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For those who do not want to invest a lot of time in investing research, a good opportunity is the Power Shares DB Agriculture Fund (DBA) which tracks an index of 10 agricultural commodity futures contracts. It has been a terrible ride for the ETF in the last 5 years as it is down 33% since 2011 and at historical lows.
The ETF is at historical lows, but as demand for food is expected to grow and all the potential influences on prices are currently negative from climate effects to low input costs, the downside seems very limited. Low prices simply do not make farming attractive, so sooner or later the market will return to balance and push prices higher. Any sign of natural or economic shocks would make food prices skyrocket as they did in 2008, 2011 and 2014.
The Andersons Inc.
The Andersons Inc. (NYSE: ANDE) is a US company that specializes in grain, ethanol, plant nutrient and food rail transportation.
ANDE suffered along the slump in agricultural commodities and fell to prices below $25 in the last few months but quickly recovered as it received a takeover bid at $37 per share. ANDE’s management refused the offer considering $37 is a price below long term value. ANDE has had an average EPS of $2.45 in the last 10 years which means that the CAPE (PE ratio based on 10-year average earnings) was at 10, which is low for a company that almost doubled its revenue in the last 9 years. Also, its price at $25 was below the book value of $26.6.
ANDE is still a good opportunity at current prices as the management rejected the $37 bid as it was too low, so the potential is there. Buying ANDE on any dips should bring good returns as eventually a deal will happen. Let us now check other options that are not yet takeover targets or have similar potential.
Adecoagro S.A.
Adecoagro S.A. (NYSE: AGRO) is a diversified agricultural company that engages in food producing and land transformation in South America.
The South American company offers a double recovery investment potential as a rebound in the South American political and economic situation would push all stocks higher. As for food, AGRO is well diversified and would also benefit from any rebound in food prices.
AGRO’s stock price has already jumped as 26% of its sales derive from sugar, but in the longer term it should benefit from both a recovery in South America and increased food prices.
Food is something we live on and historically it has been a cyclical business. We should be close to a bottom of the food price decline cycle, but timing the exact bottom is a fool’s errand. In the long term, food prices should recover and companies like ANDE, AGRO, and food ETFs will provide good diversification and a good opportunity to enter the industry at bottom prices.
source: investiv
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Agricultural commodities ETF since 2007
Agricultural commodities ETF since 2007
The ETF is at historical lows, but as demand for food is expected to grow and all the potential influences on prices are currently negative from climate effects to low input costs, the downside seems very limited. Low prices simply do not make farming attractive, so sooner or later the market will return to balance and push prices higher. Any sign of natural or economic shocks would make food prices skyrocket as they did in 2008, 2011 and 2014.
Companies
The Andersons Inc.
The Andersons Inc. (NYSE: ANDE) is a US company that specializes in grain, ethanol, plant nutrient and food rail transportation.
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ANDE’s stock price last 12 months
ANDE’s stock price last 12 months
ANDE suffered along the slump in agricultural commodities and fell to prices below $25 in the last few months but quickly recovered as it received a takeover bid at $37 per share. ANDE’s management refused the offer considering $37 is a price below long term value. ANDE has had an average EPS of $2.45 in the last 10 years which means that the CAPE (PE ratio based on 10-year average earnings) was at 10, which is low for a company that almost doubled its revenue in the last 9 years. Also, its price at $25 was below the book value of $26.6.
ANDE is still a good opportunity at current prices as the management rejected the $37 bid as it was too low, so the potential is there. Buying ANDE on any dips should bring good returns as eventually a deal will happen. Let us now check other options that are not yet takeover targets or have similar potential.
Adecoagro S.A.
Adecoagro S.A. (NYSE: AGRO) is a diversified agricultural company that engages in food producing and land transformation in South America.
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AGRO’s geographical footprint
AGRO’s geographical footprint
The South American company offers a double recovery investment potential as a rebound in the South American political and economic situation would push all stocks higher. As for food, AGRO is well diversified and would also benefit from any rebound in food prices.
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AGRO’s sales growth and diversification
AGRO’s sales growth and diversification
AGRO’s stock price has already jumped as 26% of its sales derive from sugar, but in the longer term it should benefit from both a recovery in South America and increased food prices.
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AGRO’s stock price
AGRO’s stock price
Conclusion
Food is something we live on and historically it has been a cyclical business. We should be close to a bottom of the food price decline cycle, but timing the exact bottom is a fool’s errand. In the long term, food prices should recover and companies like ANDE, AGRO, and food ETFs will provide good diversification and a good opportunity to enter the industry at bottom prices.
source: investiv
back to: [You must be registered and logged in to see this link.]
