Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some agriculture-related stocks to your portfolio but don't have the time or expertise to hand-pick a few, the cutely tickered Market Vectors Agribusiness ETF (NYSEMKT: MOO ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The Market Vectors ETF's expense ratio -- its annual fee -- is 0.54 %, and it recently yielded about 1.8%.
This ETF has underperformed the world market over the past three and five years. It's the future that matters most, though. And as with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
It's hard to say with much certainty what many industries will look like in the future, but we can be pretty sure that our planet's growing population will continue to require food.
More than a handful of agriculture-related companies had strong performances over the past year. Archer Daniels Midland (NYSE: ADM ) , for example, surged 37%, and is admired for its vertical integration, featuring farms, processing plants, and more. Its last quarter featured revenue slightly up, but earnings down, in part due to last year's droughts. The company remains a solid dividend payer, though (recently yielding 2.1%), and is looking to expand in Asia via its purchase of GrainCorp, Australia's leading agribusiness. It has also been upgraded from underweight to neutral by analysts at JPMorgan Chase, who think it will benefit from lower corn prices, but it still features low margins and doesn't seem very undervalued right now. ADM is considering selling its cocoa business amid falling cocoa prices.
Deere (NYSE: DE ) gained 14% and yields 2.4%. The stock seems attractively valued, with its current and forward P/E ratios of 10 and 9, respectively, well below its five-year average of 15. The company is posting robust growth, though its free cash flow has been in the red. Deere expects continued equipment sales growth, particularly from Latin America, but construction and forestry sales are projected to fall this year. Deere faces competition, too, such as from Japan, and some are looking for cost-cutting from the company.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Fertilizer giant PotashCorp (NYSE: POT ) dropped 13% and yields 3.7%. (Its dividend has been hiked 25% this year and some 700% over the past few years.) With its current and forward P/E ratios well below its five-year average, the stock seems appealingly priced. Bulls like its low-cost structure and solid profit margins. Some of its fate is tied to massive developing economies such as China, where growth has slowed, and India, where there is reportedly a potash oversupply. Potash carries a lot more debt than cash, but it's also generating more than $1 billion in free cash flow annually. Some worry about major fertilizer Brazil's plans to wean itself off foreign fertilizer, but others doubt that it will succeed anytime soon.
Fellow fertilizer concern CF Industries (NYSE: CF ) shed 9%, and looks attractive with its forward P/E ratio below 7. Like Potash and others, the nitrogen and phosphate specialist may be hurt if Brazil stops importing fertilizer, but that's not likely to happen soon. Meanwhile, some peers may be hurt by changes in India, but CF is better positioned there due to its product and sales mix. It has also been benefiting from low natural gas prices, as that's used in nitrogen fertilizer. Rising nitrogen prices have helped, too.
The big picture
Demand for agriculture isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
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