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How to invest in food stocks – Part I

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The global food price index recently hit a 20-year high after spiking 30 percent over the past year, according to the World Bank. Food prices rose an estimated 3.4 percent in January alone, and the rising costs have led to political unrest in Yemin, Tunisia, Egypt and other countries around the world.

Putting the morality of investing in food stocks while others are suffering aside for now, it seems as if making money off food stocks should be a no-brainer in this sort of macroeconomic environment. In reality, though, it’s a quite a bit more complicated than that. The agricultural business in the United States is, for the most part, dominated by a few sprawling agricultural conglomerates with diversified businesses. That makes it difficult to find a pure “wheat stock,” for instance, or a “corn stock” to add to your portfolio.

A London company called JBT Capital launched a wheat fund recently, according to BusinessSpectator, that aims to raise $105 million to buy farmland in Australia. It’s a sign of the growing investor interest in the food sectors. And indeed there are exciting opportunities in the U.S. if you’re willing to consider ETNs, ETFs and stocks in individual companies. Here’s Part I of my attempt a (fairly) exhaustive list of food stocks and opportunities in the agricultural industry:

star-icon-small  AgFeed Industries, Inc. (NASDAQ:FEED) Operates 5 feed mills in China that produce premix, concentrates and feed for China’s hog producing businesses. -46 percent YTD

star-icon-smallstar-icon-smallstar-icon-smallstar-icon-small  AGCO Corporation (NYSE:AGCO) A U.S.-based company that builds and distributes agricultural equipment around the world. Focuses on tractors and combines under brand names including Challenger, Fendt, Massey Ferguson and Valtra. Adjusted fourth-quarter EPS more than doubled to $0.88 from $0.42 a year ago. +2.2 percent YTD

star-icon-smallstar-icon-small  Agria Corporation (NYSE:GRO) Produces and sells seeds, sheep products, and seedling and date products in China and New Zealand. A spec play on an unprofitable, small-cap company that’s currently trying to buy out New Zealand’s biggest agricultural services company, PGG Wrightson Ltd. -36.4 percent YTD

star-icon-smallstar-icon-smallstar-icon-small  Agrium Inc. (NYSE:AGU) A fertilizer producer that sells direct to farmers in the U.S., Argentina, Chile and Uruguay. Goldman Sachs gives the stock a Neutral rating with a 12-month price target of $98. -0.98 percent YTD

star-icon-small  Alico, Inc. (NASDAQ:ALCO) Owns 135,500 acres of land in Florida that’s used for agribusiness including cattle ranching, forestry, farming and grazing as well as recreation and oil exploration. The company’s changed its focus slightly in recent years away from agriculture and toward real estate. It’s still a producer of citrus, corn and sugarcane. +3.6 percent YTD

star-icon-smallstar-icon-smallstar-icon-smallstar-icon-small  Allana Potash Corp. (CVE:AAA) An early-stage potash exploration company, Allana has large potash deposits in Argentina and Ethiopia. Could be an acquisition target for a large-scale fertilizer company. +138 percent YTD

star-icon-small  American Lorain Corporation (AMEX:ALN) A small-cap food manufacturer based in China, American Lorain focuses on frozen foods and convenience foods as well as on chestnuts. The company has a low P/E ratio at 5.03. -9.2 percent YTD

star-icon-small  American Vanguard Corp. (NYSE:AVD) A diversified chemical company that focuses primarily on crop protection chemicals including insecticides, fungicides, herbicides, and growth regulators, American Vanguard sells products under more than 50 different brand names. -2 percent YTD

star-icon-smallstar-icon-smallstar-icon-smallstar-icon-smallstar-icon-small  Archer Daniels Midland Company (NYSE:ADM) A food processing company, Archer Daniels takes raw products like corn, wheat and oilseeds and turns them into food and agricultural products. Trades at a relatively low P/E ratio of 12.44 while yielding 1.7 percent. The company processes 91,000 tons of oilseeds every day to produce edible oils and liquid shortenings. +16.2 percent YTD

star-icon-smallstar-icon-smallstar-icon-small  BRF Brasil Foods SA (NYSE:BRFS) A meat and dairy producer out of Brazil, BRF Brasil distributes food to more than 140 countries around the world with an emphasis on poultry and processed foods. The company’s P/E ratio is high at 69. +17.8 percent YTD

star-icon-smallstar-icon-smallstar-icon-smallstar-icon-smallstar-icon-small  Bunge Limited (NYSE:BG) Business is concentrated on all of the hottest sectors right now: edible oils, fertilizers and sugar/ethanol. Stock was recently upgraded by HSBC from Neutral to Overweight. +9.3 percent YTD

