American Vanguard Corp.: Profit From Bad Agricultural Policy

Jun.26.07 | About: American Vanguard (AVD)

Thanks to the federal government’s munificent agricultural policy, subsidies abound and enlightened energy policy, taxpayers, directly and indirectly, are paying $100 a barrel for ethanol instead of the price gouging $68 a barrel foisted upon us by the greedy oligopolistic oil companies. Combined, it means that farmers are scrambling for every square inch they can get a plow in; and further, it means that sales of chemicals for crop protection and management should continue at an above average pace.

Last week, we bought American Vanguard Corp (NYSE:AVD), a diversified specialty and agricultural products company. Its products include insecticides, fungicides, growth regulators and soil fumigants for corn and cotton. Last year, earnings were negatively impacted as farmers shifted acreage from cotton to corn, causing inventory problems in the company’s cotton insecticide; and the stock got whacked. However, the company has a fine record of profit growth, averaging 20%+ annually over the last 10 years; this should continue as the demand from the corn market continues to grow. AVD is also expected to make acquisitions that will contribute to profit increases.

EPS: 2006 $.57, 2007 $.75, 2008 $.90
DVD: $.07
YLD .5%

Disclosure: Author has a long position in AVD

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