There is no easy way to say this, but the commodities complex is an absolute mess. Prices for pretty much every natural resource — from coal to copper — have spent the last year basically falling through the floor.
Thanks to lower demand, economic struggles in China and high supplies, most commodities investments have been absolute lemons.
But there is one statistic that may possible turn investor’s attention to the beaten down sector: 9.6 billion. That’s the number of people that the U.N. estimates will be on this planet by the time the calendar rolls over to 2050.
And while that sort of huge population speaks volumes for all natural resource demand, it really speaks the loudest when it comes to agriculture. Feeding that immense population is going to take a lot of spending, technological know-how and hard work. The UN’s Food & Agriculture Organization (FAO) estimate that food production will need to rise about 70% over the next 40 years.
This is going to send a lot of profits back to the various agricultural companies, and could make them the stocks to buy for the next few decades of growth. Ignoring the short-term pain in the sector and using the current downturn could be the smartest thing for long-term investors.
With all that said, here are the 3 agricultue stocks to buy for the long haul.
Stocks to Buy: Potash Corporation of Saskatchewan (POT)
Natural monopolies make for great stocks to buy, and one of the best is Potash Corporation of Saskatchewan (POT).
Unlike other fertilizer varieties, potash comes from the ground and is mined, rather than being created with chemicals. POT happens to own some of the largest potash mines in the world — five located in Saskatchewan and one mine in New Brunswick. Those mines, which the Canadian Government considers “strategic,” have helped POT become the world’s leading potash producer.
Potash Corp. is basically responsible for about 20% of the planet’s capacity of potash fertilizer. That gives it huge pricing and earnings power, as does its majority ownership of fertilizer cartel Canpotex.
But POT isn’t a one-trick pony, it also holds an array of nitrogen and phosphate assets as well. This makes it the stock to buy to load-up on long term fertilizer demand
In the short term, POT has suffered due to a couple of issues. One is lower potash demand. The other is a failed buy-out attempt for Germany’s K+S (KPLUY). Both have depressed shares and given POT stock a juicy 7.62% dividend yield.
But the long term is still rosy for Potash Corp., and now is the best time to snag shares of the fertilizer kingpin.
Stocks to Buy: Archer Daniels Midland Company (ADM)
After you grow it, you need to do something with it. And that’s why Archer Daniels Midland (ADM) is one of the best stocks to buy in the agriculture space.
The firm is one of the largest agricultural processors, meaning its takes raw corn, sugar or whatever and turns it end products for use as food, ingredients or animal feed. Corn becomes corn syrup, ethanol, livestock pellets or whatever.
The key for ADM comes its huge size and scope. The company’s global value chain spans six continents, 460 crop procurement locations, 300 ingredient manufacturing facilities and the largest logistics system for crops in the world. Like previously mentioned POT, that’s a monopoly that can’t be easily replicated by many other rivals — not even MGP Ingredients (MGPI) — providing ADM with a large competitive advantage.
And now is a great time to pounce on shares of ADM.
The problem is that ADM’s end products are very dependent on crop prices, which are currently in the toilet. But lower costs have helped Archer Daniels realized better margins recently. And free cash flows remain robust. With ADM stock at fresh lows and sporting a 3% yield, it’s tough to imagine a better entry point.
Stocks to Buy: John Deere (DE)
John Deere (DE) is certainly living up to its “Nothing runs like a Deere” tagline. In spite of the recent downturn in agriculture, DE is firing on all cylinders. DE has proven to be one of the best stocks to buy for long-term agriculture demand.
To be fair, DE’s latest sales numbers were a big disappointment. Lower crop prices make farmers less likely to buy new equipment, and lower oil and other natural resources prices have hurt the construction side of its business. In theory, this should give investors pause. But when it comes to the bottom line, Deere raked in the green. DE actually reported its sixth-highest earnings performance ever for a full year.
The key was a combination of cost controls and innovation. Like many firms, DE has been able to reduce its raw material, labor and other costs to help improve margins during the current agricultural downturn.
Secondly, DE isn’t selling your grandfather’s tractor anymore. Today’s tractors are basically brains with a plow, holding water and soil sensors, automatic driving systems and a host of other tech. They cost more, but farmers are willing to pay for greater savings down the road. DE can sell fewer tractors, but still keep revenues relatively high.
For investors, DE’s P/E of 14 and 3% yield makes it one of the best AG stocks to buy today.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.