star-icon-small  Calavo Growers, Inc. (NASDAQ:CVGW) A leading avocado distributor, Calavo predicts growing demand for its products as avocados get incorporated into more recipes and the product makes its way into the growing Chinese market. Most recently, Janney Montgomery Scott initiated coverage of the stock with a Neutral rating. -12.6 percent YTD

star-icon-small  Cal-Maine Foods, Inc. (NASDAQ:CALM) Headquartered in Jackson, Mississippi, Cal-Maine is the largest fresh shell egg producer in the U.S. The company sold some 678 million eggs in 2008; good for 15.8 percent of domestic egg consumption. Rising feed costs could negatively impact profits. -8.2 percent YTD

star-icon-smallstar-icon-small  Campbell Soup Company (NYSE:CPB) Packaged-food maker Campbell Soup has seen shares slide on lowered revenue guidance and lackluster Q2 sales. Offers a wide range of products in addition to soups from V8 drinks to candy bars, bread and Goldfish crackers as well as a nice yield at 3.45 percent. -4 percent YTD

star-icon-smallstar-icon-smallstar-icon-small  CF Industries Holdings, Inc. (NYSE:CF) A fertilizer manufacturer and distributor based in Deerfield, IL, CF Industries saw Q4 net sales rocket up 144 percent. Feltl & Co. initiated coverage on the shares last month with a Strong Buy rating. -0.19 percent YTD

star-icon-smallstar-icon-small  China Green Agriculture, Inc (NYSE:CGA) A Chinese fertilizer producer, China Green Agriculture distributes its products in 21 provinces in China. It also funds research into developing “green” fertilizers, which the company believes will experience significant growth in China. Could be an interesting spec play, although rising food costs will likely push consumers toward non-organic products. -27.6 percent YTD

star-icon-small  China Nutrifruit Group Ltd (AMEX:CNGL) Nutrifruit focuses on “premium specialty fruit-based products” in China. A processor and distributor of golden berry, crab apple, blueberry and raspberry products, the company’s trying to tap into a burgeoning middle class market for premium fruits. -13.9 percent YTD

star-icon-smallstar-icon-small  Chiquita Brands International, Inc. (NYSE:CQB) A fruit and packaged greens distributor, Chiquita operates two mainstream brands: Chiquita and Fresh Express. The company farms 30 percent of its bananas on its own farms. The rest of its offerings – including pineapples, melons and spinach – come from third-party suppliers. +5.5 percent YTD

star-icon-smallstar-icon-small  CHS Inc. (NASDAQ:CHSCP) Owned by farmers, ranchers, cooperatives and shareholders, CHS produces a bit of everything: from fertilizer to oilseeds and renewable fuels to wheat and livestock feed. The company moves more than a billion bushels of grain to some 60 countries every year. +1.89 percent YTD

star-icon-smallstar-icon-small  Coffee Holding Co., Inc. (NASDAQ:JVA) A coffee bean importer, roaster and dealer, Coffee Holding Co. sells private-label coffee and its own branded coffee under several well-known names including Don Manuel, Cafe Caribe and S&W Premium. Sales were up 20 percent in the company’s most recent earnings report. +45.4 percent YTD

star-icon-smallstar-icon-smallstar-icon-smallstar-icon-smallstar-icon-small  ConAgra Foods, Inc. (NYSE:CAG) A consumer foods giant, ConAgra claims their products are found in 97 percent of America’s households. Name brands are easily recognizable, including Chef Boyardee, Hunt’s, Reddi-Wip, Slim Jim, Healthy Choice and Orville Redenbacher’s. Stock currently yields 4 percent. Rising input costs could eat into the company’s profits moving forward. +8.3 percent YTD

star-icon-small  Converted Organics Inc. (NASDAQ:COIN) An interesting business idea that could make for a spec play, Converted Organics takes in food waste and other raw materials and speeds up the composting process to convert it into all-natural fertilizer. -43.4 percent YTD

star-icon-smallstar-icon-small  Cosan Limited (NYSE:CZZ) An ethanol and sugar producer out of Brazil, Cosan operates 23 sugarcane mills and controls 10 percent of the sugarcane market in the country. Through a recent partnership with Shell, Cosan has formed Raizen, which aims to produce 2.2 billion liters of ethanol per year. -11.1 percent YTD

star-icon-smallstar-icon-smallstar-icon-smallstar-icon-smallstar-icon-small  Corn Products International, Inc. (NYSE:CPO) A corn refiner based in Westchester, IL, Corn Products supplies food and industrial customers with sweetener products like high fructose corn syrup (HFCS), glucose corn syrups, high maltose corn syrups, caramel color, dextrose and other goodies that make their way into packaged food products. Net income dropped despite higher net sales during the company’s most recent quarter. +14.3 percent YTD

