Stocks for a growing population.
The global population is increasing rapidly, which raises demand for food and agricultural products. The world population of 7.3 billion is forecast to jump to 9.7 billion in 2050, according to the United Nations. “Much of the population growth is in countries where there is little room for expansion of arable lands. Most of the required increase will have to be met by increasing crop yield,” says Neena Mishra, director of exchange-traded funds research at Zacks Investment Research. Here are seven ways for investors to cash in on the demand.
Deere & Co. (ticker: DE)
The world’s largest maker of farm equipment, Deere is an interesting long-term play, especially if grain prices reverse following a four-year slide, says Mike Ciccarelli, stock and commodity trader at Briefing.com in Chicago. “The company has a solid dividend, which has increased every year since 2003. It doesn’t hurt that Warren Buffett recently disclosed Deere as one of Berkshire Hathaway’s (BRK.A, BRK.B) largest holdings. Buffett actually now owns 7 percent of Deere shares,” Ciccarelli says.
CF Industries Holdings (CF)
Crops need help from Mother Nature in the form of sun and rain, but man-made fertilizer is also key to a harvest. CF Industries is a major manufacturer and distributor of nitrogen and phosphate fertilizer products in North America and is worth a look for buy-and-hold investors, Ciccarelli says. “The company expects nitrogen demand to continue to grow at an approximate rate of 2 percent per year.” Revenues are likely to rise 14 percent in 2016 and 16 percent in 2017, according to S&P Capital IQ data.
Mosaic Co. (MOS)
Mosaic is one of the world’s largest producers and marketers of phosphate and potash crop nutrients. Christopher Muir, equity analyst at S&P Global Market Intelligence, rates Mosaic a “strong buy.” MOS stock trades at about $27 and Muir sees a 12-month target at $35. S&P Global Market Intelligence pegs the 2016 earnings-per-share estimate at $1.76, with 2017 forecast at $2.30. “We see MOS benefiting from increasing demand for fertilizers over the long term, driven by a combination of population growth and improved diets worldwide,” Muir says.
Monsanto Co. (MON)
Monsanto is an agricultural giant that develops, produces and sells seeds and crop-protection products. Home gardeners will recognize this company as the developer of Roundup weed killer. The company continues to develop new biotechnology products aimed at increasing crop yields, generating more than $15 billion in sales in 2015. Morningstar rates Monsanto with four stars.
Archer Daniels Midland Co. (ADM)
Archer Daniels Midland is an agribusiness giant that buys crops from farmers, processes them for food and feed and then sells agricultural commodities and their products. The company “has a solid business,” Ciccarelli says. “The company has been around since 1902 and is a reliable source of dividends and dividend growth. ADM just boosted its dividend again in February. ADM has a strong balance sheet and good cash flow, making an investment in ADM safer than an average company.”
Market Vectors Agribusiness ETF (MOO)
Investors have the option of ETFs like MOO that hold agribusiness stocks, or funds that bet directly on commodity prices using futures, Mishra says. “In my view, the Market Vectors Agribusiness ETF is the best option for buy-and-hold investors. It holds companies that derive at least 50 percent of their revenues from agricultural business including agriculture products. It has a nice mix of agribusiness companies like Syngenta (SYT) and Monsanto, food companies like Tyson Foods (TSN) and fertilizer companies like Potash (POT).” MOO’s expense ratio is 0.57 percent.
FMC Corp. (FMC)
FMC produces fertilizers and agricultural chemicals. “In April 2015, FMC acquired Cheminova for $1.4 billion in cash, a move we view as beneficial to shareholders. With increasing sales in more rapidly growing economies of Asia and Latin America, as well as a strong presence in agricultural products, FMC is well-positioned for future earnings per share growth,” Muir says. S&P Global Market Intelligence rates FMC a “buy” with a four-star rating. Overall, revenues are likely to rise 4.5 percent in 2016, and 4.9 in 2017, he says.
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