Often-Ignored Industry Has Staying Power
Thursday, January 31st, 2008
By Mitchell Clark, B.Comm. for Profit Confidential
If there’s one domestic industry for which times are getting better, it’s agriculture. In fact, some are even calling for a moratorium on new ethanol plants because raw food costs are rising. This is why I’m so bullish on Deere & Company (NYSE/DE).
Agriculture and agri-business is an industry that a lot of investors ignore, because not only are people not familiar with it, but they also aren’t exposed to it because most people live in larger cities.
The industry is cyclical in nature, but it has a lot of staying power. One of the best ways for an investor to look at the agricultural industry is to consider those businesses that do well when food commodity prices are rising. John Deere is a perfect example because it’s an industry leader, and has a long-term track record of operational success and significant wealth creation on the stock market. The business is also extremely well managed in that the company manufactures the right amount of equipment it can sell. You don’t see huge lots of unsold John Deere tractors around the country.
Not only is global demand for food on the rise (due to population growth and rising standards of living), but I also believe that there is going to be an enormous shift in the way agricultural products are used by society. Ethanol gasoline is only the beginning. Biodiesel is going to experience significant growth over the coming years. Consumers, entrepreneurs and investors are going to be looking at agricultural commodities for their energy needs. If you can power a big truck on used vegetable oil and help the environment, why import expensive oil from the Middle East?
I also believe that, as part of the current commodity price cycle, food and its raw materials are going to get a lot more expensive. This means that farmers, both small and large, are going to have more dollars to expand their businesses. If there is one certainty with farmers, whenever they do well, they plow their returns back into the local economy.
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Mitchell is a Senior Editor at Lombardi Financial specializing in small-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, such as Penny Stock Reporter, Micro-Cap Stocks, and Monster Profits. Mitchell, who has been with Lombardi Financial for thirteen years, won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was as a stock broker for a large investment bank. While Mitchell is not working he enjoys fly fishing, motorcycling and tending to his hobby farm.
