Top Ag Stocks to Grow Your Portfolio
Karen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
This summer’s drought is a painful reminder of the tenuous nature of our food supply. Corn stalks wither and die in the heat as the commodity’s price heads for $9.00 a bushel. Wheat prices have shot up 44% and, according to the USDA, the soybean crop will yield 14% less than last year’s harvest.
And it’s not just the American consumer who’s feeling pain at the grocery store. “Food prices rose again sharply threatening the health and well-being of millions of people,” said World Bank Group President Jim Yong Kim during an interview last month. “Africa and the Middle East are particularly vulnerable, but so are people in other countries where the prices of grains have gone up abruptly.” Farmers will be expected to increase their yield per acre to feed a growing human population even as weather patterns continue to change.
It all starts with planting, and Monsanto (NYSE: MO), along with its subsidiaries, provides seeds and other agricultural products for farmers worldwide. The company operates two segments: Seeds and Genomes, where scientists produce seeds with biotechnical traits resistant to insects and diseases, and Agricultural Products, which includes herbicides for industrial, commercial and consumer use. Last month Monsanto entered into an agreement with Alnylam Pharmaceuticals to pay royalties for use of Alnylam’s RNA (ribonucleic acid) intellectual property and proprietary technology in Monsanto’s new BioDirect technology.
Revenue increased from $10.483 million in 2010 to $11.822 million in 2011; net income also rose from $1.096 million to $1.607 million. The company has cash of $1.93 billion, debt of $2.28 billion, and operating cash of $2.72 billion. Monsanto’s ROE is 18.17%, ROA is 10.40%, and it currently trades around $87 a share. Next year’s target price is $94.50 and the next earnings date is October 3rd.
Along with high-yielding seeds, farmers need fertilizer--and lots of it. Mosaic (NYSE: MOS) produces and markets concentrated potash and phosphate nutrients for crops worldwide. A global drop in the price of potash last year saw Mosaic’s profits fall by 22% to $507.3 million y-o-y. Since then, improved fertilizer prices helped the company rally to beat street estimates for fiscal year 4Q 2012 this past June: The company posted $2.820 million versus estimates of $2.577 million, and EPS of $1.25 against $1.17.
Annual revenue for the fiscal year ending May 30, 2012, was $11.109 million over $9.938 million for 2011; net income slipped to $1.930 million from $2.515 million, respectively. Mosaic has cash of $3.81 billion, debt of $1.05 billion and operating cash of $2.71 billion. The company has an ROE of 16.32%, ROA of 10.03%, and currently trades around $57-$58 a share. Analysts are looking for Mosaic to hit $84.46 next year.
Agrium (NYSE: AGU) produces and sells a wide variety of products to improve crop nutrition, including dry and liquid nitrogen, phosphate, potash, sulfur, and micronutrients. The company also has crop protection products that include herbicides, fungicides, and insecticides. Agrium recently acquired AWB to expand their retail division into the growing SE Asia market.
The company beat Street expectations this past quarter by earning $6.8 billion in revenue over estimates of $6.5 billion; actual EPS of $5.43 exceeded estimates of $5.36. Agrium reported $15.470 billion in annual revenue for 2011 and $10.743 billion in 2010; net income came in at $1.375 billion against $713 million. The company reports cash of $1.95 billion against debt of $2.48 billion and operating cash at $2.29 billion. Agrium has an ROA of 10.74%, ROE of 24.30%, and trades around $98-$99 a share. Analysts expect the company to meet or exceed their target price of $112.84 next year.
Due to the cyclical nature of farming, investors should be prepared to hold these stocks for at least a year. But with the world groaning under the weight of over 7 billion hungry people, agricultural stocks are well-positioned to realize impressive gains over the next few years.
kprogers has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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.
