It goes without saying that agricultural commodity-related plays fell out of Wall Street's favor with the onset of the global recession. Crop protection and seed company Syngenta Ag (NYSE: SYT) was not exempt from the above, but now that signs of strengthening demand are appearing in key global regions, institutional investors are repositioning themselves back in emerging market plays.In general, analysts like Syngenta's product mix, demonstrated business model, experienced management team, and relative investment safety.
Analysts also expect results from crop protection (herbicides, insecticide, and fungicides, good for about 80% of revenue) to continue to show strength as the global economic rebound progresses.
Further, investors also remain enthused about SYT's seed division, despite near-term macroeconomic headwinds. Although seeds represent only 20 percent of revenue, secular trends bode well for the unit: these include expanding middle classes in emerging markets, and pressures to increase food production on a per acre and a per capita basis.
The risks include a rise in raw material costs: rising oil prices directly impact herbicide/insecticide costs; a delayed global economic recovery also would send Syngenta's shares tumbling. Finally, SYT's P/E of 18 is not low, but given the company's growth prospects, it's reasonable.
Stock Analysis: Syngenta is a moderate-risk stock. Consider buying a 25% position in SYT now; then buy another 25% in four months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your SYT position before October 2009. Sell/Stop Loss if you were to buy shares in this company: $22.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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