Boom Or Bust For Agribusiness Stocks?
The Dynamic Wealth Report
October 12, 2010
by Corey Williams, Editor
Have you noticed the second half of 2010 is shaping up to be a banner
year for commodities… Yep, hard assets are rocketing higher. And the US
Dollar is plummeting.
As a result, Ag stocks are growing faster than weeds!
The Market Vectors Agribusiness ETF (MOO) is a good proxy for Ag stocks.
It holds stocks like Deere & Co. (DE), Mosaic (MOS),
Potash of
Saskatchewan (POT), and Monsanto (MON). And MOO’s up 37% since July!
Clearly Ag stocks have had a great run.
But before you jump headlong into this hot sector, consider this chart…
It shows the US Dollar (orange line) and MOO (blue line).
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There’s a clear inverse relationship between MOO and the US Dollar. As the US Dollar falls, MOO rises. So we have to be careful. If the US
Dollar reverses, we should see MOO fall in value.
But that’s just part of the story…
Ag stocks are also benefiting from a recent USDA report. In the report,
the USDA cut estimates for the U.S. corn harvest. They’re now estimating
the crop will be 3.4% smaller than last year.
The prospect of tighter supplies is helping fuel a surge in grain prices
and Ag business stocks.
And that’s not all…
There are also M&A deals and hostile takeover bids for major Ag
companies like Potash of Saskatchewan (POT). POT makes fertilizers
widely used to boost crop yields.
Right now, BHP Billiton (BHP) is attempting a hostile takeover of POT
for $130 per share. It values the company at $38.6 billion. But Potash’s
CEO recently claimed the company should be valued at nearly $170 per
share.
And now state-backed Chinese companies are rumored to be putting
together a bid to compete with BHP’s takeover bid…
And to top it off, Reuters reported that Rio Tinto Group (RTP) was
interested in the fertilizer industry. So more M&A deals could be
heading down the pipe…
The result?
Ag business stocks have a tailwind of positive news pushing them to new
heights.
But it looks even better long term. Major macro changes are pushing Ag
business stocks to new heights.
Remember, a growing world population and a limited amount of land suited
to growing crops makes higher food prices a near certainty. And the
rapidly growing middle class in developing countries like China and
India are only creating more demand for food.
Here’s the bottom line… In the long run, Ag business stocks are a great
investment.
However, a word of caution… Ag stocks have run so far, so fast, a
pullback is very likely. Traders can jump in here to catch another leg
higher. But more cautious investors should wait for a pullback before
getting in.
An even safer way to play the coming boom in Agriculture is to own
farmland. In the last decade, total returns on crop producing land are
averaging 14.6% per year.
And if all the crazy quantitative easing and deficit spending does turn
into runaway inflation, owning hard assets like real estate is a great
way to hedge your investments. And unlike gold, farmland has real value
because it actually produces something!
It’s time for action, so get onboard for the coming boom in Agriculture…
It’s another busy week for IPOs around the world. TPK Holdings, a
supplier of touch screens for Apple Inc.'s iPhone and iPad, is seeking
to raise $226.8 million in what could be Taiwan’s biggest initial
public offering this year.
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