The Finance Professor
Beyond the ethanol and agriculture (or "ag") buzz, there are several things to be learned about investing in food and food-related companies. You need to understand the food development process -- from the farm to our mouths -- and how to identify each step along that food itinerary to recognize the investment opportunities (and risks). I refer to this path from farm-to-portfolio
as the food investment chain. In this installment of the Finance Professor, I will look at this chain and help sort out the wheat from the chafe for your portfolios.
Down on the Farm With Machinery Manufacturers
We have to start with Mother Earth. Farmers need to get their farmland prepared to plant crops. Later on, once the crops are mature, the farmers will need to harvest those crops. In order to do this, they need to have farm machinery.
Efficient and productive agricultural equipment is vital to increasing farmers' yield. They require tractors, combines, harvesters, tillers, seeder and sprayers to achieve their objectives. With its deep agricultural and industrial heritages, the United States is home to the largest manufacturers of such equipment, however some international competition has garnered significant market share.
Here is a list of the largest agricultural machinery manufacturers:
| Agricultural Equipment |
||||
| Company | Ticker Symbol | Closing Share Price on 2/15/2008 | 2007 EPS (Earnings Per Share) | 2008 Estimated EPS |
| Caterpillar | CAT | 69.95 | 5.37 | 5.89 |
| Deere | DE | 85.00 | 4.00 | 5.11 |
| CNH Global | CNH | 48.37 | 2.60 | 3.49 |
| AGCO | AG | 64.49 | 2.52 | 3.25 |
| Source: Yahoo! Finance | ||||
| Seeds and Chemicals |
||||
| Company | Ticker Symbol | Price 2/15/2008 | 2007 EPS | 2008 Est. EPS |
| Monsanto | MON | 115.35 | 1.98 | 2.84 |
| Potash | POT | 148.04 | 3.36 | 6.67 |
| Mosaic | MOS | 103.37 | 0.80 | 3.72 |
| EI DuPont de Nemours | DD | 45.49 | 3.28 | 3.45 |
| CF Industries | CF | 118.17 | 6.57 | 9.59 |
| Agrium | AGU | 65.31 | 3.25 | 5.33 |
| Source: Yahoo! Finance | ||||
estimates, then CF and Potash offer some compelling growth relative to their peers. With a lower forward P/E
than Potash, Monsanto or Mosaic, CF appears to be a better value
play. Recently, I began a small position in CF after taking gains in Monsanto, because I still want to maintain longer term exposure to this part of the food investment chain.
Another player in this sector: Syngenta SYT, which I did not list earlier because the company is located in Switzerland and I was not able to get readily reliable data to present. However, I think that Syngenta is worthy of further analysis, thanks in part, to its $25 billion market capitalization
and its international exposure.
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