Long Term Trends: Part 2: Agriculture

In Part 1 of our Long Term Trends Series, we highlighted Energy, Oil, Oil services, Oil Sands, Natural Gas, Oil Pipelines, Refineries, Oil Shipping, Coal, Coal Services, Nuclear, Environment Cleanup and Alternative Energy.

In Part 2, we highlight Agriculture.

In a previous post, we highlighted reasons why there is a food crisis and food inflation, and why these are long term trends.

This is a long term trend that we can profit from.

Select companies include:

1. Monsanto (MON), the biotech of seeds. Do you want drought resistant seeds and higher yielding seeds?
   
2. Deere (DE), farm equipment company.
   
3. Potash (POT), the fertilizer company.
   
4. Archer Daniel Midland (ADM), handles Oilseeds Processing, Corn Processing and Agricultural Services.
   
5. Bunge (BG), handles Agribusiness, Fertilizer and Food Products.
   

Growth of Agriculture in Brazil

Brazil has invested heavily in their sugar cane based ethanol infrastructure. Recently, CNBC had a segment on one of their documentary shows (Business Nation?) highlighting an Iowa farmer going to Brazil and doing well there. Land is cheaper, weather is great year round, and lots of opportunities abound.

This highlights the agriculture growth story, and also shows the potential for growth in areas all around the world such as Brazil.

Agriculture appears to be a good long term trend we profit from.

Results of 3 Portfolios: Cheap Growth Ready to Breakout (April 15, 2008)

In a previous article, we described the Cheap Growth Ready to Breakout Screen.

In this post, we will continue to track the performance of three portfolios. We are taking the snapshot as of Tuesday, April 15, 2008. We previously had a snapshot on July 17, 2007.

==============================
Portfolio 1: February 23, 2007
==============================

#	Symbol	Start	End	Return
1	AMX	46.89	64.06	36.62%
2	TSM	10.91	10.36	-5.04%
3	VIP	17.04	31.34	83.92%
4	IPR	73.35	83.65	14.04%
5	AYE	47.64	52.40	9.99%
6	WCRX	15.15	17.48	15.38%
7	BRP	41.40	76.50	84.78%
8	SCS	17.24	10.80	-37.35%
9	MLHR	39.16	22.47	-42.62%
10	AIR	30.61	20.80	-32.05%
11	GRT	25.53	11.94	-53.23%
12	DVR	12.49	11.95	-4.32%
13	TGI	54.92	55.15	0.42%
14	CRAI	53.88	32.36	-39.94%
15	TLF	7.99	2.75	-65.58%
16	APH	33.85	41.08	21.36%
17	GIL	26.80	33.63	25.49%
18	MIDD	58.88	61.90	5.13%

Total 0.94%

SPY 141.96 133.24 -6.14%
IWM 81.44 69.01 -15.26%
EFA 74.77 73.31 -1.95%

===========================
Portfolio 2: March 14, 2007
===========================

#	Symbol	Start	End	Return
1	TSM	10.60	10.36	-2.26%
2	DISH	38.26	30.49	-20.31%
3	WFR	55.05	72.28	31.30%
4	ASX	4.98	5.03	1.00%
5	SPIL	8.73	8.73	0.00%
6	BRP	41.75	76.50	83.23%
7	LAUR	59.28	61.95	4.50%
8	KSU	33.65	40.54	20.48%
9	BEAV	30.73	34.01	10.67%
10	CVO	24.50	9.94	-59.43%
11	IART	43.45	41.65	-4.14%
12	KNL	22.39	10.94	-51.14%
13	AIR	30.25	20.80	-31.24%
14	MYE	17.63	12.08	-31.48%

