This article was written by Stockpickr member Ira Krakow.
During the current market slowdown, the classic "defensive" investment plays -- consumer-focused companies like
Procter & Gamble
, -- have fallen along with the rest of the market. Meanwhile, stocks in the once sleepy agriculture industries, such as
, have been on the rise.
As the recent stock picks of the Boston-area
show, this shift in the market has not gone unnoticed.
B.C. Diversifies With Cal-Maine
While B.C.'s current investment club portfolio is heavily weighted in financial and technology companies like
JP Morgan Chase
, the group sees agriculture and broader commodity-based stocks as ways to significantly
diversify their investments. Portfolio manager Anthony Vitiello explains, "Crop prices are negatively correlated with
The BCIC's pick:
, the largest producer of shelled eggs in the United States.
Why: "Even in these times, egg demand is steady, and Cal-Maine
was selected, because of their dominant position in this market.
Cal-Maine can pass on their costs to the customer," says Vitiello. "With a
P/E of 5.14%, representing an 80% discount from its competitors, 26%
and an 11%
, Cal-Maine has attractive financials."
Anticipating a positive earnings announcement on April 30, the BCIC bought Cal-Maine at $28 per share.
Vitiello's take on the agriculture business: "To have a view on 'ag,' you need a view on crop prices. If crop prices keep rising, Potash ,
and Monsanto will continue to have demand to fill."
Babson Checks Out Chile
Nearby, Babson College's student investment managers look south for potential agriculture plays.
The Babson College Fund's basic materials
sector team analyzed Chilean specialty fertilizer company
Sociedad Quimica y Minera de Chile
, a play on both the current positive commodities market and the red-hot Chilean economy.
According to portfolio manager Antonio Turner, there's plenty of demand for SQM's products. "In addition to its dominant share of the plant nutrient chemicals market (48% of the world market), SQM is the world's leading producer of lithium carbonate (34%) and iodine (33%). Lithium demand should perk up with increased production of hybrid cars, which use lithium batteries. SQM is also a play on increasing worldwide demand for fertilizer products because of higher demand for meat, and therefore grain."
However, SQM as a stock, is a different matter.
Turner and his team concluded that "SQM is fairly
valued at its
current price." How? "We used
analysis of SQM against its competitors,
and Potash," says Turner.
The BCF's industrials team also raised a red flag after they analyzed agricultural, forestry and commercial/consumer equipment manufacturer Deere.
According to the team's recent report, "Deere is well positioned to continue to benefit from the macro conditions in the agricultural sector... We don't rate Deere a Buy due to their exposure to the consumer and construction markets, which offsets gains from the agriculture sector."
How did the three agriculture stocks that Babson and BC focused on fare this week and
year-to-date (YTD)? Here is a performance breakdown based on each stock's
closing price on Friday, April 18:
Cal-Maine: $28.94; up 5.5% this week, up 9.08% YTD.
SQM: $30.80; up 7.43% this week, up 74.31% YTD.
Deere: $92.68; up 7.38% this week, down 0.47% YTD.
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