star-icon-smallstar-icon-smallstar-icon-small  Cresud Inc. (NASDAQ:CRESY) A crop, beef and milk producer based in Argentina, Cresud offers a fairly pure play on crops themselves as the company is primarily focused on the acquisition, transformation and sale of farmland and production on its own farmlands or in farmlands leased from third parties. -9.9 percent YTD

star-icon-smallstar-icon-smallstar-icon-small  Darling International Inc. (NYSE:DAR) In business for more than 125 years, Darling International collects the leftover grease from restaurants and recycles it into cooking oil, pet food and animal feed. The company diluted shares recently to help fund a joint green diesel venture with Valero Energy Corporation (NYSE:VLO). +15.4 percent YTD

star-icon-smallstar-icon-small  Dean Foods Company (NYSE:DF) A heavyweight in the U.S. dairy industry, Dean Foods processes and distributes dairy and soy-based products under more than 50 brand names including Horizon Organic milk and LAND O’LAKES creamers. +16 percent YTD

star-icon-smallstar-icon-smallstar-icon-smallstar-icon-small  Deere & Company (NYSE:DE) The world’s largest farm equipment manufacturer, Deere & Company builds a bit of everything: tractors, combines, cotton and sugarcane harvesters and related front-end equipment including tillage, seeding and application equipment. As demand or prices for food rises, so too does the need for farming equipment, and that’s good for their bottom line. +11.2 percent YTD

star-icon-smallstar-icon-small  Dole Food Company, Inc. (NYSE:DOLE) A fruit and vegetable producer based in Westlake Village, Calif., Dole Foods sells more than 200 products in 90 countries around the world. Chutinush Taksinapinunt recently upgraded the stock to a Strong Buy with a price target of $22 in 2012. The company’s high P/E ratio makes me a bit wary, though. -2.7 percent YTD

star-icon-smallstar-icon-smallstar-icon-smallstar-icon-smallstar-icon-small  ELEMENTS MLCX Grains Index-Total Return ETN (NYSE:GRU) An exchange-traded note that’s tied to the performance of the MLCX Grains Index, GRU’s biggest holdings are Wheat (45.57%), Corn (26.54%), Soybeans (18.98%) and Soybean oil (8.91%). A great way to get exposure to commodities futures. +5 percent YTD

star-icon-smallstar-icon-smallstar-icon-smallstar-icon-smallstar-icon-small  ELEMENTS Rogers International Commodity Index – Agriculture Total Return ETN (Public, NYSE:RJA) An exchange-traded note that’s tied to the performance of the Rogers International Commodity Index, the note invests in Energy (44%), Agriculture (34.90%) and Metals (21.10%). Of the 34 percent+ that’s invested in Agriculture, there’s an emphasis on Wheat (20%), Corn (13.61%), Cotton (11.60%), Soybeans (8.60%) and Sugar (5.73%). Holdings in metals and energy help smooth out some the volatility associated with agricultural futures contracts. +4.1 percent YTD

star-icon-small  Emerald Dairy Inc. (OTC:EMDY) One of the leading producers of infant formula, milk powder, soybean and rice powders products in China, Emerald Dairy markets products under two brands: Xing An Ling and Yi Bai. Their product line is certified organic by the Chinese government. -21.9 percent YTD

star-icon-small  Encanto Potash Corp. (CVE:EPO) A speculative play on fertilizer stocks, Encanto is currently exploring five projects in the potash-rich Canadian prairie in Saskatchewan. The company was formed to assist First Nations Peoples in discovering and developing the land’s resources. In exchange, the First Nations have a 3% GORR (Gross Over Riding Royalty) upon production. Both parties have a vested interest in seeing Encanto succeed. -35.5 percent YTD

Energroup Holdings Corp. (PINK:ENHD) A pork products producer based in China, Energroup looks like it’s on its way to yanking its shares off the market. The company filed a form 15-12G with the Securities and Exchange Commission in January terminating trade on the OTCBB, and Energoup is rumored to want to end pink sheets trading as well. I’d recommend keeping your distance. -68.4 percent YTD

star-icon-small  Farmer Brothers Co. (NASDAQ:FARM) Farmer Brothers roasts and distributes coffee, tea and spices to coffeeshops, restaurants and hotels. Half of the company’s total sales come from roasted coffee. Other products include coffee filters, sugar and creamers, assorted teas, cappuccino, cocoa, spices, gelatins and puddings, soup, salad dressings, pancake and biscuit mixes, and jellies and preserves. -29.9 percent YTD