Total -3.49%

SPY 136.08 133.24 -2.09%
IWM 76.72 69.01 -10.05%
EFA 71.02 73.31 3.22%

=========================
Portfolio 3: May 16, 2007
=========================

#	Symbol	Start	End	Return
1	ESV	58.35	65.00	11.40%
2	RIG	90.43	149.30	65.10%
3	TDW	64.24	57.44	-10.59%
4	KB	93.35	66.57	-28.69%
5	FCX	70.25	105.50	50.18%
6	VLO	71.62	48.56	-32.20%
7	NBG	11.33	10.14	-10.50%
8	ACGY	21.16	25.50	20.51%
9	AYR	33.27	12.85	-61.38%
10	FTI	36.84	66.17	79.61%
11	HXM	62.29	61.50	-1.27%
12	SZE	57.58	68.75	19.40%
13	SLB	75.86	91.13	20.13%
14	CLB	92.77	137.91	48.66%
15	CKR	20.08	11.04	-45.02%
16	CEPH	80.14	62.67	-21.80%
17	TDK	86.09	62.72	-27.15%
18	SNDA	26.65	26.44	-0.79%
19	LKQX	12.15	20.11	65.51%

Total 7.43%

SPY 148.71 133.24 -10.40%
IWM 81.06 69.01 -14.87%
EFA 78.14 73.31 -6.18%

The Results

SPY represents the S&P 500 ETF, IWM represents the small cap Russell 2000 ETF, and EFA represents the Developed International ETF.

Looking at all three portfolios, the Cheap Growth Ready to Breakout Screen outperformed:

1. Outperformed the S&P 500 in 2/3 portfolios with an average outperformance of 7.84%
   
2. Outperformed the Russell 2000 in 3/3 portfolios with an average outperformance of 15.02%
   
3. Outperformed the EFA in 2/3 portfolios with an average outperformance of 3.26%
   

Notes

1. Prices used are the adjusted prices based on Yahoo Finance. Price is adjusted based on splits and dividends.
   
2. LAUR (Laureate Education) no longer trades as LAUR. The last known price is used.
   
3. GSF (Global Santa Fe) merged with Transocean (RIG). The RIG stock price is used here.
   

International Stock Exposure for Long Term Investor

There are many people out there who want International Exposure for their long term or retirement portfolio, but who do not want to choose individual international stocks.

One good way to approach this is through investing in ETFs, Exchange Traded Funds, which are usually indexed mutual funds that you buy and sell just like individual stocks.

Two core international holdings for a long term portfolio are Barlays' Ishares.com EFA and Vanguard's VWO:

1. EFA: Ishares ETF Covers Developed International Markets including Western Europe, Japan and Australia.

2. VWO: Vanguard's ETF Covers Emerging International Markets including Brazil, China, Russia, India, South Korea, Taiwan and Mexico.

EFA: Developed International Market ETF

EFA has a low expense ratio of 0.35% (the lower the better. Many actively managed mutual funds have expense ratios over 1%).

The top ten countries that the fund invests in are (as of June 30, 2007):

1. United Kingdom: 22.93%
   
2. Japan: 21.05%
   
3. France: 9.74%
   
4. Germany: 8.25%
   
5. Switzerland: 6.61%
   
6. Australia: 6.22%
   
7. Netherlands: 4.10%
   
8. Spain: 4.10%
   
9. Italy: 3.81%
   
10. Sweden: 4.10%
    

Top Sectors include:

1. Financials: 28.48%
   
2. Industrials: 12.02%
   
3. Consumer Discretionary: 11.93%
   
4. Materials: 9.43%
   
5. Energy: 7.58%
   
6. Consumer Staples: 7.57%
   

VWO, Vanguard Emerging Markets ETF

VWO has an expense ratio of 0.30%.

Top Countries:

1. Korea: 16.2%
   
2. China: 12.6%
   
3. Taiwan: 11.9%
   
4. Brazil: 11.1%
   
5. Russia: 9%
   
6. South Africa: 7.3%
   
7. India: 6.5%
   
8. Mexico: 5.6%
   
9. Israel: 2.5%
   
10. Malaysia: 2.5%
    
11. Hong Kong: 2.3%
    
12. Poland: 1.7%
    
13. Turkey: 1.6%
    

Alternative to VWO: EEM: International Emerging Market ETF

EEM has an expense ratio (as of September 28, 2007) of 0.75%. This is higher than Vanguard's VWO ETF.

