Forget Facebook, Buy The Agriculture Stocks Instead

Tracey Ryniec

With the Facebook IPO launching next week, and a string of hot technology IPOs in the last year, all of the focus has been on Silicon Valley and social media wunderkinds.

Yet there's a sector that has been quietly wracking up record earnings in 2011 and which is poised to do the same in 2012. Not only that, it's cheap, with many companies trading with single digit P/Es, well under the average of the S&P 500 which is 13.

What is this mysterious sector?

Agriculture.

Corn!

The U.S. Department of Agriculture is expecting a record corn crop of 48 million tons of corn, up 4.5 million tons, this year. It's projected to be the largest crop in the last 75 years.

Globally, corn production is expected to rise 10% to 946 million tons as several countries post records.

This has lit a fire under farmers who have gone on a buying spree of new tractors, combines, fertilizers and crop protection supplies.

Investors, however, have been ignoring many agriculture stocks which have led to rising earnings estimates and low valuations, a juicy combination.

Different Kinds of Agriculture Stocks

When you think of an 'agriculture stock' you may think of a seed maker like Monsanto or an equipment manufacturer like Deere. But agriculture can encompass an assortment of different areas.

The top three industries in which to find agriculture stocks are:

  1. Farm Machinery
  2. Agriculture Products
  3. Fertilizers

Farm Machinery is the hottest of the industries. It has a Zacks Industry Rank of 6 out of 265. Four of the nine stocks in the industry are Zacks #1 Rank (Strong Buys). This is where you'll find Deere and the other equipment makers.

Agriculture Products has a Zacks Industry Rank of 94 out of 265. There is only one Zacks #1 Rank (Strong Buy) out of 13 companies. These companies are the seed makers like Monsanto and the food product companies like Bunge and Archer Daniels.

Fertilizers has a Zacks Industry Rank of 182 out of 265. There are no Zacks #1 Rank stocks out of the 10 companies in this industry. The potash and phosphate fertilizer companies have seen demand slow and prices have flattened.

Nitrogen, however, is still hot. It is used on corn. Some companies handle all three fertilizers. Agrium, the only Zacks #2 Rank (Buy) in the industry, is one of those. It just reported record retail sales in the first quarter.

Four Of The Top Agriculture Stocks

1. AGCO (AGCO)

Makes agriculture equipment.
P/E = 7.8
Expected 2012 Earnings Growth: 23.4%
Zacks #1 Rank (Strong Buy)

2. CNH Global (CNH)

Makes agriculture and construction equipment.
P/E = 9.6
Expected 2012 Earnings Growth: 21%
Zacks #1 Rank (Strong Buy)

3. Titan International (TWI)

Makes wheels and tires for agriculture equipment makers.
P/E = 10.8
Expected 2012 Earnings Growth: 66%
Zacks #1 Rank (Strong Buy)

4. Agrium (AGU)

Agribusiness company which operates over 1100 retail locations in North and South America and Australia. Also produces nitrogen, phosphate and potash fertilizers.
P/E = 8.9
Expected 2012 Earnings Growth: - 4.2%
Zacks #2 Rank (Buy)

Stocks Getting Even Cheaper

In May, the agriculture stocks have gotten even cheaper as investors have fled the sector.

Take a look at the 3-month chart for each of these stocks. You can clearly see the May weakness across the sector. This has created a buying opportunity to add solid companies to your portfolio at a more attractive price.

Don't Follow The Herd

Most investors are focused on Facebook, Apple or LinkedIn right now. But other opportunities await those who dig a little deeper in other sectors.

The agriculture sector is still performing at the top of its game. Demand for food isn't going to soften any time soon. It is an opportunity to buy growth at cheap valuations.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her on twitter at @TraceyRyniec.

AGCO CORP (AGCO): Free Stock Analysis Report

AGRIUM INC (AGU): Free Stock Analysis Report

CNH GLOBAL NV (CNH): Free Stock Analysis Report

TITAN INTL INC (TWI): Free Stock Analysis Report

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