Is Agriculture The Key To Real Portfolio Growth?
Mitchell Clark: If you’ve ever been into horses, you know that you can spend as much money as you’ve got—and plenty more—on their care. Personally, I like draft horses; Clydesdales, in particular. But the thing about a draft horse is that it can eat a lot of food. And during the drought last year, hay costs soared.
Agriculture (NYSEARCA:DBA), as an investment theme, is consistently on my mind, but it is a stock market sector that is limited. The marketplace is dominated by only a handful of companies. There aren’t a lot of publicly traded agriculture stocks that would be considered mid-cap; the same goes for small-cap companies.
On the stock market, E.I. du Pont de Nemours and Company (NYSE:DD), or DuPont, hasn’t been great, though its dividends have. Looking at the company’s agriculture-specific business, which represents approximately one-fifth of total revenues, business conditions are the strongest of all divisions. (See “Why Dividend Increases and Stock Buybacks Will Continue.”)
According to the company, 2012 fourth-quarter agriculture revenues grew to $1.5 billion, for a solid gain of 18%, of which, 11% was due to volume and seven percent was due to higher prices.
For the year, total agriculture revenues were $10.4 billion, representing growth of 14% on an eight-percent gain in volume and a six-percent gain in prices. (Who says there’s no inflation?) The company reported that its “Pioneer” seeds are benefiting strongly from pricing gains in corn and soybeans. Crop protection sales are also growing on “strong demand” for insecticides and herbicides in all regions. (Source: “DuPont & Co. 4Q and 2012 Earnings,” E.I. du Pont de Nemours and Company web site, last accessed March 28, 2013.) The company’s stock chart is featured below:
Chart courtesy of www.StockCharts.com
DuPont has seen virtually no growth in its performance chemicals and electronics and communications businesses. Currency translation also is affecting its numbers.
It would be absolutely ideal if DuPont were to spin off its agriculture division into a separate company that traded on the stock market. I think this would be a very attractive asset.
Like many multinational corporations, DuPont is having trouble in Europe.
There are some speculative companies trading on the stock market related to agriculture, specifically seed development, but very few are considering the universe of equities.
Agriculture is a sector that is dominated by a handful of large-cap companies and a significant amount of private interests. I think any long-term stock market portfolio would benefit from having an agriculture-related holding.
Buying farmland is also an ideal investment strategy for the long term. It’s a great way to counter all the investment risks in the world. But this is not a realistic opportunity for most investors.
One large-cap agriculture company that has been doing very well on the stock market is Bayer Aktiengesellschaft (OTCBB:BAYRY). The maker of “Aspirin,” Bayer has a significant portion of its business in agriculture and crop science. The company’s 2012 earnings results revealed that its agriculture division was the standout in terms of growth.
This is an investment theme with excellent potential.