Some top countries that the fund invests in:

1. South Korea: 15.03%
   
2. China: 12.05%
   
3. Brazil: 11.29%
   
4. Taiwan: 10.50%
   
5. Russia: 9.16%
   
6. South Africa: 8.91%
   
7. Mexico: 7.04%
   
8. India: 5.98%
   
9. Israel: 3.31%
   
10. Indonesia: 2.28%
    
11. Chile: 2.07%
    
12. Thailand: 2.03%
    
13. Czech Republic: 1.95%
    
14. Hungary: 1.92%
    

Top Sectors include:

1. Financials: 20.50%
   
2. Information Technology: 15.46%
   
3. Energy: 15.39%
   
4. Materials: 14.58%
   
5. Telecom Services: 12.17%
   
6. Industrials: 5.88%
   

So in summary, for a long term investor who wants international market exposure without having to pick individual stocks, EFA, and VWO are two ETFs worth investing in as a core part of a long term portfolio.

Three International Food and Beverage Plays to Get Away from US Credit Concerns

With the United States suffering a credit crunch, people are suggesting that investors get out of financials and into consumer staples, and companies with international exposure such as Kraft (KFT) or Procter and Gamble (PG). While this is a good idea, another good play would be to play sectors which have a very low correlation to US Financials. Why not invest in international food and beverage companies which are more levered to the economy they serve?

Here are three interesting international food and beverage stocks:

1. Central European Distribution Corporation (CEDC):

CEDC is the largest vodka producer in Poland by value and produces the Absolwent, Zubrowka, Bols and Soplica brands, among others. CEDC currently exports Zubrowka to European and Asian markets. CEDC imports many of the world's leading brands to Poland, including brands such as Remy Martin, Metaxa, Jim Beam, Sauza Tequila, Grant's, E&J Gallo, Sutter Home, Torres, Penfolds and Concha y Toro wines, Corona, Foster's, and Guinness Stout beers and Evian.

CEDC is also benefitting from a strong Polish economy, growing at a good 6.4% rate in the 2nd quarter of 2007. They are even getting Russian exposure, as they recently announced their intent to acquire a significant majority interest in a Russian company which owns the number one premium vodka brand in Russia, Parliament Vodka.

This $1.65 Billion company has a Forward PE of 20.48, and a five year estimated growth rate of 17.5% for a reasonable PEG of 1.17. It is near its 52 week high and there are currently only five analysts covering the stock.


2. Wimm Bill Dann (WBD):

Wimm Bill Dann is a $4.14 Billion Russian Food company offering a range of branded dairy, juice, water and baby food products. It has a forward PE of 20.35, a five year estimated growth rate of 35% for an inexpensive PEG of 0.58 (less than 1 is very cheap).

According to the company, Wimm Bill Dann produces its dairy products in the region where they are consumed. Also, from 1999 to 2003, Wimm Bill Dann had modernized. Prior to 1999, Russia suffered a deficit in raw milk, particularly a deficit in high quality raw milk. The number of head of cattle had diminished while productivity had not grown quickly enough. So Wimm Bill Dann invested in modern Swedish milking and refrigeration equipment and later, invested in harvesting equipment. This modernization program reaped benefits greatly increasing the percentage of high quality milk.

Wimm Bill Dann also has a 20% share in the Russian Juice Market (as of 2005).

TheStreet.com's Ratings consistently rates Wimm-Bill-Dann as one of their top five fast growth stocks.


3. Ambev (ABV):

Ambev is a $43 Billion Brazilian company that produces, distributes and sells beer, carbonated soft drinks and other non-alcoholic and non-carbonated products principally in Latin America. It also bottles, sells and distributes PepsiCo International products outside of the United States. The company has a forward PE of 20.76, a five year estimated growth rate of 13%, for a reasonable PEG of 1.59. The company even has a forward yield of 1%, and only three analysts cover the stock. Institutional ownership of this stock is only 19.80%.

