Like never before, the rapidly growing global economy is raising the standard of living dramatically for hundreds of millions of "newly minted capitalists" in China, Russia, India, Eastern Europe, Brazil and elsewhere. They are buying bikes and cars, cell phones and flat-screen televisions, the latest fashions and the latest music. They are also changing their diets and eating much more.
No longer satisfied with your standard fare of starchy rice, potatoes and beans, they have increased their consumption of fish, poultry, beef, and a wider variety of fruits and vegetables, and even alcoholic beverages. Of course they continue to adopt the dubious growth of western fast food restaurants too.
In my pursuit of 2008 value stocks that offer growth opportunities and safety too, I looked for companies that would benefit from these trends. As consumption increases in some of these expanding economies, the following companies have greatly benefited, and they seem postured to continue their growth in the coming years.
Archer Daniels Midland (NYSE: ADM) has interests in food processors in Asia, Canada, Europe, South America, and the U.S. As an added bonus, ADM has been an active player in the ethanol business as well, and it even has a division offering financing to farmers.
To investors' delight, ADM has appreciated 37% in the last year and jumped 255% over the last five years. All this, and its P/E ratio is only 13, with a P/S of 0.57, and it offers a dividend yield of 1.17%. Although the long-term trend for ADM is dramatically up, you can see from the chart below that watchful investors have had opportunities to acquire shares on dips in the past year. Yesterday's closing price was $43.29.
Bunge Limited (NYSE: BG) is everywhere on the food chain according to the AOL Money & Finance profile. This includes being the leading global soybean processor, a leading South American fertilizer maker and the world's largest oilseed producer. The stock has hardly taken a breath in its ascent over the last five years. Soy is used in so many products as an alternate ingredient and/or vegan friendly product, with new ones being created every day. This fact alone might make Bunge a growth story, even if world demand for food was not increasing at such a rapid pace.
BG has made its investors even happier than those of ADM over the last year, advancing 70%, and creamed almost anything out there over five years, rocketing 433% upwards. Its P/E ratio is only 19, which would normally not be considered a value proposition, but, given its growth chart, seems cheap. Now consider its P/S of 0.33 which is cheap, and a small dividend yield of 0.58%, and maybe you will become hungry for this stock. Over the last five years, there have not been many real dips in the stock price, but there have been lulls in the appreciation. I do not usually buy stocks at all-time highs, however it does not hurt to look. Yesterday's closing price was $119.50.
Potash Corp. Sask Inc. (NYSE: POT) is the world's leading producer of potash, commonly used as fertilizer. Potash Corporation of Saskatchewan also produces nitrogen (used in fertilizer and a variety of industrial and consumer products) and phosphate (for feed products, food products, and detergents). Its annual production capacity of 12.9 million tons of potash represents more than 20% of the world's capacity. Take a look at this five year chart! Is that a stock chart or the path of a surface-to-air missile?
Where I could understand ADM & BG fundamentals, Potash is a little harder. BG only doubled ADM's growth, but POT has managed to quintuple it, rising 185% this year -- that's astonishing! Remember, we are not talking iPhones or surgical robots, we are talking manure, and if I did not have the facts at hand you would think I was full of it. Potash has improved by 385% over the last five years. Yes, it was in the right place at the right time, and prepared!
If you like this stock, you do have to pay up because POT's rapid rise has pushed its P/E ratio to 47 -- not a value proposition, and I do not know how to project its growth going forward with confidence. Its P/S is too high for me, at close to 7.0, and it is not currently paying a dividend. Looking at the PEG ratio of 0.65 (someone's guess) it has the appearance of value, but I would have to do some more research before I would rely on this figure. POT has been hot, no doubt, but is it too hot to handle? I can still see many years of growth ahead of it, I just do not know if today is the right time to invest. If it pulls back in the coming months, perhaps there will be a good opportunity. Yesterday's closing price was $132.80.
ADM, Bunge and Potash are all huge players in providing food to the world. They are likely to continue to grow, and as a potential sector for your investment dollar, the sector is something worth considering. Your investment dollars -- connecting old capitalists to new capitalists.
To find potential opportunities and verify my track record, read Chasing Value or Serious Money.
Disclosure: I am an active investor in the stock market. I have not owned shares in these companies in the past and I do not own shares today, but all three are on my watch list.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.
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