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Looking for stocks that will benefit in 2013, no matter who wins the presidential race in Washington? Look no further!
I’m keeping a close watch on two “bipartisan” stocks whose fate won’t be decided by who gives the acceptance speech on Nov. 6. Instead, these stocks are powered by an unstoppable megatrend that transcends our country’s borders.
According to the United Nations’ Food and Agriculture Organization, the growing gap between global food consumption and production could create a situation leading to an increase in regional food crises around the world.
And companies that have the capacity to bring relief to these troubled regions could see their share prices multiply, especially as we enter the winter “slow-growing” season in the United States.
Before we get to the two stocks I think are set to soar in 2013, first let’s take a look at the deficit when it comes to feeding the growing world population.
We’ll also look at how companies can help to close the supply gap by doing their part to help feed the world and to reward investors at the same time.
On the DEMAND side, lifestyles, incomes and social organization determine consumption levels.
The drought that ravaged the American heartland this past summer is being felt all the way on the other side of the world.
China is the world’s biggest importer of U.S. agricultural products. And Chinese food importers are bracing for the higher food prices caused by this natural disaster.
But this doesn’t mean they are buying less.
Soybeans in particular are vital to the Chinese food supply. They are a critical feed crop for the country’s pig farmers, who produce more than half of the world’s pork.
Pork consumption has surged as more Chinese regularly eat meat. And last month, the volume of U.S. soybean export shipments was at a record high. This trend could continue in the same manner for several months.
In fact, because of a depletion of competing stocks from South America, soybean importers around the world are locking up supplies from the United States.
Supplies that have to be replenished during, or even before, the next official growing season.
On the SUPPLY side, technology used affects how wasteful or environmentally harmful the food-production processes are.
Growers claim to use appropriate technologies that could halt or slow down environmental degradation. And many do, likely to the best extent they can.
Yet things like poverty, legal restrictions and other factors may keep some farmers from always using best practices in their trade.
That’s why the world’s top seed and crop-protection companies are battling to develop new technologies — to help improve productivity for farmers grappling with increasingly erratic and extreme weather conditions.
As I mentioned in a recent article, genetically modified seeds have gradually increased production … but not without political and economic resistance.
Ultimately, the population growth in emerging economies will multiply these effects.
Population is always part of the equation. The more people there are, the greater the impact on the environment. In turn, this means a greater impact on food-production capacity.
And it’s just a matter of time before the food inflation affects meat prices in the U.S.
While we may have dodged higher prices as more beef came to slaughter this year, smaller herds going forward will result in higher meat prices next year.
So how do we invest for the coming higher prices?
Trade Idea No. 1 — Syngenta (SYT)
Syngenta, the world’s largest agrochemicals company, reiterated its financial targets this week, after a strong start to the planting season in Latin America.
Third-quarter sales were up 6% to $2.7 billion. And sales in Latin America, the group’s most important geographical zone at this time of the year, rose 18% to $1.1 billion.
The company has been in acquisition mode recently. Syngenta last month agreed to buy agro-biotech company Devgen for $526 million and biological-controls company Pasteuria Bioscience for $113 million.
By buying up smaller makers of biological alternatives as well as genetically modified traits, it’s aiming to boost revenue to $25 billion by 2020 from $13.3 billion.
The bottom line is that its plan appears to be working.
In an environment where company managements are talking about peaking earnings, it’s a huge positive that Syngenta management is confirming higher EBITDA margin and EPS growth. And this should reflect in its “growing” share price, which is currently trading just below $76.
Trade Idea No. 2 — Monsanto (MON)
The last time we talked about Monsanto, I got a lot of strong feedback. And the stock is nearly $10-per-share higher in just those past three months. So, like the company or not, this stock is on the move.
However, I’m looking for a lower price on Monsanto before considering it a potential buy. It’s currently near the top of its 52-week trading range at $86 and change.
Traditionally, fourth-quarter earnings are the weakest, as farmers in the U.S. and Europe have not yet started to purchase seeds for spring planting. So, not surprisingly, this stock was on a major upswing until the company reported fourth-quarter revenues of $2.11 billion, down 6.1% on the year.
In the most recent quarter, the company reported a gross profit of $881 million. This was a big step down from last year’s $972 million. Monsanto also posted a net loss of $229 million, or 44 cents per share. This compares to last year’s loss of 22 cents per share.
Numbers were slightly below analysts’ consensus, but the stock is still up 25% year-to-date.
For full-year 2012, Monsanto generated revenues of $13.5 billion, up 14% on the year. The company reported a net profit of $2.04 billion, up 27% on the year. Full-year earnings per share came in at $3.70 per share.
Basically, the best approach with this stock is to take a longer-term view. They’ve proven they are a global winner with back-to-back years of tremendous performance and momentum.
From my perspective, I’m looking for any meaningful pullback to be an entry point to get in to the stock.
But this is one of the most controversial stocks I follow. And last month, critics got another reason to hate Monsanto.
An appellate court in Mato Grosso upheld an injunction requested by a group of growers to stop fee collections in the state before a trial challenging patents for the genetically modified beans.
In response, Monsanto will temporarily suspend the collections in Brazil, its third largest market after the U.S. and Europe-Africa.
These two companies are both up over 25% since the start of the year.
Even with a slight pullback here, these are likely to continue outperforming the overall markets. With returns on equity of 17%-20% and no net debt, these are clearly strong financial plays too!
I like the agriculture sector as a way to make money in 2013 and will be watching these two global large capitalization stocks to add to my Emerging Market Winners service. Get on board now and you’ll be among the first to find out when it’s time to buy, how much to buy and, most importantly, when to take profits! Start your risk-free trial today by clicking here now.
Best wishes,
Rudy
P.S. Whether Obama gets four more years as No. 44 or Romney gets a chance to prove himself as No. 45, the real winner in this election can be YOU!
On Nov. 7, my colleagues Tony Sagami and Sean Brodrick will be delivering their brand-new “Election Day Survival and Prosperity Guide” — filled with a presidential-focused batch of potential money-doublers designed for either a Romney or an Obama win.
Don’t wait till the elections are over — you’ll be covered either way when you reserve your copy today!
{ 1 comment… read it below or add one }
TRULY DISHEARTENING!
these 2 are the WORST possible things to invest in – that is if an investor has a conscience & wants to be able to live w/themselves… You’d have to be morally bankrupt to buy monsanto who’s essentially poisoning the earth, while creating dangerous monocultures all to sell their chemicals – which will eventually lead to famine – not combat hunger, as they’re have stupid people believe.