One of the Best Things Going in
the Main Street Economy Today
Precious metals and oil have proven that commodities are in an upward price cycle. If you believe in the commodity price cycle like I do, you’ve got to have some exposure to the group as part of a balanced investment portfolio. Within the group, there are three main sectors for consideration: precious metals, energy, and agriculture. Precious metals and oil have already been big winners. Like all commodities, they’ve experienced substantial price corrections, but their price cycle over the last 10 years has been very significant and is still looking good. Now the commodity price cycle is moving into agriculture and, while this is inflationary for consumers (just ask your local baker), it’s a great opportunity for investors.
I still like precious metals like gold and silver, but I believe we’re on the cusp of another major new price cycle trend. If the U.S. economy gets better, precious metals will improve. If we have another recession, gold and silver precious metals shouldn’t go down very much. Precious metals, oil, and agriculture have the same primary price cycle trend—rising demand, stagnant supply.
Agricultural land prices are going up in virtually all Western countries and especially in the U.S. Cash crop farmers, after decades of little to no income growth, are now making some money from their land. Agriculture futures have now broken a decades’ long price cycle of mediocrity. Of course, it is difficult for the average investor to go out and purchase good arable land and cultivate it, but an individual investor can invest in this new price cycle just like they do in precious metals, oil, and gas. There are stocks, mutual funds, ETFs, futures funds, individual futures trading, etc. There are even funds now that purchase large plots of agricultural land for cultivation (but they aren’t advertising).
One benchmark stock that I follow regularly is Bunge Limited (NYSE/BG). This $10.0-billion agribusiness is based in White Plains, NY, transporting and processing agricultural commodities with global operations at the wholesale and retail levels. The company, a well-known player in global agribusiness, has approximately 32,000 employees in more than 30 countries. It does everything from selling fertilizer to milling wheat and corn to crushing oilseeds for the livestock and foodservice industries.
In a recent report by Reuters, the Government of Singapore Investment Corporation, which is one of the world’s biggest sovereign investment funds, took on a five-percent stake in Bunge. The fund bought over 7.3 million shares of the company over time, spending just under $500 million for the investment.
What is slowly happening among large institutional investors is a migration away from big holdings in global financial institutions, which have proven to be not that well-managed. Big funds now own precious metals, whereas they never used to consider them before. With the commodity price cycle very evident in precious metals and oil, I believe agricultural commodities are the next group in the overall trend. (See Debt Crisis Aside—Let’s Get Down to Business with the Real Numbers.) How can they not be with stagnant global supplies of food raw materials, rising demand, and the devaluation of the U.S. dollar?
I think any reasonable investment portfolio should have exposure to precious metals for the hedge, oil because it’s in everything, and agriculture because the industry is about to embark on a new, long-run upward business cycle after decades of being in the doldrums.
Agriculture has always been an industry with a long-term time horizon for investment. But, the futures markets have not. With spot prices for many agricultural commodities well up from their historical trends, farmers can expect a positive return in their investments, which means they’ll buy more “John Deere” tractors, pickup trucks and plaid shirts. It’s one of the best things going in the Main Street economy today. It’s a new, long-term price cycle that I believe in.
the Main Street Economy Today was last modified: April 23rd, 2012 by Mitchell Clark, B.Comm.
About the Author | Browse Mitchell Clark's Articles
Mitchell Clark is a senior editor at Lombardi Financial, specializing in large- and micro-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, including Micro-Cap Reporter, Income for Life, Biotech Breakthrough Stock Report, and 100% Letter. Mitchell has been with Lombardi Financial for 17 years. He won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was a stockbroker for a large investment bank. In the... Read Full Bio »
Forecasts Aug. 30, 2015
Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.
Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.
Estimates Aug. 30, 2015
|Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter)||$1014.15|
|Trailing 12-month Price/earnings multiple (Most Recent Quarter)|
|Dow Jones Industrial Average Dividend Yield||2.71%|
|10-year U.S. Treasury Yield||2.14%|