With banking stocks getting crushed in the first few trading days of 2009, is there anywhere to hide?
For those looking to buy stocks, I provided a list of Top 10 Stocks for 2009. You won't find any financial stocks on the list.
Instead, I targeted a few themes that I believed would do well for varying reasons. One theme that I am particularly keen on is agriculture.
In a world that is full of fraud, bank collapses and historically low interest rates, I want to have some defense in any long recommendation.
The thing that makes agriculture so attractive is that the hedge fund maniacs turned this once boring space into the thrill ride of a lifetime. After a roller-coaster year, many great names in the space can be had for cheap prices.
One of the names on the list just got a whole lot cheaper.
Archer Daniels Midland Company (NYSE: ADM) lost more than 13% of its value on news that fellow agricultural name, Bunge (NYSE: BG) lowered its outlook because of a drop in demand for soy.
Lower demand for soy drops the price and reduces revenues. BG is now expecting 2008 earnings to be $7.70 per share as opposed to its July guidance of $11.60 to $11.90. That's a big change in operating conditions.
The weakness at BG pressured ADM even though the companies are different in key ways.
BG derives a greater percentage of revenue from fertilizer as compared to ADM. In addition, ADM does not do nearly as much business in Brazil, which BG blamed for some of its poor performance.
No doubt the agricultural space is not immune to ups and downs, but the swings of late are too great, in my opinion. Since last May, ADM has lost nearly 50% of its value. That just isn't right.
I can appreciate that the world, led by the United States, is in a deep recession, but people still need food. It is one good that has finite supply and increasing demand due to population growth. Is there a better place to invest during a crisis?
I think not.
ADM's valuation is such that any downward guidance in earnings in the short term is not likely to have much of a long-term impact on the prospects for the stock. At the moment, shares trade for just 6 times trailing earnings and 8 times forward earnings.
That's cheap in my book. I would use the recent selling to establish a position.
Jamie Dlugosch is a contributor to InvestorPlace.com.
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