Resource industry specialists Roger Conrad and Yiannis Mostrous are bullish on the agriculture and water sectors; in their model portfolio they already hold 6 stocks in these sectors.

The co-editors of Vital Resource Investor explain, "We see strong underpinnings for continued higher agricultural prices for many years to come." Here's their latest agrculture play: EI du Pont de Nemours (NYSE: DD).

"Recently the United Nations Food Agency warned of civil war in some countries because of global food shortages. With the rapid urbanization of Asian countries, we see a growing global dependence on a shrinking number of food producing nations, particularly with the world adding 78.5 million people each year.

"There will be ups and downs for prices along the way. A throttling back of America's efforts to develop ethanol so extensively or a move to use something besides corn to brew ethanol could take some of the upward pressure off corn prices.

"A real global recession could also cause food prices to back off for a time and it's also possible we'll see some form of US government intervention to curb food prices, particularly as the presidential election develops.

"Fortunately, there's also a supply-focused solution in agriculture: wide-scale application of technology accompanied with vast improvements in infrastructure. This will take years and heavy investment. But the silver lining is big profits for companies that are producers, technology developers and water system managers.

"Nemours is the second-largest US chemical company in terms of market cap and sales. Its main appeal is its strong global presence and diversified market exposure. DuPont is one of the world's largest producers of corn, soy seed and crop protection chemical products. Agricultural sales should surpass $7 billion this year.

"More than 60% of sales come from outside the US, at least 25% of which is generated in emerging markets. And by 2010 the company expects almost half of its revenue growth will come from emerging markets.

"DuPont has been allocating a lot of resources in research and development (R&D) focusing on new technology in corn traits that can offer triple herbicide resistance to increase productivity gains.

"The big potential of the agricultural business has sparked talk of potential separation of the agricultural arm of the company. Until now, management has maintained that shareholders are better served under the current arrangement.

"It remains to be seen if this view will hold as the market has been increasingly attributing more value in the innovation and growth potential of the agricultural division. Additionally, an eventual spinoff could potentially unlock hidden value and reward current stockholders even more.

"DuPont will endure challenges this year because of higher costs in sulphur and urea raw materials used in herbicides as well as high natural gas costs and soybean commodity prices.

"From the other divisions, the electronic and communication technologies division has benefited from strong demand for refrigerants and photovoltaic products. And this is expected to continue as the energy efficiency investment theme unfolds.

"On the corporate finance level, DuPont successfully implemented its lower-cost strategy and recently revealed a new $800 million three-year, fixed-cost productivity target. The company is also aiming to reduce variable costs by $1 billion in the next three years. Given its past success in the area, we expect that it to deliver once again."

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