Population growth has had a great impact on food demand and its corresponding prices. Therefore, the challenge posed to humanity is to increase production quantities in order to match world demand. For the same reason, it is in Monsanto’s mind to present a very well-adjusted balance sheet that allows to keep up an increasing spending on R&D. So, it is no surprise that its fundamentals are all above historic averages. Investors should keep in mind that revenue of Monsanto is seasonal, and even if a quarter does not look all that good, the next will be much better.And, its geographical expansion to Argentina and Brazil, added to its new deal with DuPont Fabros Technology, Inc.(NYSE:DFT) will have a very good impact on revenue in the following years. Lastly, the most important reason to buy for any investor, the stock is relatively cheap at this point of the year.
Intrepid Potash, Inc. (NYSE:IPI) does not compete with Monsanto or Syngenta, directly. The company does not produce genetically modified seeds or crop protection products. In consequence, the firm exploits its business concentration to the fullest by reducing operating costs, a behavior that translates into revenue maximization and is reflected on the company’s fundamentals.
Even though Intrepid Potash, Inc. (NYSE:IPI)‘s financial indicators are below historical averages, they remain above the industry mean; most importantly, the company holds no debt and invests its cash in operational expansions. These are sufficient reasons to invest, but betting on this firm implies certain risks.
The first law for high returns is to invest in risky businesses. So, where does the risk arise in Intrepid Potash, Inc. (NYSE:IPI)? As shown earlier, it is not on the company´s financial balance sheet. Intrepid Potash, Inc. (NYSE:IPI) faces a great level of uncertainty concerning the price of potash itself, given the company´s pure-play characteristics. In short, Intrepid has the opportunity to sink very easily or rise very rapidly due to sudden changes of the price of potash. This characteristic is far from being negative since potash is a crucial crop nutrient. So, there is a big chance that potash will at least maintain its price, allowing Intrepid Potash to continue expanding operations.
Additionally, Intrepid Potash is one of the few langbeinite producers. In consequence, the company holds more power over the pricing of langbeinite than potash. As potash, langbeinite is also a critical nutrient, in this case for fruits. So, it can be induced that Intrepid Potash will depend heavily from the fruit market. As the world’s population continues to grow, so will the demand for the firm´s products. Its unique characteristics as a company and a very low stock price make it a buy.
In all, Monsanto, Syngenta, and Intrepid Potash are good buy options. Also, the companies do not compete directly with each other and complement themselves in the best cases, meaning that the investor will not be betting against himself if he decides to invest in all three. Clear evidence was shown to prove that each company holds an important comparative advantage within a niche of the agricultural business. It is just a matter of preference — seeds, crop protection, or nutrients — as the risks the companies face are the same: political instability, sudden price changes of raw materials, and uncertain R&D results.
Damian Illia has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Damian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Why You Should Invest in the Leaders of the Agriculture Industry originally appeared on Fool.com is written by Damian Illia.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
