In a review of his aggressive model portfolio, global expert Martin Hutchinson—editor of Pacific Wealth—highlights two agriculture-related stocks best suited for a buy and hold strategy.
For long-term holdings we look for companies with highly defensible positions that pose little financial risk and where growth over the long-term is most assured.
Based and listed in Singapore, Olam International (OLMIY) is Asia’s largest agri-commodities trader operating in 65 countries, with some upstream diversification into production.
It specializes in cocoa, coffee, cashew, rice, and cotton and has 23,000 employees.
Olam’s 2014 sales totaled $14.3 billion, with net income excluding one-time expenses of $239 million. Olam’s net income tripled in the second quarter of 2015 to $67.8 million, while revenues fell 16% on lower trade volumes.
Olam also announced the sale of a 20% stake to Mitsubishi Corp. (JP: 8058) in two deals totaling $1.09 billion, at a 29% premium to the current share price. The deal should increase Olam’s opportunities in Japan.
The company trades at 19 times historic earnings but at only 10.8 times 4-traders’ estimate of 2016 earnings, with a dividend yield of 3.9%.
I like the Asian commodities business because of its favorable growing conditions and proximity to major markets.
Olam’s business has also benefited from currency devaluations in countries such as Indonesia, which have made Olam’s products more competitive.
Wilmar International (WLMIY) is Asia’s largest agribusiness company and the global leader in processing and merchandising palm and laurics oils.
With more than 450 manufacturing plants in 18 countries, Wilmar is one of the largest palm plantation owners in Indonesia and Malaysia.
It is also the largest oilseed crusher, edible-oils refiner, and specialty fats and oleochemicals manufacturer in China, as well as being one of the largest flour and rice millers.
The company, therefore, benefits both from growth in Indonesian agribusiness exports and growth in Chinese agricultural products imports.
Wilmar is also the largest raw-sugar producer and refiner in Australia and has substantial and rapidly growing operations in India and Africa.
Wilmar reported second quarter earnings in 2015 were up 18%, although revenue declined 12% as a result of lower commodity prices. For the half-year, net income increased 33% on a 10% decline in revenues.
The shares currently have a prospective 2016 P/E of 8.7 times estimated earnings and a prospective dividend yield of 3.1%. With its premier position in Asian agribusiness, Wilmar should be a core holding.
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