#3 Agrium (AGU)
The recent unrest in North Africa began as food riots, and the only way to increase crop yields in order to bring down prices is via better seeds and fertilizer.
That brings us to Agrium (NYSE: AGU), one of the most diversified ways to play a continued recovery in agricultural demand. The company produces fertilizer nutrients with an emphasis on nitrogen and smaller, regional positions within potash and phosphates.
In addition, the U.S. Department of Agriculture recently reported corn planting intentions of 88.8 million acres — a 3% increase over last year’s 86.5 million acres. This represents the second-highest year for corn planting in more than 50 years, so strong industry sales of fertilizer can be expected.
Overall, long-term secular trends in the agriculture industry are good reasons to consider owning Agrium. Not to mention that Chinese agriculture companies tend to benefit when food prices rise — as long as those prices don’t rise too much to receive the attention of the Chinese government in the form of price controls, or too quickly to take a serious bite out of consumer demand — and I expect we should see continued upside in many of the biggest stocks in China’s agriculture space.
Currently, AGU trades at 12 times forward 2011 earnings — much lower than the majority of its competitors. I view this global investment as a bargain in the fertilizer space.
#4 Brazilian Small Caps
In general, small-cap stocks do better in inflationary times than large-cap stocks. The most leveraged small-cap sector to such a trend would be Russian small caps, due to the highest leverage of the Russian economy to energy and metals prices. But for now, we don’t have easy access to many Russian small-caps, and there are no Russian small-cap-only ETFs yet.
However, we do have a small-cap ETF from the next-most-leveraged market to natural resources — Brazil.
The Market Vectors Brazil Small Cap ETF (NYSE: BRF) had a great 2010, and it presents a compelling entry point at current levels after the recent correction for new investors in 2011. One to two sharp corrections per year is entirely normal in an ongoing bull market, and barring any dramatic escalation on the geopolitical front, we may be ready for an extended trend higher.
There are no ADRs for the small-cap Brazilian stocks represented, so this ETF is a great global investment to gain exposure to the “real” Brazil.