4 Stocks To Ride the Agriculture Bull, 1 To Avoid
Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Agriculture is often an overlooked part of our economy, yet it can have a much greater effect on the economy than we may anticipate. The development of land and cultivation of resources for effective fertilizers and the manufacture of supplies and equipment required by farmers to produce the highest yielding crops are all instrumental in determining food costs in a global economy. Each of these companies has something to offer this sector and may be great buys now. In this article, I provide a relative value analysis of some of my best ideas in this space. Use this analysis as a starting point for your own research.
Cresud SA ADR (NASDAQ: CRESY) acquires, develops and sells agricultural property while possessing stakes in commercial and residential real estate as well. Cresud is also a large producer of several Argentinian crops and cattle used for dairy and slaughter. The company is quickly expanding into Bolivia, Brazil and Paraguay. Its stock suffered significantly last year but looks to turn on news that the Argentinian government just wrote into law legislation that limits the amount of farmland any foreign company may possess, defending Cresud’s interests from foreign competition.
Deere and Co (NYSE: DE) is the largest recognized producer of heavy equipment for use in farming, forestry, construction and landscaping. The company has a formidable distribution network and is the leader in its industry due to quality and longevity. Deere recently broke ground on a new manufacturing plant in India which is likely to cut costs and increase the company’s margins in the years to come. Its stock has shown a positive outlook at the start of 2012 and I believe that we will continue to watch it gain over the near future.
The Potash Corporation of Saskatchewan, Inc (NYSE: POT) leads the globe in production of potash, phosphate and nitrogen. The company thrives on the low cost of its potash and its position of dominance in the market. Price volatility is the greatest obstacle to the producer of fertilizers, animal feed and potash, which owns mines in Canada, the United States and Trinidad. Recent news of its need to shut down one of those mines due to weak demand makes me want to wait and watch this company for now and hold off on taking a position until Potash shows more solid signs of life.
Agrium (NYSE: AGU) dominates the agricultural retail industry in the United States and Canada and owns over 1,000 stores disbursed throughout both countries. The company sells agricultural pesticides, fertilizers and seed directly to farmers and owns a wholesale business that distributes potash, phosphate and nitrogen. Agrium is worthy of observation over the coming months as it has the potential to make a move but I don’t feel confident enough to take a position just yet.
CF Industries (NYSE: CF) dominates the North American nitrogen fertilizer market and holds interests in the United States, the United Kingdom and Trinidad and Tobago. The company just closed a deal over the acquisition of Terra which will increase its nitrogen holdings and help add diversity to its base of raw materials. High corn prices will allow CF to thrive but the company has very little control over its production costs and sale prices, putting the company in cuffs and limiting its potential. Despite this disadvantage, I believe we will see this company perform beyond its expectations in 2012.
Deere and Cresud look the most attractive to me at the moment and I would definitely consider taking a position in both companies. Unless Potash Corporation sees a return in demand, I remain unconvinced, but the company is definitely worth watching. Agrium looks very good on paper, but its downward trend over the past twelve months and low margin turns me away. I wouldn’t be surprised in the least if the company thrives in 2012 but I’m not willing to take the risk. CF Industries appears to be a good buy and I would take a position here quickly as the company appears to be on the verge of a major growth spurt. In the first two weeks of 2012, the stock has been on a one way trip to the ceiling and I want to get in before it reaches its peak.
If you take a position in CF be sure to watch it carefully. In terms of price action, the company has shown a history of meteoric rises that were followed closely after with its stock falling like a rock. Take your position before it jumps and get out at the first sign that it is getting ready to fall.
The Motley Fool owns shares of CF Industries Holdings. Vatalyst 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.