In a World of Scarce Resources, Consider these Stocks
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The human population was estimated to be nearly 7 billion in 2011 by The World Bank. Last year, the U.S. Census Bureau estimated the number to be slightly higher than that. The world’s population keeps growing, and emerging economies continue to develop. As a result, commodity prices have risen in recent years and are likely to keep rising over time. With that in mind, the following companies have business models poised to profit from the reality of scarce resources.
Monsanto (NYSE: MON) is the $55 billion agricultural giant that provides products for farmers worldwide. It operates in two segments, Seeds and Genomics, and Agricultural Productivity. Last October, the company reported its full-year financial results, which were very good.
Total revenues rose more than 14% year over year, and earnings per share climbed more than 28% versus the prior year. Since 2008, Monsanto achieved four-year compound annual growth in sales of 4.4%.
Furthermore, the company got off to a great start in fiscal 2013, reporting first-quarter sales growth of more than 20%. Monsanto’s stock has been on fire recently, rising more than 30% in 2012 and has increased more than 6% to begin 2013.
Archer Daniels Midland (NYSE: ADM) carries a $20 billion market capitalization and manufactures and sells protein meal, vegetable oil, corn sweeteners, flour, biodiesel, and ethanol. In early February, the company reported 2012 second-quarter earnings per share of $0.60, up 18% from the previous year. In addition, the company provided investors with a 9% dividend increase.
Archer Daniels Midland has an impressive dividend track record, having paid dividends for 325 consecutive quarters. The company has raised its dividend every year since 2002. At current prices, the stock looks to be attractive for both value and dividend investors, with a trailing price-to-earnings ratio of less than 15 and a 2.5% yield.
Deere (NYSE: DE) manufactures and distributes agriculture and turf equipment, and construction and forestry equipment, worldwide, commanding a $36 billion market value.
Deere is certainly not an expensive stock, with trailing and forward P/Es of 12 and 10, respectively. In addition, the stock trades for a price-to-earnings growth ratio of 1.13, indicating that the company is priced conservatively in relation to its future growth expectations.
In December, Deere provided investors its annual results, reporting sales and earnings per share growth of 13% and 15%, respectively. In addition, in 2012 Deere raised its dividend by more than 12% and should raise its dividend in time for its next payout.
American States Water Company (NYSE: AWR) provides the most scarce resource of all: water. The company purchases and distributes water in California.
The company is the gold standard for dividend-raisers. American States Water Company has increased its dividend every year since 1955, a streak amounting to 58 consecutive years. Its last dividend raise was an impressive 27% in 2012.
American States Water Company is a small-cap stock with only a $1 billion valuation. Clearly, the company has room to grow, and considering it provides an absolute essential product to society, would be interesting to research for both growth and income investors.
The Bottom Line
As the number of people on this planet keeps rising, its available resources remain constant. There is only so much water and land on this planet available for food production. Developing economies, such as the BRIC nations (Brazil, Russia, India, and China) have experienced high economic growth and consequently high demand for commodities such as wheat, corn, and water.
Value investors may prefer Archer Daniels Midland and American States Water Company because of their market-beating dividend yields and reasonable valuations. More growth-oriented investors probably would prefer Monsanto and Deere; their yields are slightly lower, but they offer a compelling combination of high dividend growth and the opportunity to profit handsomely from the global economic growth story. No matter an investor's preference, each of the three companies above has an extremely successful business model and will continue to succeed in a world of scarce resources.
Robert Ciura has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!