After a first-quarter pullback in agricultural commodity prices, farming and agricultural businesses have also seen a pullback in share prices. Given the fundamentally strong outlook for the future of agriculture, now is the time to look back to the farm for investing profits.
Potash (POT), the world's largest fertilizer company, reported a sharp decline in year-over-year quarterly earnings Thursday. But Potash actually had a solid quarter. Fertilizer prices remain attractive, but farmers eased up on purchases during the colder months.
The company reiterated that its full-year profitability would be robust. Yet the market is responding to the earnings news, sending shares down some 2% and valuing Potash at 12x earnings.
Fertilizer is a very unique commodity, unlike most other commodities, fertilizer has no substitute on a commercial scale. And because farmers can always choose to deplete nutrients in the soil instead of buying fertilizer for a temporary period of time, the industry will always have its short-term ups and downs.
With shares in POT trading at $43, investors have an opportunity to buy this world-class company during one of those short-term down moments for the industry. The same is true for Mosaic (MOS), which now trades for a multiple of 11x earnings. .
AGCO (AGCO) is a $4.5 billion Duluth, Georgia manufacturer of agricultural equipment and related parts. The company sells its products in 140 countries. Shares trade for less than 9x forward earnings.
Yield-oriented investors will like Rentech Nitrogen Partners (RNF), which was spun out of Rentech last year. Rentech Nitrogen expects to pay out its first distribution later this year and the company expects that distribution to approximate $2.30, a yield of almost 9% based on today's current share price.
Rentech Nitrogen's principal asset is a nitrogen fertilizer plant located right in the heart of America's corn belt, where nitrogen prices often command a premium.