity firms have been largely absent from headline-grabbing transactions, they have competed for multibillion-dollar deals. Many observers expect that with attractive financing terms and the need to put capital to work, there will be several leveraged buyouts that hit $10 billion or more this year. Private-equity firms weren't able to hit that benchmark last year, although financing terms improved.
A group that included Apollo Management, Bain Capital and TPG Capital proposed acquiring Sara Lee Corp. for almost $19 per share. But the Downers Grove, Ill.-based company, which had sought at least $20 per share, rejected the offer as too low. Brazilian meats processor JBS SA was also interested in Sara Lee but faced difficulties raising financing to increase its bid.
"You're going to see a robust, pretty good quarter and first half, as long as the macroeconomic and geopolitical environment doesn't flare up," said Boon Sim, global head of M&A at Credit Suisse. Mr. Sim said he expects overall M&A activity this year to be up 30% over 2010.
Across the globe, deal volume stands at $338 billion so far this year, a rate 25% higher than in the same period last year. And in the U.S., deal volume is more than double last year's rate, which makes 2011 the most active since 2008.
The deals are getting bigger, too. In 2011, there have been 12 deals valued above $5 billion, eight of them in the U.S., according to Dealogic. There were only two such deals in the U.S. at the same time last year.
For all their size, the deals have had little sizzle, serving to consolidate mostly coal-mining, utilities and exchange companies. There was Alpha Natural Resources Inc.'s $7.1 billion deal to buy Massey Energy Co., a $13.7 billion merger of utility companies Duke Energy Corp. and Progress Energy Inc., and this week, the planned deal between London Stock Exchange Group PLC and Canada's TMX Group Inc., the company that owns the Toronto and Montreal exchanges.
One of the big differences from past merger run-ups: Investors are sending the acquirers' stock prices up, not down, after the deals are made public.
Shareholder Approval
Stock owners of acquiring companies are showing support for big transactions.
Shares of iron-ore producer Cliffs Natural Resources Inc. rose nearly 3% on Jan. 11 after it announced a deal for rival iron-ore producer Consolidated Thompson Iron Mines Ltd. for about $5 billion.
On Monday, Danaher Corp. agreed to pay $5.87 billion for Beckman Coulter Inc., which makes diagnostic equipment used in medical testing. Danaher is paying a 45% premium on Beckman shares, usually a sum that sparks acquiring-company shareholders to fear the company is spending too much. But Danaher stock rose on the news, as investors cheered the industrial conglomerate's move into a new, high-growth sector of life sciences. Swelling middle-class populations in emerging markets such as China and India are expected to drive demand for preventive medical care, of which clinical testing is a central feature.
Deutsche Bank analyst Nigel Coe called the deal "strategically coherent" and said the low cost of financing the deal, given the state of credit markets right now, will add more to Danaher's earnings.
Wall Street has welcomed these deals because many of these industries were ripe for consolidation before the recession, but deal-making was put on hold as the debt markets shut down and companies preferred to hold on to their cash.
For instance, Deutsche Börse AG and NYSE Euronext talked seriously about a deal in 2008 and 2009, but the fragile global economy discouraged a cross-border merger. The two are now close to a tie-up to form a company with a putative market value of $25 billion, and a deal could be sealed next week. The Big Board's stock shot up as much as 18% on news of the latest talks, which followed Tuesday's merger news between the owners of the London and Toronto exchanges. Shares of those companies climbed 9% and 4%, respectively.
"We saw a time period in 2009 and even in early 2010 when CEOs were primarily focused on tactical opportunities, but today they're focused more on strategic opportunities," said Jack MacDonald, co-head of Americas M&A at Bank of America Merrill Lynch.
Danaher, for instance, has had its eye on diagnostics companies for years. It was a confluence of factors, including the improving economy, with "headwinds dissipating, tailwinds getting stronger," that helped it seal a deal for Beckman, Danaher Chief Executive Lawrence Culp said in an interview Monday.
Low interest rates, strong corporate performance in 2010 and a sense that the global economy is moving forward have put companies "back in the M&A game," he added.
Still, some deal makers noted that there is reason to be cautious, given the worries about the finances of some European governments as well as unexpected crises like the protests in the Middle East.
"Transformational deals are back," said Mark Shafir, head of global M&A at Citigroup. "Companies are willing to take more risks. But with six weeks behind us, it's early to declare victory."
In 2010, there were 65 deals around the world valued at more than $5 billion, compared to 132 such transactions in 2007, considered the heyday of the last merger wave.
Last month, agribusiness giant Cargill Inc. said it plans to give up its majority stake in fertilizer company Mosaic Co. in a transaction valued at about $24.3 billion. The move could make Mosaic, a leading seller of potash and phosphate, a more attractive takeover target.
Although private-equity firms have been largely absent from headline-grabbing transactions, they have competed for multibillion-dollar deals. Many observers expect that with attractive financing terms and the need to put capital to work, there will be several leveraged buyouts that hit $10 billion or more this year. Private-equity firms weren't able to hit that benchmark last year, although financing terms improved.