star-icon-small  Feihe International Inc. (NYSE:ADY) A dairy-farming company based in Beijing, Feihe’s primary product is milk powder for use in baby formula. The company had aggregate milk powder production capacity of 1,234 tons per day as of December 31, 2009. -22 percent YTD

star-icon-smallstar-icon-smallstar-icon-small  FMC Corporation (NYSE:FMC) A diversified chemical company, FMC focuses about a third of the company’s resources on the agricultural chemical industry, specifically on manufacturing and distributing insecticides, herbicides, and fungicides. The chemicals are specifically formulated for specific crops including corn, soybeans, cotton, rice and fruit and vegetables. +6.4 percent YTD

star-icon-smallstar-icon-smallstar-icon-small  Fresh Del Monte Produce Inc. (NYSE:FDP) Del Monte offers exposure to a wide range of food products from fruits and vegetables to feed grains. The company produces wheat, corn, soy and rice for the domestic market in Argentina as well as poultry for the Jordanian market. +2.3 percent YTD

star-icon-smallstar-icon-smallstar-icon-smallstar-icon-small  General Mills, Inc. (NYSE:GIS) With a market cap of $23 billion and a dividend yield near 3 percent, General Mills offers stability and the potential for lots of growth; particularly in China. The company’s American brands are mainstays from Betty Crocker, Pillsbury, Green Giant and Cheerios. In China, sales have grown 30 percent a year over the past five years at Haagen-Dazs ice cream shops. The company’s also had broad success with its Wanchai Ferry frozen dinners – a line that includes dumplings, wonton, tangyuan, baozi, and mantou. All told, General Mills has exposure to markets in more than 130 countries and republics worldwide. +5.5 percent YTD

star-icon-smallstar-icon-small  Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) GMCR claims double-digit net sales growth for the past 27 consecutive quarters. A specialty coffee producer, Green Mountain has also come to dominate the single-cup coffee maker industry with its Keurig brand controlling 80 percent market share. That’s made it a ripe takeover target and pushed shares up fast on a partnership deal with Starbucks. +99.7 percent YTD

star-icon-smallstar-icon-smallstar-icon-small  Groupe Danone SA (PINK:DANOY) A dominant dairy product producer in Western Europe, Danone has set its sights on emerging markets. The company expects to report 6-8 percent rise in net sales during fiscal year 2011. The company’s emphasis on healthy food could give it a leg up over rivals in the long run as the market for healthy food is expanding about 5 percent to 6 percent a year. That’s three times faster than the food industry overall, according to Bloomberg. +10.6 percent YTD

star-icon-smallstar-icon-smallstar-icon-small  Hain Celestial Group, Inc. (NASDAQ:HAIN) Like Danone, Hain Celestial focuses on healthy foods, natural and organic products in particular. Shares have risen methodically over the past year with a return near 90 percent. The company’s brand names fill the aisles at healthy grocers like Whole Foods with popular name brands including Garden of Eatin’, Health Valley, Rice Dream and Soy Dream. +22.9 percent YTD

star-icon-small  Hanfeng Evergreen Inc. (TSE:HF) A fertilizer manufacturer targeting China and South East Asia, Hanfeng shares have struggled over the past year. Managerial shakeups have eroded investor confidence in the company, but I wouldn’t count them out. By manufacturing fertilizer in China rather than importing it into the country, the company should have a significant price advantage in the future (if they can ever get their act together). -14 percent YTD

This post is part of a three part series. Sign up for our email newsletter to get notified when Parts 2-3 are released!

Note: The star rankings above are based on personal opinions. They do NOT constitute investment advice and should NEVER be construed as such.

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One Response to How to invest in food stocks – Part I

  1. james moylan says:

    I have a web site where I give investment advise on penny stocks and stocks under five dollars. I have many years of experience with these type of stocks. If theirs anyone thats interested in these type of stocks . you can check out my web site by just clicking my name. I would like to comment about food stocks. their is one stock that I like in the food business above all the others on the list above. the company Bunge Limited symbol {BG} engages in the agriculture and food businesses in approximately 30 countries. It buys, sells, stores, and transports oilseeds and grains; processes oilseeds to make protein meal for animal feed, and edible oil products for commercial customers and consumers; produces sugar and ethanol from sugarcane; mills wheat and corn to make ingredients used by food companies; and sells fertilizer in North and South America. The company was founded in 1818 and is headquartered in White Plains, New York’ this stock has a market cap of just 11 billion dollars but the company does 45 billion dollars in annual sales. I think bunge is still a very undervalued stock that could go a lot higher. it trades around 75 dollars I also believe that the company could become an attractive takover target because of its low valuation.

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