Buy DuPont To Profit From Rising Agricultural Commodity Prices
Have you been watching the markets over the last few weeks? If you have you know how poorly the stock market has been performing (we’re now testing the 12,000 level). You also know that one part of the market is doing extremely well – commodities. The commodities markets are doing so well that most are trading at multi-year highs.
Can you believe it?
When most people think of commodities, they think of precious metals like platinum, gold, and silver. But there are also agricultural commodities. These Ag commodities include wheat, soybeans, corn and a myriad of other products.
Agricultural products, like precious metals, have been reaching new highs over the last few months. Wheat just a few weeks ago went limit-up on the market. If you don’t know, limit-up is a term specific to commodities. It’s when prices go up so much in one day that the market shuts down trading. They also do the same for limit-down, but obviously when the price falls. By halting trading they give investors and traders time to figure out what’s moving the market.
Wheat went up so much that the exchange actually increased the ranges for up and down limit movements. Basically, demand for food products like wheat continues to grow around the globe.
If you can grow it, its value is probably going up.
Now, this isn’t the first time we’ve pointed out this trend. As a matter of fact just a week ago I authored an article, “Serious Money in Farming.” I talked about growing demand for these commodities on a global basis. I also mentioned a number of investments that would benefit, including:
- Deere (DE) – Provider of farm equipment.
- Monsanto (MON) – Provider of seeds and herbicides.
- Mosaic (MOS) – Provider of fertilizers.
- Potash (POT) – Supplier of fertilizers.
These companies have performed so well over the last few months that without exception they are all at, or very near, their 52-week highs. Some have even reached multi-year highs as well. Several subscribers have asked us about buying these stocks at these levels. They’re concerned that they may be “chasing” the market.
That got me thinking.
Do we really want to chase these stocks? Maybe. Maybe not. I happen to believe that we are in a multi-year bull market for commodities. As a result, these companies should do well over the next several years. Buying them on pullbacks could be a great way to build a portfolio.
But there may be a different way to profit from the growth in the agricultural industry.
I was doing some research when I came across a company that I found very interesting. They’re one of the largest suppliers of corn and soy seeds. They also provide insecticides and herbicides to help farmers grow better crops.
The company sells more than $6.8 billion worth of product every year to this growing industry. Amazingly, however, the company is trading just off its 52-week lows! Why the discount? Simple. Agricultural products aren’t the only thing the company sells.
Now before you call me crazy let me explain something. The whole company generated more than $29.3 billion in revenue and $2.9 billion in net income. Some 60% of that revenue came from sales outside the US (this means the falling dollar helps their financials). The agricultural side sold more than $6.8 billion of product (which grew 14% year over year) and made more than $894 million in profit. This represents more than 23% of the total business.
So, this company is not a new kid on the block. They’ve been around for years, and just paid their 414th consecutive dividend – with a yield around 3.5%. For those of you fast on the math, that’s a dividend every quarter since 1904. On top of that, the company reaffirmed guidance for 2008 (everyone knows how rarely that’s happening these days!).
So, without further delay, my interesting idea for the day is DuPont (DD) – the secret way to play the agricultural boom. Take a closer look and see if they’re right for your portfolio.
Category: Commodities
