A diverse retirement portfolio should contain stocks from a number of different sectors. With America in the throes of unpredictable spring weather, now is the perfect time to consider agricultural stocks. Not just because it’s the beginning of the seasonal growing period, but also because agriculture is one of the most diverse sectors. One good reason to consider agricultural stocks is because the sector is booming, especially exports.
Between fiscal 2009 and 2012, U.S. agricultural exports increased 41% to $135.8 billion. Going forward, world trade growth is expected to climb to between four and five percent in 2013. Europe’s recession and Japan’s economic slowdown will be major factors preventing more rapid growth in 2013. At the same time, the U.S., Asian, and Latin American economies are expected to drive higher growth in 2013. (Source: “Latest U.S. Agricultural Trade Data,” United States Department of Agriculture web site, May 2, 2013, last accessed May 16, 2013.)
And 2013 is shaping up to be a record year for U.S. agriculture. Year-to-date, U.S. agricultural exports are up 10.9% at $79.2 billion versus the same period in 2012. Thanks to overall world macroeconomics, fiscal 2013 U.S. agricultural exports are forecast at a record $142 billion. (Source: “Outlook for U.S. Agricultural Trade – FY 2013 Exports Forecast at a Record $142 Billion; Imports at a Record $112.5 Billion,” United States Department of Agriculture, Cornell University Library web site, February 21, 2013, last accessed May 16, 2013.)
As one of the most diverse sectors, where should investors interested in U.S. agricultural stocks turn? The agricultural sector contains the more obvious, traditional operations—those that grow crops and raise livestock to processors who prepare and package the products for sale.
The agriculture sector also includes a number of agribusiness companies. Unfortunately, there is no real definition of what constitutes an agribusiness; any company that derives at least half of its revenue, either directly or indirectly, from agriculture is a good starting point.
In which case, there are a lot of companies operating in the agriculture sector, including those that manufacture tractors and other farm implements. Perhaps more surprisingly, there are some mining companies that can also be placed comfortably under the agriculture umbrella.
Potash is an essential ingredient in fertilizer, used to strengthen plant stalks against drought and disease. As a result, certain mining companies cross over to the agribusiness sector, because a large portion of their revenue is derived from the farming community.
Given that 2013 is expected to be a record year for U.S. agricultural exports, a multi-crop product like fertilizer could be a good place to start investing.
Potash Corporation of Saskatchewan Inc. (NYSE/POT) sells fertilizers and related industrial and feed products in the United States and Canada. The company has a market cap of $37.3 billion, a forward price-to-earnings (P/E) ratio of 13.1, levered free cash flow of $528 million, and an annual dividend of 2.6%.
During the first quarter of this year, Potash Corp. announced that sales were up 56% in North America and up 74% in the rest of the world. That helped the company report strong first-quarter net income of $556 million, or $0.63 per share, versus the $491 million, or $0.56 per share, in the same prior-year period. (Source: “Q1: Potash Corp First-Quarter Earnings Increase to $0.63 per Share,” Potash Corporation of Saskatchewan Inc. web site, April 25, 2013, last accessed May 16, 2013.)
Potash Corp. recently released data showing strong month-over-month potash export sales and a decline with inventories. The company also said potash sales are up in China, Latin America, and India, which signals growing international demand. (Source: “Complete Market Data,” Potash Corporation of Saskatchewan Inc. web site, May 13, 2013.)
Another fertilizer company with an upbeat outlook is Agrium Inc. (NYSE/AGU). The company supplies crop products and crop nutrients, such as dry and liquid nitrogen, phosphate, potash, and other fertilizer products, including time-release crop-nutrient technologies.
The company has a market cap of $13.3 billion and a forward P/E of 9.3; Agrium provides an annual dividend of 2.2%. The company reported first-quarter net income of $141 million, or $0.94 per share, a record $351 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), $3.2 billion in revenue, and its approval of a share repurchase program of up to five percent. (Source: “Agrium reports strong first quarter results,” Agrium Inc. web site, May 9, 2013.)
In spite of the cold, wet spring weather, these agricultural stocks still expect demand to be excellent, thanks to underlying agricultural fundamentals.
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