A group that included Apollo Management, Bain Capital and TPG Capital proposed acquiring Sara Lee Corp. for almost $19 per share. But the Downers Grove, Ill.-based company, which had sought at least $20 per share, rejected the offer as too low. Brazilian meats processor JBS SA was also interested in Sara Lee but faced difficulties raising financing to increase its bid.
"You're going to see a robust, pretty good quarter and first half, as long as the macroeconomic and geopolitical environment doesn't flare up," said Boon Sim, global head of M&A at Credit Suisse. Mr. Sim said he expects overall M&A activity this year to be up 30% over 2010.
Sunday, February 6, 2011
Dupont stock to ride out agricultural boom-Barron's
NEW YORK, Feb 6 (Reuters) - U.S. chemicals group Dupont's (DD.N) shares could be one of the best ways for investors to profit from the the boom in agricultural stocks, business weekly newspaper Barron's said in its Feb. 7 edition.
Dupont, which recently made a $6.3 billion bid for Danish food producer Danisco (DCO.CO), would derive one-third of its revenue from seeds and other agricultural products if Danisco shareholders approve the deal, Barron's said.
The deal should start adding to Dupont's earnings next year and increase long-term profit growth by two percentage points to between 13 percent and 14 percent per year, Barron's said, citing a Soleil Securities analyst.
Dupont shares are cheaper on a price-expected earnings ratio basis than those of fertilizer maker Potash Corp of Saskatchewan (POT.TO) and biotech company Monsanto (MON.N), Barron's wrote. (Reporting by Phil Wahba, editing by Maureen Bavdek)
Dupont, which recently made a $6.3 billion bid for Danish food producer Danisco (DCO.CO), would derive one-third of its revenue from seeds and other agricultural products if Danisco shareholders approve the deal, Barron's said.
The deal should start adding to Dupont's earnings next year and increase long-term profit growth by two percentage points to between 13 percent and 14 percent per year, Barron's said, citing a Soleil Securities analyst.
Dupont shares are cheaper on a price-expected earnings ratio basis than those of fertilizer maker Potash Corp of Saskatchewan (POT.TO) and biotech company Monsanto (MON.N), Barron's wrote. (Reporting by Phil Wahba, editing by Maureen Bavdek)
Saturday, February 5, 2011
Modified Beet Gets New Life !!!
The Agriculture Department, trying to avoid a shortage of U.S. sugar, said Friday it would allow U.S. farmers to resume planting the widely used genetically modified version of the sugar-beet plant that a federal judge has effectively banned.
More than half of the nation's granulated sugar—the stuff that consumers buy in supermarkets for baking or to pour in coffee—has in recent years come from beet plants genetically modified in the same way as most of the corn, soybeans and cotton grown in the U.S. The other half comes from sugar cane.
The beets, which are grown extensively around the border between North Dakota and Minnesota, have a Monsanto Co. gene that gives them immunity to glyphosate-based weedkiller, which the St. Louis biotechnology company sells as Roundup herbicide.
U.S. District Judge Jeffrey S. White, who sits in San Francisco, last year blocked farmers from planting the weedkiller-resistant beets again this spring. He concluded the USDA should have conducted a lengthy study of the crop's potential consequences for groups such as organic farmers before originally clearing it in 2005.
An environmental-impact statement of the type ordered by the judge is usually thousands of pages long and takes years to conduct. That would have kept the genetically modified sugar beets out of the hands of farmers at least through 2012.
Monsanto said Friday that the USDA's move would allow U.S. farmers to begin planting genetically modified sugar beets this spring. But environmental and organic-seed groups that originally sued the USDA said Friday they would ask Judge White to block this latest move by the USDA.
Crop biotechnology and sugar interests had appealed to the USDA for some way to temporarily circumvent the judge's planting ban. According to biotechnology officials, that door opened when Monsanto successfully argued before the Supreme Court in 2010 that the USDA should be able to partially deregulate a genetically-modified crop while the agency completes environmental studies.
"Our clients would be irreparably harmed by the USDA's action," said Paul Achitoff, an attorney with Earthjustice, a nonprofit environmental-law firm, which is representing organic seed farms.
Sugar-beet processors say there aren't enough traditional seeds around for farmers to plant this spring. A study conducted for the sugar industry predicted that U.S. sugar production would plunge 20% if the judge's ban stays in place.
That prediction alarmed food companies because a big drop in the U.S. sugar-beet crop would raise their sugar costs, which already have climbed sharply in recent years, thanks partly to booming demand and partly to weather problems in some sugar-growing regions of the world. The price of sugar has nearly tripled over the past two years.
The USDA, in a move that seemingly expands its regulatory powers over crop biotechnology, will for the first time "partially deregulate" a genetically modified crop. USDA is permitting farmers to plant genetically modified sugar beets this year only if they adhere to rules designed to prevent the plant's wind-blown pollen from reaching organic fields, where its biotechnology traits could spread.
Organic-food makers typically reject any ingredients in which they detect genetically modified materials, costing the grower the big price premium usually commanded by organic crops.
