Billionaire Investor Jim Rogers: "I'll probably make more money in agriculture..."
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About investing opportunities ahead, legendary investor Jim Rogers stated in an interview that, "Agriculture prices are still, on a historic basis, extremely depressed, and in my view I'll probably make more money in agriculture than other things."
While food commodity prices are up do to the recent drought, there are many opportunities with companies in the agricultural sector that have slumped due to declining economic growth around the world.
Caterpillar (NYSE: CAT) is the world's largest maker of heavy equipment, much of which is used in agricultural production. Over the last six months of market action, Caterpillar has fallen by 23.55% due to economic growth in China declining. Caterpillar is very heavily invested in the People's Republic of China. But sales growth and earnings-per-share growth are soaring for Caterpillar in very bullish patterns. For the year, earnings-per-share growth for Caterpillar is rising by 78.22%. Caterpillar makes money with a 9.10% profit margin and shares it with those who own the stock through a dividend yield of 2.38%.
No one knows a company better than its Chief Executive Officer and that individual for Dole Foods (NYSE: DOLE), David Murdock, has been buying literally millions of shares of the stock in recent market action. In recent transactions, Murdock has purchased over 2 million shares of Dole Foods on the open market. About insider buying like that of Murdock at Dole Foods, Motley Fool co-founder and CEO Tom Gardner stated that if there was just one factor he had to use for investing that, "I wouldn't look for growth. I wouldn't look for a great balance sheet. I'd focus only on insider ownership." Year to date, Dole Foods is up by 49.83%. Those heeding Tom Gardner's advice with Dole Foods have done quite well so far in 2012.
With a pattern of double digit earnings-per-share growth, Hormel Foods (NYSE: HRL) is expanding around the globe to a grateful, hungry customer group that is burgeoning, particularly in Asia. The maker of Spam and other delectables also offers a tasty dividend yield framework of increases with, at present, a 2.08% yield and a low dividend payout ratio of around 30%. With almost no debt and a robust cash flow, that leaves ample funding for dividend growth for Hormel Foods in the future and stock repurchase programs to reward its shareholders.
HRL Earnings Per Share Growth data by YCharts
The base for any agricultural product is the land and Potash Corporation of Saskatchewan (NYSE: POT) provides the fertilizer to enrich the soil. For 2012, Potash is down by 23.17%. But for the year, earnings-per-share growth is up 80.40%. That is part of a very positive trend for this key financial indicator. Potash Corp is very profitable with a superior profit margin of 30.28%. There is a modest dividend yield of only 1.35%, but there is ample cash flow to raise it.
CSX Corp (NYSE: CSX) is a railroad firm that transports agricultural products such as food and fertilizers from the United States to overseas markets. It operates about 4000 locomotives on approximately 21,000 route mails of rail track in the United States and Canada. Earnings-per-share growth this year is higher by 23.48% for CSX Corp. The train runs on a profit margin of 17% that has more than doubled since The Great Recession with a dividend yield of 2.44% for its shareholders.
CSX Profit Margin data by YCharts
Recent reports by The McKinsey Global Institute predict that there will be one billion new members of the global consumer class living in urban areas by 2025 with far greater buying power. Overall, the emerging market consumer class will spend $30 trillion annually, about half the total for the world. This is an irresistible force as even during The Great Recession the emerging market middle class continued to expand.
Billions more living in urban areas means profitable investing in agricultural stocks for basic supply and demand factors. This results from urban inhabitants not growing their own food, which naturally places a premium on those firms in agricultural production with farming assets. In addition, the more affluent a populace becomes, the richer the diet. That too raises the value of companies operating in all the facets in the agricultural sector.
The agricultural industry is far more than just the food that is produced. It is the equipment from Caterpillar to farm it and the trains from CSX to transport it to overseas markets. Whatever Hormel Foods and Dole Foods and others make to feed to billions of consumers around the world, fertilizer from Potash is needed to optimize the soil and maximize the yield from the earth. As the global population grows more affluent in lifestyle and more abundant in mass, companies in the agriculture sector will harvest more profits from the richer diets of more consumers. Jim Rogers will not be the only investor to benefit.
Fool blogger Jonathan Yates does not own any of the stocks mentioned in this article. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend PotashCorp. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
