In the world of commodity investing gurus, few can match the track record or fame of Jim Rogers. The investment legend is probably best known for his work with George Soros in creating the Quantum fund, but Rogers has been more active in the commodity space as of late with the creation of several indexes and a book on the subject as well. Lately, Jim Rogers has been on the precious metal bandwagon, pushing many investors to buy up these products to defend against further dollar weakness and fiat currency debasement by central bankers around the world. Yet, with gold hitting fresh highs on a seemingly weekly basis, Rogers has begun to advocate for investors to look to other corners of the investing world for gains in the future [see also Jim Rogers Says: Buy Commodities Now, Or You’ll Hate Yourself Later].
While Jim isn’t selling his gold or silver just yet, he is piling into agricultural commodities instead. In a recent interview, Rogers said that he believes agricultural prices are still depressed on a historic basis and that the current ‘commodity supercycle’ still has another 10 to 15 years to go before it runs out. Furthermore, given the insatiable demand from rising Asian nations, as well as rapid population growth in the near future, the winds appear to be at the backs of various agricultural commodities and their producers for years to come. In light of this, we highlight three stocks that could be great choices for investors who believe, like Jim Rogers, that the agricultural bull market has just begun:
At the heart of any agricultural demand spike is likely to be Monsanto, a Missouri-based firm best known for its engineered seeds. The encouraging factor about Monsanto is that the company’s total operating expenses are pretty much flat from year to year, especially SG&A costs, while revenues fluctuate much more wildly. Some may see this as a bad thing but to me this suggests that Monsanto is heavily influenced by prices for its underlying products, meaning that when agricultural products are in high demand this company surges as well. Monsanto has far less debt than its peers but the company could face blowback from citizens and governments that seek to promote unengineered, locally grown foods, a growing trend in many parts of the nation. Furthermore, competition is increasing for Monsanto, and the firm’s inability to hold off these new entrants is something that investors should also consider [see also Warning: Ignore Bill Gross’ Hard Money Prediction At Your Own Risk].
Potash Corp of Saskatchewan (POT)
Many investors might not realize it, but fertilizers, like those made by POT, are absolutely critical to boosting yields for agricultural products across the board. POT could stand to benefit if Roger’s prediction turns out to be true and agricultural commodity prices surge; farmers would bid up the price of fertilizers in order to take advantage of rising prices by boosting crop yields, adding to returns for POT. In fact, revenues have been surging at this Canadian firm over the past few years as Net Income nearly doubles in December 2010 when compared to the previous year figures. Given these growth prospects, POT’s current P/E of just less than 20 seems reasonable, however, investors should note that POT’s capital structure is quickly shifting towards debt and with large debt issuances coming due in the coming years, stock prices could be depressed if rates were to rise between now and when the firm rolls over its bonds.
Deere & Company (DE)
Although firms that produce commodities or futures contracts could benefit if Roger’s predictions come to fruition, firms like DE, which supply the machinery required to maintain the fields, could also surge in value. Investors are already starting to see this when looking at the firm’s last few quarters, as robust demand for certain crops has undoubtedly sparked a nearly 76% increase in net income when compared to the previous quarter. Beyond these growth prospects, DE also pays out a robust dividend of 2.3%, which is higher than a ten-year Treasury bond at time of writing. This high level of current income could help to boost investor returns even if Rogers is a little early on his predictions for a bull market run in agricultural commodities. With that being said, investors should keep an eye on a couple things when it comes to this firm. Deere could face significant competition in emerging markets, especially from home grown rivals, and if DE isn’t able to keep up this key market will be put out of the company’s reach for the most part. Additionally, debt is a crucial part of the company’s structure and adverse changes in interest rates or the credit rating of the firm could cause interest expenses to surge and hurt other areas of the company’s business as well [see also Doomsday Special: 7 Hard Asset Investments You Can Hold in Your Hand].
Disclosure: No positions at time of writing.