Agriculture stocks and other food-related stocks are supposedly some of the best bets for investors. In fact, this popular investing theme has shown up in pundit predictions every year for at least the past five years.
On the surface it makes sense. The world population is going to keep growing, with many expecting our total population to increase by almost 30% over the next 25 years. And a larger population will mean greater demand for food.
Plus, we have seen the middle class grow in several emerging markets like China and Brazil over the past decade, which should increase demand for higher quality food products.
But for investors, the real question shouldn’t be if this increased food demand will take place, but when.
And as attractive as the megatrend may be, it doesn’t appear to be taking place just yet.
If we load up all the agriculture stocks into Portfolio Grader, it becomes obvious that many of the leading agriculture stocks have poor fundamentals right now and should be avoided by most investors. The slowing world economy and an excess supply of many commodities has produced weakness among these stocks, and it will take time for the fundamentals to improve.
Among the leading fertilizer stocks, Potash (POT) is ranked a strong sell, while Agrium (AGU) is also a strong sell. Meanwhile, Mosaic (MOS) is a sell.
That doesn’t mean investors should flee the sector completely, though. Big agribusiness seems to be struggling right now, but a chain of stores selling to weekend home gardeners and smaller businesses is seeing strong fundamentals right now.
Tractor Supply (TSCO) operates more than 1,200 stores in the U.S. selling livestock, pet food and supplies, as well as products for the home lawn and garden crowd.
TSCO has met or exceeded analyst estimates in the last four consecutive quarters, while estimates for next year were recently raised since business continues to improve. The stock was upgraded to a “B” by Portfolio Grader back in July and remains a buy.
The bottom line is pretty simple. Yes, the growing population and demand for higher quality food will emerge and become a powerful trend. And when it does, Portfolio Grader will see the fundamental improvements in these companies long before Wall Street.
But those fundamental improvements simply aren’t taking place for ag stocks operating on a larger scale just yet. So for now, investors should be sure to buy local.
Betting on the backyard gardener has more potential than betting on the global farmer.
Louis Navellier is the editor of Blue Chip Growth. As of this writing, ACT was on the Blue Chip Growth buy list.