The Best Way to Nourish Your Portfolio
Great numbers from most of the fertilizer companies underscore the resilience of the agriculture sector in the face of economic fears and slowdown. If you ask me, I'm always for investing in ag stocks, simply because they run a business that will never go out of fashion. The growing population pushes demand for food and keeps farmers busy, in turn providing brisk business to companies that are into any kind of agribusiness.
I'm all the more bullish on fertilizer stocks after the U.S. Department of Agriculture's latest prediction of record corn plantations by U.S. farmers in 2012. If a bumper corn crop is around the corner, these companies might be in for great days ahead.
So how do you cash in on all this optimism? By buying agribusiness stocks, of course. But picking out the best stocks isn't easy. Buying shares of an agribusiness-based ETF would be a better and easier way to get exposure to some of the big players in one go, and, as I see it, the best one to consider is Market Vectors Agribusiness ETF (NYS: MOO) . This ETF covers not just fertilizer companies, but also holds stocks of farm-equipment makers and food companies.
Market Vectors tracks the DAXglobal Agribusiness Index. The fund currently offers exposure to 46 companies, including the top agriculture players. It invests nearly 82% in large market-capitalization stocks. Region-wise, more than 84% is allocated to the developed markets (which include the developed nations in Asia) and the rest to emerging regions.
Here's a quick roundup of the top three holdings as of March 5:
Monsanto (NYS: MON) -- The world's largest seed company is the largest holding in the fund's portfolio. Monsanto might have been in the news for all the wrong reasons, but its performance is nothing less than impressive. Monsanto's top and bottom lines have climbed 17% and 53%, respectively, in the past year. The company's set to take on the competition with its newly deregulated drought-tolerant corn to be launched in the next two years. Monsanto's shares have surged about 14% year-to-date.
PotashCorp (NYS: POT) -- The world's largest fertilizer producer is also the largest member of the three-member cartel, Canpotex, that controls all potash exports out of Saskatchewan. As a result, PotashCorp is best-placed to gain from higher global demand for the nutrient. The company's operational capabilities should get a lift this year with expansion projects nearing completion. PotashCorp's performance over the past 12 months has been impressive, with revenue and net income growing at compounded rates of 36% and 74%, respectively. The company's shares have risen a good 9% year-to-date.
Deere (NYS: DE) -- The farm-equipment giant forms 6.8% of the fund's holdings. 2011 was a record year for Deere in terms of revenue and profit growth, product launches, and expansions. Its top and bottom lines have grown 20% and 32%, respectively, in the past year. Strong fundamentals, great global presence, and good shareholder returns sum up Deere. The company is projecting record net income for the year, and has big expansion plans in its bag. Deere's shares are up around 6% year-to-date despite shedding nearly 8% in the past month.
The Foolish bottom line
The best part about Market Vectors is its expense ratio of 0.56%, which is lower than peersPowerShares Global Agriculture and PowerShares DB Agriculture. With the long-term agriculture story looking bullish, betting on this ag ETF could prove to be a smart move. The fund is up nearly 7% since Jan. 1, but has fallen back recently. I see any dip as a good opportunity to add some nourishment to your portfolio. Let me know what you think by adding your comments below.
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At the time this article was published Fool contributor Neha Chamaria does not own shares of any of the companies mentioned in this article.Motley Fool newsletter services have recommended creating a synthetic long position in Monsanto. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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