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Deej’s semi-reasonably priced agricultural ETF (EATME)

Recs

13

March 16, 2008 – Comments (2) | RELATED TICKERS: DE , DOW , CNH

It’s no secret that agricultural commodities, like wheat, corn, etc… have been on fire lately.  The rapid rise in the prices of these things has been fueled by a number of factors, including the improved diets of people who live in emerging markets, the government ethanol boondoggle, and the continuing drop of the U.S. dollar pumping up the prices of things that are priced in it.  The media has absolutely beaten to death a number of stocks that will benefit from this trend, including Monsanto (MON), Potash (POT), and Mosaic (MOS) causing their stock prices to become unbelievably high.  They currently trade at P/E ratios of 52, 47, and 50, respectively.  After kicking myself for having seen this trend early on yet selling Monsanto way too early as its price became unreasonably high in my mind, I have been looking for more reasonably priced ways to get back into the game.  As the saying goes, a rising tide lifts all ships, so as an experiment I decided to create my own personal ETF of more reasonably priced stocks that will benefit from the rising prices of crops.  From looking at other ETFs I knew that it was important to come up with a catchy ticker symbol.  Unfortunately, MOO was already taken so I decided to go with EATME.  You won’t forget that one.  As a disclaimer, I personally have purchased smaller than normal positions in the companies that I am putting in my pretend ETF.  I would not consider any of these companies to be bargains in the traditional sense, however they are much more reasonably priced than the over-hyped stocks that I mentioned earlier.  The companies that I added include:

 

CNH Global (CNH): CNH currently trades at 21.88 times earnings and it has a Forward P/E ratio of 12.31.  The company makes construction and agricultural equipment.  Its agricultural equipment segment manufacturers tractors, harvesters, seed planting equipment, tilling equipment, and sprayers.  The company sells these products through a network of dealers and distributors in more than 160 countries.

 

Deere (DE): Everyone knows about John Deere and how it will benefit as it sells more farm equipment as a result of this trend.  The media has even talked about this one quite a bit, but it still currently only trades at a P/E of 19.15 and a Forward P/E of 13.5.  To me, this is a very reasonable price for a company in a high growth sector like this.

 

Dow Chemical (DOW):  Dow Chemical is not exactly a hidden company either, but one thing that some people still don’t know about it is that it is the number two player in the global seed market behind Monsanto.  Seeds currently account for a quarter of Dow’s business and this segment is growing rapidly.  Add to that the company’s 4.5% dividend yield at a time when treasuries are paying mind-bogglingly low rates and it is a very attractive buy.  Keep in mind though that oil is a major input for many of the chemicals that Dow produces and rising oil prices are not good for it in general.  I personally don’t mind this that much though because I am so overweight oil plays that this almost provides me with a small hedge against a temporary drop in the price of oil.

 

Syngenta AG (SYT): After adding the world’s number two seed player to the portfolio, why not add the number three player.  Syngenta also trades at much a lower multiple than Monsanto, with a P/E of 25.29 and Forward P/E of 20.  This company is not just about seeds, they also sell other things that newly rich farmers can use to increase their yields such as herbicides, fungicides, insecticides.

 

Cresud (CRESY): With a P/E ratio of over 32, this company looks expensive, but Cresud is really an asset play on the huge tracts of land that it has on the books at around $250 per acre.  Of course this company is not without risks, including huge amounts of shareholder dilution and the ridiculous Argentinean government, but I believe that the remarkable rise in the price of commodities will overpower these negatives.

 

I could go on and on about these companies and perhaps I will do individual write-ups on all of them at some point, but that’s all the time that I have this evening.  So that’s all for now.  It anyone has any companies that they think would be a good fit for my ETF I’d love to hear them.  Also, please feel free to share your opinion on any of the companies that I have mentioned.

Deej

Long CNH, DE, DOW, SYT, and CRESY

2 Comments – Post Your Own

#1) On March 16, 2008 at 10:13 PM, abitare (31.24) wrote:

MOO, DBV, GCS, COW, DBA, DBO, RJA

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#2) On April 22, 2008 at 11:34 AM, charlesblazer (99.03) wrote:

Awesome.  I wish I could rec this thread twice.

I also suggest BG.

Disclosure: long BG & CNH.

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