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I Wish I Could Buy This Stock

Alex Pape
May 20, 2011

This article is part of our Rising Star portfolio series. Use Twitter to follow all of Alex's trades and musings.

As appealing as I find Anglo Eastern Plantations (OTC BB: AEPLF.PK), I can't buy it for my Rising Star portfolio. First, though, the appealing part.

Face it: Our cheapest dinner dates are behind us
Things like floods, harsh winters, cyclones, and earthquakes (let's group all that as "bad weather") have sent food prices through the roof in the past year. But bad weather is just a proximate cause; slowing crop yield improvements, higher biofuel demand, and the rise of a meat-craving emerging middle class mean that food prices, though volatile, are headed up.

That means the value of farmland is heading skyward as well. Farmland generates cash flows according to the prices its output fetches in the market. Higher food prices mean higher cash flows and more valuable farmland.

So I should buy a farm?
It's difficult for most people to invest in farmland. I wouldn't recommend those uninitiated in things like soil analysis, crop rotation, and drainage systems buy a plot directly. Most of us would rather buy stock in a company that owns farmland. Unfortunately, we have few choices. The big farm equipment players are publicly traded -- think Deere (NYSE: DE  ) and Caterpillar (NYSE: CAT  ) , which are both up strongly in the past year -- but most large plots of farmland are owned privately and change hands infrequently. Among the few publicly traded owners, the farmland usually accounts for only part of the company's value -- for example, Argentinean Cresud's (Nasdaq: CRESY  ) farmland accounts for scarcely more than half its enterprise value.

How about a plantation?
Imagine my excitement, then, when I stumbled upon Anglo Eastern Plantations, a company that buys, develops, and operates farmland in Indonesia and Malaysia. Anglo Eastern's agricultural product of choice is palm oil, which, though lesser-known in the U.S., is a big deal internationally.