There are a lot of companies in the stock market that are doing far better than the main stock market indices. Any track record that is consistently beating the S&P 500 is, for me, definitely worth further investigation.
These days, the stock market is focused on corporate earnings and, to a lesser extent, fiscal policy in Washington. My view on fourth-quarter earnings season is that corporations are doing a good job maintaining their earnings, while the revenues outlook is single-digit this year.
One trend that I think has fallen off the radars of the media and investors is the commodity price cycle. It is very much alive and well, and it is now experiencing another major transformation. The commodity price cycle began with the major move in oil prices, later transitioning to gold and other precious metals. Now the cycle is moving into agricultural commodities, partially due to the weather, but mostly due to supply and demand. The best move in real estate the last few years hasn’t been a discounted condo in the Sun Belt; it’s been farmland in the mid-West. Farmland is going up in price everywhere—it’s going up big time. And the transition in the commodity price cycle is about to provide huge wealth-creating opportunities for investors, with strong earnings on the stock market and other investments. In fact, the wealth creation is already happening.
When it comes to the stock market, the one thing I covet is consistency—consistency of revenues and earnings growth, and consistency of price performance on the stock market itself. One company with a great long-term track record in agricultural commodities is Bunge Limited (NYSE/BG); it’s one of the best global agriculture businesses you’ve never heard of. Based in White Plains, New York, Bunge purchases, stores, processes, and transports oilseeds, grains, soybeans, canola, wheat, corn, and even sugarcane. If it’s related to agricultural commodities, Bunge has probably been involved somewhere along the line.
On the stock market, Bunge is one of those consistent wealth creators that I like. It certainly is not a high-flying technology stock, but there are very few of those left anymore. Bunge spiked on the stock market in 2007/2008, then corrected along with everything else. Its stock market recovery has been consistent, and its 2012 third-quarter earnings grew to $297 million, or $1.92 per diluted share, compared to $140 million, or $0.89 per diluted share, year-over-year. The company reports its fourth-quarter earnings next week. Bunge’s stock chart is below:
Chart courtesy of www.StockCharts.com
I have a strong inclination that agricultural commodities and related industries are going to do very well throughout the rest of this decade. (See “Agriculture Stocks—These Two Are Doing Very Well on the Stock Market.”) Inflation, global warming, supply and demand, and scarcity all favor the commodity price cycle’s transition into this last remaining group. Countless companies related to agribusiness are now turning higher on the stock market, and corporate earnings within the sector are excellent.
There is a cycle when it comes to commodities and resource investing. There’s even a cycle of enthusiasm among institutional investors. Probably, the most attractive investment in agriculture today is not on the stock market, but in real, high-quality farmland. Of course, not every investor can go out and purchase 1,000 acres.
It has been decades since individual farmers experienced meaningful wealth creation from the land, but this is now changing. The great thing about farmers doing well is that they typically reinvest all their earnings back into the land, new equipment, and technology on a local scale. The commodity price cycle is alive and well, and it’s transitioning into agriculture. I think we’ll see substantial earnings strength from this sector over the next several years.