Banking on a population boom.
By 2050, the world will have another 2.2 billion people to feed, according to the United Nations. To meet the demand, farmers will need more products to fertilize, protect and grow crops, which bodes well for agribusiness companies. But investors may want to wait for clarity on trade policy from Washington before putting new money down, says Duncan Rolph, managing partner with Miracle Mile Advisors. Another investor cue is rising inflation, which could signal higher commodities prices that often benefit agribusinesses. With that in mind, here are three stocks, two funds and one real estate investment trust to watch.
Mosaic Co. (ticker: MOS)
Morningstar analyst Seth Goldstein expects the price for potash and phosphates — both are fertilizer ingredients — to rise 10 percent, excluding inflation, over the next decade. Mosaic, which produces both ingredients, is well placed to benefit, he says, adding that the company is also currently undervalued because of weak fertilizer prices. As with other agribusinesses, weak commodities prices can provide good entry points for long-term investors provided they can also stomach the volatility that inevitably accompanies commodities, says Morningstar analyst Alex Bryan.
Agrium (AGU)
This agricultural products and services company mines and markets crop nutrients and operates a retail arm that sells seed and crop protection products. Its dual role as a producer and retailer helps insulate Agrium from fertilizer price volatility, as the retail side affords more stable earnings, Goldstein says. The company’s shares have been slipping because of low fertilizer prices, he says. Goldstein thinks Agrium is undervalued because the market is not taking into account the company’s built-in insulation from its retail arm. He considers Agrium a better value than competitor Potash Corp. of Saskatchewan (POT). The companies are in the process of merging.
Monsanto Co. (MON)
This agribusiness multinational is in the process of being acquired for $128 per share. But Monsanto’s shares trade well below that because some investors are skeptical the deal with Bayer will close as announced, says Goldstein, who puts the odds of it happening at 80 percent. For investors willing to take those odds, Monsanto may be a bargain. Long term, Monsanto’s patents for its genetically modified products should keep revenue consistent, Rolph says. But risks include the trend toward non-genetically modified and organic food as well as the potential loss of market share to a combined Dow Chemical Co. (DOW) and DuPont (DD), which are in the process of merging.
VanEck Vectors Agribusiness ETF (MOO)
Exchange-traded funds like this one give investors exposure to multiple agribusiness companies. Bryan considers this fund probably the most attractive agribusiness ETF because of its relatively large size and low cost. Rolph, who also recommends investing in MOO, says besides its sizable assets, the fund offers diversification. Rolph recommends not going for similar funds that are smaller than MOO because they have lower liquidity. Expenses are 0.53 percent, or $53 annually per $10,000 invested.
PowerShares DB Agriculture Fund (DBA)
Instead of company shares, this fund invests in agricultural commodity futures contracts. For investors who want to profit from swings in prices, DBA can be a good way to do it because the fund is a more direct play on commodities prices than companies, Bryan says. Drawbacks include less tax efficiency than equities and the potential for the fund to not perform as well when further-out futures contracts are more expensive than those with a nearer expiration, he says. Expenses are 0.89 percent.
Gladstone Land Corp. (LAND)
Investing in farmland is another avenue investors can take to gain exposure to the agriculture sector. Rolph likes this real estate investment trust, which owns and leases farmland. REITs counterbalance equities because investors are buying into hard assets while earning rental income from farmers, he says. REITs are legally required to distribute most of their taxable income to shareholders in the form of dividends. LAND’s dividend yield is 4.55 percent. Because of the company’s small size, Rolph cautions investors to be wary of the stock’s volatility. He also notes the shares haven’t appreciated in recent years, adding that low agricultural commodities prices have contributed to its performance.
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6 Ways to Invest in Agriculture originally appeared on usnews.com
