8 Commodity Powerhouses to Save Your Portfolio From Rapid Inflation

by: Investment Underground

By Nico Gayle, Guest Editor

With the price of oil back above $100 and expected to keep rising, prices at the pump are soaring. Similarly, global food prices are on the rise, reaching a 20-year high in February. As middle classes continue to grow in developing nations, demand for food and gas will only increase further. With these crucial prices swelling, we decided to look for a few stocks that should benefit from rising food and oil prices. Here they are:

Monsanto (NYSE:MON): Monsanto, with a market cap of $36.41B, is one of the largest agricultural product companies in the world. The firm offers chemicals and genetically modified seeds to boost farm production across a wide variety of crops. Although the stock is currently trading at a somewhat expensive P/E ratio of 32.95, the company has top-notch profitability, with an operating margin of 16.01%. The company also has a ROE of 11.28%, and offers a $1.12 (1.70%) dividend.

In addition to rising food prices, there are a few factors that appear to be in Monsanto’s favor. First of all, Monsanto has a global presence, and should benefit from increased food demand in emerging markets, especially Latin America, where Monsanto has already experienced significant growth. Second, low investment in agriculture over the last decade means that products like Monsanto’s will become more important to improve farm productivity. Finally, Monsanto has always been at the forefront of agricultural breakthroughs, and currently has nine products in the developmental pipeline.

Exxon (NYSE:XOM): At a market cap of just over $400B, the energy giant is the largest company in the world. Trading at a P/E of 13, Exxon pays a $1.76 (2.10%) dividend. Exxon is undoubtedly a leader in the energy business, and operates at an above-average 12.01% operating margin. Over the last 12 months, XOM also has an outstanding 23.43% ROE, better than 90% of the companies in the industry.

Exxon is a well-diversified company, with exposure to markets throughout the world. The firm made a big push into natural gas, which many experts claim to be the energy source of the future, with its $31B acquisition of XTO Energy. This natural gas position could be especially beneficial if nuclear power production is reduced after the disasters in Japan, as natural gas is more of a substitute than oil. If the Fed decides to withdraw QE2, we think Exxon will survive, as we wrote here.

Potash (NYSE:POT): Another agricultural giant, Potash has a market cap of $46.57B. Smart money investors like David Einhorn like it. The stock is trading at a 27.54 P/E ratio, and offers a $0.29 (0.50%) dividend. Over the last year, POT has an unbelievable 38.03% operating margin that is among the best in the industry, with a 27.28% ROE.

Primarily a fertilizer producer, Potash should benefit from many of the same factors as MON and other agricultural product companies. That is to say, reduced farm productivity and increased food demand in developing countries will help boost profits moving forward. Goldman Sachs also just upgraded its rating on POT to “buy”, saying that Potash may have the most favorable demand prospects among the fertilizer group.

ATP Oil and Gas (ATPG): ATPG is an offshore oil and gas production company, with a market cap of $950.58M. The company was hit hard by the Gulf drilling moratorium, and as a result had negative earnings last year. Nonetheless, ATPG was just awarded the third deepwater drilling permit in the Gulf of Mexico, and will resume drilling this week at its well 90 miles south of Louisiana. ATP owns 100% of the well, and will use its ATP Titan drilling platform for drilling. Additionally, despite the negative earnings, the company had positive EBITDA of $208.44M over the last year. ATP has also made a push into Israel for drilling opportunities due to the slow permitting in the Gulf of Mexico, and could benefit from this diversification. Click here to read more on ATPG and the important permitting updates which will continue to help this offshore driller.

Chevron (NYSE:CVX): Chevron is another large, diversified oil and gas company. With a market cap of $210.48B, the stock pays a $2.88 (2.90%) yearly dividend and is trading at an 11.06 P/E ratio. The company has strong earnings, with a 13.51% operating margin, and also has an impressive 19.29% ROE over the last year. The company currently has more than enough cash to cover its total debt, and has experienced solid growth lately. Like Exxon, Chevron made a big move into natural gas with its multi-billion dollar acquisition of Atlas Energy. Finally, the company has exposure to many potential high growth opportunities, both in emerging markets and within alternative energy.

Mosaic (NYSE:MOS): Mosaic provides agricultural fertilizers and chemicals, especially phosphates. With a market cap of $33.70B, the stock is trading at a P/E of 17.40, and offers a $0.20 (0.30%) dividend. Mosaic also shows strong profitability, as its 23.24% operating margin is near the top of the industry. The firm has an impressive ROE too, at 21.01%. Interestingly, Mosaic’s EBITDA this year of $2.42B was not far behind that of Potash ($2.71B), despite the difference in market caps. Finally, MOS has very little debt, with a current ratio of 3.12.

Deere (NYSE:DE): Deere, maker of tractors and other agricultural and forestry products, has a market cap of $38.57B, and is trading at an 18.40 P/E multiple. The company offers a $1.40 (1.60%) dividend and has shown a ROE of 37.03% over the last year.

As a cyclical stock, continued economic recovery would only boost DE, even after the strong recovery that the stock has already shown. If more good news about the economy keeps piling up, the stock should continue its rise. On March 10th, Deere announced major new investment in Russia, one of the four main emerging market nations. The company could see major growth through this investment, as Russia is a huge country with tons of land available for farming and forestry. Finally, as with other agriculture stocks, DE should benefit from increasing food prices, since higher farming margins will more easily allow farmers to invest in new machinery.

Agrium (NYSE:AGU): Agrium, which offers agricultural products and services, has a market cap of $13.96B and pays a small dividend of $0.11 (0.10%). Trading at a 19.53 P/E ratio, the company has a 9.32% operating margin and 14.68% ROE. Agrium also has a low valuation in terms of forward PEG, at only .6. The company is coming off of a record fourth quarter in 2010, when its quarterly earnings quadrupled those of Q4 in 2009. Additionally, Agrium has been active in taking over smaller companies, which should help it take advantage of rising food prices in the future. Agrium will benefit from the same factors mentioned for other chemical companies, namely increased global demand for food.

Disclosure: I am long XOM.