Oh, Soy!

01/23/2004 12:00 am EST


"Agriculture isn’t the boring business many suppose it to be," says Elliott Gue, who selects a play on potash. Neil George goes for global grains and contrarian, Mike Norman see contaminants in salmon as a boost in demand for soy. Here are their food processing favorites. (For more information on these advisors, please click on their photos below.)

Gue, Elliott"No one seemed to notice last year as soybeans saw the biggest bull market in over a decade amid massive export demand from China," says Elliott Gue, editor of Wall Street Winners and co-editor of Personal Finance. "The reason is simple: They need the food. Both India and China have huge populations and rapidly growing economies and that translate into many mouths to feed. A big part of making Chinese agriculture more efficient is fertilizer. Good fertilization can dramatically increase China’s ability to produce the basic foodstuffs it needs. And almost all fertilizers contain an ingredient known as potash—a mineral that China simply doesn’t have enough of. In fact, industry estimates put China’s requirements at about 10 million tons a year by 2010, of which they’re only able to produce about a million tons domestically. And the US agriculture industry isn’t in trouble—in fact, it’s thriving, so you can expect domestic demand for fertilizer to continue growing apace. IMC Global (IMC NYSE) is one of the largest processors of potash. The company was recently part of a consortium that agreed to supply China with 1.5 million tons of potash in 2004. Potash prices are on the rise and that’s sure to start showing up in IMC’s profit margins soon. I’m adding IMC Global to the portfolio as a buy under 10.25 with a stop/loss at 8.49."

George, Neil"Archer-Daniels-Midland (ADM NYSE) not only ranks among the world's biggest firms, but its stock ranks among the world's best buys," says Neil George, editor of Personal Finance. "The stock, a holding in our Growth Portfolio, is benefiting as food and other agricultural products have begun to get pricier. And that's before added demand of corn and other grains for fuel additives get bumped up significantly. But while the US market alone would be good enough to justify owning ADM, it's the progress abroad that's the real kicker. After lots of hard work during the past few years, aided by US diplomatic assistance, the company's sales abroad nearly equal its US deals. And foreign sales are climbing by an average of nearly 50% annually. Everyone from China to Brazil is beginning to embrace ADM's products, technologies, and services, setting the stage for even bigger gains to come. Keep buying ADM up to 18."

Norman, MichaelMeanwhile, Michael Norman, editor of Economic Contrarian, offers other reasons to look at food producers. He explains, "A report from researchers at Indiana University indicates that high levels of chemical contaminants are being found in farm-raised salmon." "Farmed fish is a hugely important (and rapidly growing) source of global protein. The source of the contaminants is the feed that is used, which is primarily fish-based. This could trigger a shift to more vegetable-based feedstock, like soy, where companies like Archer Daniels Midland (ADM NYSE), ConAgra (CAG NYSE), and Bunge (BG NYSE) are big players. Archer, the soybean leader, trades at an attractive, 15 forward P/E, while Bunge trades at a miniscule trailing P/E of eight, and a forward P/E of only 12. ConAgra also pays a 4% dividend yield. In addition to the long-term implications of the fish farming report, soybean prices have recently jumped to new, multi-year highs on evidence of reduced global stockpiles. Other agricultural commodities, like wheat, show similar fundamentals. Moreover, global trade talks (the Doha round) may resume again after being scuttled in Cancun earlier this year. If so, it means movement toward an agreement ending heavy farm-export subsidies may be coming closer. These agricultural stocks look very attractive in a market environment where bargains are becoming increasingly hard to find. Buy them."

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