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.)
Tuesday, February 22, 2011
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.
Chinese Reverse Mergers
SEC Probes China Stock Fraud NetworkShort Sellers and China StocksSmall Cast Stars in China Reverse MergersAuditors Play Defense on China StocksDealmaker's Long Trip Through China RTOChina RTO Regulation Shows CracksChina Stock Fraud News Already Priced InSEC's Smart Step at Fighting China FraudM&A Wizard Says He Was FleecedFree Pass for FraudWhat Probe Means for China ETFsHow China Small-Caps Can Come Clean:
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
SEC Probes China Stock Fraud NetworkShort Sellers and China StocksSmall Cast Stars in China Reverse MergersAuditors Play Defense on China StocksDealmaker's Long Trip Through China RTOChina RTO Regulation Shows CracksChina Stock Fraud News Already Priced InSEC's Smart Step at Fighting China FraudM&A Wizard Says He Was FleecedFree Pass for FraudWhat Probe Means for China ETFsHow China Small-Caps Can Come Clean:
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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