Until now, the USDA has always allowed the unrestricted planting of a genetically modified crop once it had passed its regulatory review, a process that largely hinges on the narrow question of whether a genetically modified crop could somehow become a plant pest.
The USDA decision is the second big victory for the crop-biotechnology industry in a week. The Obama administration earlier decided to allow unrestricted planting of Roundup-resistant alfalfa after flirting for nearly a month with the idea of placating organic farmers by restricting the planting of that seed in some states.
In the case of sugar beets, crop biotechnology and sugar interests had appealed to the USDA for some way to temporarily circumvent the judge's planting ban. According to biotechnology officials, that door opened when Monsanto successfully argued before the Supreme Court in 2010 that the USDA should be able to partially deregulate a genetically modified crop while the agency completes environmental studies.
Under the USDA plan released Friday, the handful of farmer-owned cooperatives that process the vast majority of the nation's sugar beets would have to sign compliance agreements with the USDA, and provide extensive information about the location and movement of the crops.
The USDA is also banning the production of genetically modified sugar beets in some places where seeds for organic beets are produced, such as in California and parts of Washington state. In other places, the USDA won't allow genetically modified sugar beets to be grown within four miles of seed being raised for conventional versions of beet-like plants.
More than half of the nation's granulated sugar—the stuff that consumers buy in supermarkets for baking or to pour in coffee—has in recent years come from beet plants genetically modified in the same way as most of the corn, soybeans and cotton grown in the U.S. The other half comes from sugar cane.
The beets, which are grown extensively around the border between North Dakota and Minnesota, have a Monsanto Co. gene that gives them immunity to glyphosate-based weedkiller, which the St. Louis biotechnology company sells as Roundup herbicide.
U.S. District Judge Jeffrey S. White, who sits in San Francisco, last year blocked farmers from planting the weedkiller-resistant beets again this spring. He concluded the USDA should have conducted a lengthy study of the crop's potential consequences for groups such as organic farmers before originally clearing it in 2005.
An environmental-impact statement of the type ordered by the judge is usually thousands of pages long and takes years to conduct. That would have kept the genetically modified sugar beets out of the hands of farmers at least through 2012.
Monsanto said Friday that the USDA's move would allow U.S. farmers to begin planting genetically modified sugar beets this spring. But environmental and organic-seed groups that originally sued the USDA said Friday they would ask Judge White to block this latest move by the USDA.
Crop biotechnology and sugar interests had appealed to the USDA for some way to temporarily circumvent the judge's planting ban. According to biotechnology officials, that door opened when Monsanto successfully argued before the Supreme Court in 2010 that the USDA should be able to partially deregulate a genetically-modified crop while the agency completes environmental studies.
"Our clients would be irreparably harmed by the USDA's action," said Paul Achitoff, an attorney with Earthjustice, a nonprofit environmental-law firm, which is representing organic seed farms.
Sugar-beet processors say there aren't enough traditional seeds around for farmers to plant this spring. A study conducted for the sugar industry predicted that U.S. sugar production would plunge 20% if the judge's ban stays in place.
That prediction alarmed food companies because a big drop in the U.S. sugar-beet crop would raise their sugar costs, which already have climbed sharply in recent years, thanks partly to booming demand and partly to weather problems in some sugar-growing regions of the world. The price of sugar has nearly tripled over the past two years.
The USDA, in a move that seemingly expands its regulatory powers over crop biotechnology, will for the first time "partially deregulate" a genetically modified crop. USDA is permitting farmers to plant genetically modified sugar beets this year only if they adhere to rules designed to prevent the plant's wind-blown pollen from reaching organic fields, where its biotechnology traits could spread.
Organic-food makers typically reject any ingredients in which they detect genetically modified materials, costing the grower the big price premium usually commanded by organic crops.
Until now, the USDA has always allowed the unrestricted planting of a genetically modified crop once it had passed its regulatory review, a process that largely hinges on the narrow question of whether a genetically modified crop could somehow become a plant pest.
The USDA decision is the second big victory for the crop-biotechnology industry in a week. The Obama administration earlier decided to allow unrestricted planting of Roundup-resistant alfalfa after flirting for nearly a month with the idea of placating organic farmers by restricting the planting of that seed in some states.
In the case of sugar beets, crop biotechnology and sugar interests had appealed to the USDA for some way to temporarily circumvent the judge's planting ban. According to biotechnology officials, that door opened when Monsanto successfully argued before the Supreme Court in 2010 that the USDA should be able to partially deregulate a genetically modified crop while the agency completes environmental studies.
Under the USDA plan released Friday, the handful of farmer-owned cooperatives that process the vast majority of the nation's sugar beets would have to sign compliance agreements with the USDA, and provide extensive information about the location and movement of the crops.
The USDA is also banning the production of genetically modified sugar beets in some places where seeds for organic beets are produced, such as in California and parts of Washington state. In other places, the USDA won't allow genetically modified sugar beets to be grown within four miles of seed being raised for conventional versions of beet-like plants.
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