Tag Archives: calendar
Deere & Company (DE): Agriculture Leader Trading At 30% Discount
August 14, 2013 The second key to Deere’s long-term success is its leading position in developed economies including the US and Canada. In spite of recent weakness in crop prices, the US Department of Agriculture is projecting farm income to rise by 14% in 2013, totaling $128 billion. Those billions of dollars of income will be reinvested by farmers and producers, with an emphasis on upgrading older machines or simply buying new ones. Although not growing as quickly as it’s the South American region, North America is a huge market for Deere that continues to deliver steady sales and earnings growth. In addition to sales and earnings growth, Deere also carries a solid dividend yield of 2.5%. On the earnings front Deere is expected to grow earnings by 12% this year and 9% annually in the next five. That’s not exactly jaw-dropping growth, but Deere is a steady market leader in position to deliver steady and predictable returns. That is the right model and goal for a solid blue chip like Deere. But the best part of Deere right now is its valuation. Its forward P/E of 10x is a huge discount to its 10-year and peer average of 13x. The Takeaway Looking ahead, Deere will be facing some headwinds, with slow growth in Europe and rising production costs weighing on margins. But big picture, this is a great company and stocks for investors that are bullish on the long-term trend in agriculture. If shares simply traded with the same valuation as its peers, Deere would jump to $106, a 30% premium from current levels. Continue reading
Agriculture: The Good and Bad in a Sector that Looks Cheap*
By Martin Tillier, August 14, 2013 MOS) have borne the brunt of the losses in price as evidenced by a chart of an ETF that tracks them, Global X’s Fertilizer ETF SOIL . This has led many to conclude that there is value to be had there, but the news that caused the big drop at the end of last month is still relevant. The Belarusian Potash Company, a joint venture between Belaruskali and Russia’s Uralkali was unwound. This giant producer had enormous pricing power, and the ending of the cartel has produced a sharp drop in prices around the globe. The problem I see is that artificially high prices have, over the years, resulted in increased supply. This level of supply is still there and, at market pricing, it will be years before the supply and demand equation comes back into balance. In a few months, the recent bounce back may start to look like a pause in a medium term decline in the industry. Long term, it will undoubtedly present some opportunities, but the industry may well have further to fall before that happens. Agricultural supply companies not dependant on potash have also underperformed in general this year and the best value may be found there, but again, not all are equal. Monsanto ( MON ) is a controversial company because of their focus on genetic modification. That may continue to weigh on the stock, but my reasons for staying away have more to do with valuation and the technical look of the chart. The series of lower lows and lower highs evident here is hardly encouraging. Couple that with a P/E over 18 and the company looks, at best, fairly valued. The Good Valmont Industries ( VMI ) is not a pure play on agriculture. Their fabricated metal and coatings products have other applications, but the company was founded on irrigation systems and they are still their best known product. With a global concern about water usage and conservation, their expertise in that area should be invaluable in the future. They are a solid, profitable company and a P/E around 12 looks remarkably cheap. In this case, a bottom seems to have been found just above 130, which, if nothing else, gives a decent stop-loss level. Deere & Company ( DE ) is probably the best known agricultural supply company outside the industry, due to their consumer products division. They too have underperformed massively this year, losing a couple of bucks overall. Assuming continued gradual recovery in the consumer area and growing demand from agriculture, DE also looks good value at a P/E under 10. A more global play can be had by an investment in the IQ Global Agribusiness Small Cap ETF ( CROP ). This fund is actually up around 10% YTD, but has still underperformed the market. The fund’s focus on small cap agricultural businesses around the world makes it more risky than DE or VMI, but it is a pure bet on the growth of agriculture around the world. As demand increases, so technological advancement becomes key, and an investment spread amongst small companies makes it more likely that you will have a piece of “the next big thing” when it comes along. As the stock market continues to move basically sideways, the importance of identifying sectors with potential for growth is exaggerated. In the case of agriculture, the opportunity is there, but it is not universal. Internal dynamics could keep the fertilizer suppliers depressed for some time, but in other areas a simple return to the mean will provide a decent profit. We all eat (some more than others: see my picture above) and the world’s population continues to grow, so demand for the end product of agriculture is assured. It is possible to profit from this, but selectivity is the key. *I cannot tell you how strongly I had to resist the temptation to write a headline about “planting a seed” or “reaping a profit”! Read more: http://www.nasdaq.co…7#ixzz2c3QqpE81 Continue reading
