In case you haven't noticed, agricultural products, grains in particular, have been putting on an impressive rally. Take a look at this chart of the Dow Jones - UBS Grains Index:
If you're looking for a way to participate in this rally, I have the following list of ETFs courtesy of ETFdb.com:
|DBA||PowerShares DB Agriculture|
|RJA||ELEMENTS Rogers Intl Commodity|
|JJG||iPath DJ-UBS Grains TR Sub-Idx|
|COW||iPath DJ-UBS Livestock TR Sub-|
|JJA||iPath DJ-UBS Agriculture TR Su|
|GRU||ELEMENTS MLCX Grains Index TR|
|UBC||UBS E-TRACS CMCI Livestock TR|
|FUD||UBS E-TRACS CMCI Food TR ETN|
|UAG||UBS E-TRACS CMCI Agriculture T|
|AGF||PowerShares DB Agriculture Lon|
Another way to play this is to look for some of the better fertilizer and agricultural chemical companies. I have written previously about CF Industries Holdings (CF) and came to the conclusion that it was undervalued and in the process of breaking out (click here to read the post). That exercise made me aware of what was going on in the sector. I did subsequently buy a few shares of CF and, so far, it has not disappointed. Note that CF has acquired Terra Industries, a company that used to appear on many lists of good ag sector investments.
Here are a few others you might want to consider. I have filtered this list to only include those companies whose stock charts are looking bullish.
- Potash Corp of Saskatchewan (POT) - this well-known potash, feed and chemical producer boasts a chart that shows an upside reversal in the making. It has just cleared its 50-DMA and has some work to do to clear the next resistance level in the $100 range. Earnings will be reported next week and they had better be good as the stock has already moved out of the value category. Revenues and earnings have been increasing on a sequential basis over the last few quarters so investors are hopeful this positive trend will continue.
- Agrium (AGU) - finally popping above its 200-DMA, the company is involved in nitrogen, phosphate, potash, sulphur, and micronutrients; crop protection products, such as herbicides, fungicides, adjuvants, and insecticides; and seeds. Revenues have been increasing while earnings have been decreasing. This is a play on a turnaround in the ag sector. There are two big questions: can the stock hold its 200-DMA and will its upcoming earnings report justify the rally in the stock price?
- Monsanto (MON) - primarily offering seeds and herbicides, financial results have been uneven over the last few quarters though the company is solidly profitable. After a big decline, the stock has been rallying sharply since the beginning of July and, based on PE, Price-to-Sales and a few other measures, it is now getting expensive. Investors are apparently anticipating a strong upcoming earnings report. Citi rates the company a BUY - they had better be right on those earnings expectations.
- Mosaic (MOS) - another potash producer, MOS beat earnings this week due to strong sales and improved margins. This is a nice continuation of the sequential quarterly trend. The stock declined for a couple of days and then rallied with the rest of the market on Friday. The chart looks like a nice upside reversal is underway.
This is an interesting sector with lots of choices. Increased global demand coupled with weather issues (hot, hot, hot in the U.S. cornbelt) have allowed prices for agricultural products like corn, wheat and soybeans to firm up. This has allowed pricing for fertilizer and chemicals to firm up, as well.
Almost all of the ETFs listed above have been very strong lately. You could easily say that they are over-heated and investors, at this point, may be late to the party. On the other hand, we also see CF Industries, Potash and Mosaic as standouts among individual stocks and if earnings and guidance come in as expected, their share prices could easily accelerate.
Disclosure: Author is long CF, no other positions in stocks mentioned in this post