A Big Yield and Growth in Global Agriculture
By Selena Maranjian August 8, 2013 Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you’d like to add some global agriculture stocks to your portfolio but don’t have the time or expertise to hand-pick a few, the IQ Global Agribusiness Small Cap ETF ( NYSEMKT: CROP ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best , you can use this ETF to invest in lots of them simultaneously. The basics ETFs often sport lower expense ratios than their mutual fund cousins. The IQ ETF’s expense ratio — its annual fee — is 0.75%. The fund is fairly small, too, so if you’re thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in. This ETF is too new for us to be able to infer much from its performance. (It did underperform the world market last year.) It’s the future that counts most, of course, and as with most investments, we can’t expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver . Why global agricultural small caps? It’s a win-win-win proposition: It’s smart to diversify your holdings geographically, so that one region’s downturn doesn’t derail your performance. Agriculture is a solid defensive sector, as the planet’s growing population will always need to eat. And small caps, while they can be more risky than larger companies, also offer more growth potential. (This ETF holds some more established mid caps as well.) More than a handful of global agricultural companies had strong performances over the past year. GNC Holdings ( NYSE: GNC ) surged 36%, offering health and wellness products in the U.S. and abroad from more than 8,000 retail outlets. It’s near a 52-week high and yields 1.1%. The company benefits from more than 2,000 store-within-a-store locations in drugstores and elsewhere, and is expanding beyond that model in China, building stand-alone retail locations. In its recently reported second quarter, revenue rose 9% and EPS nearly 18%. The company faces online competition , but it is finding some success with its Gold Card membership program , which has more than 8 million members. Other companies didn’t do quite as well over the last year, but could see their fortunes change in the coming years. Dole Food ( NYSE: DOLE ) , for example, climbed only 3%. The company has been strengthening its balance sheet (in part by selling Dole Asia), but earnings and free cash flow remain in the red. Its founder has made a buyout offer for the company, but with the company on more solid footing these days, it might not be shareholders’ best option. American Vanguard ( NYSE: AVD ) , specializing in agricultural chemicals, shed 9%. In June, it tempered near-term expectations, citing wet weather in the Midwest and Southeast. Its second quarter did indeed disappoint , with revenue up 2% and earnings per share down 3%. A more promising note is an agreement to co-market its Impact herbicide with Monsanto offerings. Management expects solid demand in the second half of the year. CVR Partners, L.P. ( NYSE: UAN ) slid 16%. A master limited partnership ( MLP ) focused on nitrogen fertilizer, it yields a hefty 10.5%. The company’s recent performance was whacked by a plant shutdown for repairs, but production there has resumed. (The company has just that one plant, so the shutdown was quite a big deal.) Its recent quarter was solid, with record production of urea ammonium nitrate (UAN) and a rosy outlook, as CVR’s UAN facility has been expanded. Bulls like both its growth prospects and its massive yield. The big picture Demand for agriculture isn’t going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies — and make investing in and profiting from it that much easier. This isn’t the only ETF that might intrigue you. You can learn more about a few ETFs that have great promise for delivering profits to shareholders by checking out The Motley Fool’s special free report ” 3 ETFs Set to Soar .” Just click here to access it now. The Fool just turned 20; our paying members are getting rich… And we’re in a mood to celebrate. That’s why our top stock pickers (just ranked #1, #2, and #3 over the last 5 years according to an industry watchdog) are about to roll out the next generation of Motley Fool signature stock picks. We’re talking about what could be the next Amazon (1,700% gains)… Priceline (up 3,300%)… or Netflix (up over 1,500%)… In fact, we believe so strongly in all this, we’re plunking down our own company money on a few of these stocks! And we want to invite you along to see it all – FREE, no strings attached. Just enter your email address, and we’ll be in touch. Continue reading