Ambev has an Operating Margin of 29.25%, greater than competitors such as Formento Economico Mexicano (FMX) of 13.2%.

The company Quilmes Industrial (LQU) is a subsidiary of Ambev.


Conclusion

After reading and studying the three companies, I hope that you feel like you are in another world, far away from any United States credit problem. Central European Distribution (CEDC), Wimm-Bill-Dann (WBD), and Ambev (ABV) are three great ways to get away from it all.

Emerging Market Wireless Telecom Boom

The stock prices of wireless handset makers such as Research In Motion (RIMM) and Apple (AAPL) have been soaring. Buying the handset makers would be one way to profit from the Wireless boom, but there are many other overlooked and profitable ways.

Investing in Emerging Market Wireless Telecom Companies is a great way to enjoy the growth.

Emerging market wireless telecom companies are enjoying better growth than Developed Nations. According to the CTIA - The Wireless Association -, the United States as of late 2006 has a 72% wireless penetration rate. Many countries such as Italy, Sweden and the UK already have over 100% wireless penetration (multiple phones per person). It becomes more difficult to grow revenue in these countries.

In Emerging Markets, however, wireless penetration is much less, allowing more opportunities to grow revenue. As an example, in Latin America and South America, wireless penetration is expected to be 60% by 2010.

In Emerging markets, landline phones can be very limited and wireless can be the only way to make calls. Wireless telecommunication is becoming more important worldwide and people in emerging markets such as India are more willing to use the technology including Short Message Service (SMS, or Texting). Mobile phones are easily becoming part of the worldwide culture.

Here are four good ways to profit from the boom in emerging market wireless telecom:

1. America Movil (AMX):

America Movil is the dominant player in the Mexico and the Latin America and South America region. This $107 Billion company has a forward PE of 14.48 and a five year estimated growth rate of 32.1% for a very cheap PEG of 0.45 (less than 1 is very cheap!) According to a research report from Research and Markets, key drivers are low wireless penetration in Latin America, Increasing Demand of Mobile Internet, and Revenue Growth from Mobile Content.

America Movil is also the company that made Carlos Slim Helu the richest man in the world. Jim Cramer has said that we should "start copying the best guy with the best stock ... Carlos Slim."

2. NII Holdings (NIHD):

NIHD is a spinoff from Nextel and serves the Latin America region including countries such as Mexico, Brazil, Argentina, Peru and Chile. This $13.8 Billion company has a forward PE of 22.48, and a five year estimated growth rate of 40% for an inexpensive PEG of 0.56. Together with America Movil, these two companies offer great growth in the Latin American and South American Wireless market.

3. Vimpel Communications (VIP):

Vimpel Communications services Russia and countries in the Commonwealth of Independent States (CIS), countries that were part of the former Soviet Union. This $21 Billion company has a forward PE of 13.40, and a five year estimated growth rate of 24.1% for a low PEG of 0.56. Major competitors include MTS, and MegaFon, but since VIP is an American Depository Receipt (ADR), VIP remains the easiest Russian Wireless Telecom company to invest in from the United States.

Wireless penetration rates in Russia and Ukraine are a little over 100% but wireless penetration is much lower in Kazakhstan (51.7%), Tajikistan (11.9%), Uzbekistan (10.4%), and Armenia (37%).

Vimpel has a 31.7% market share in Russia, 49.5% in Kazakhstan, 3.8% in Ukraine, 8.9% in Tajikistan, 28.2% in Uzbekistan and 38.2% in Armenia.

4. China Mobile (CHL):

China Mobile is now the world's largest mobile operator with its subscriber base exceeding 300 million. This $233 Billion company's five year expected growth rate is 23.85%. With wireless penetration in China at around 30%, there is still a lot of growth.

Julie Pohlig, senior analyst at Vital Wave Consulting, offers interesting insight into Chinese subscribers. Chinese subscribers rely on pre-paid phone cards and pay 80% less than Americans for mobile phone service but their monthly investment per month represents 7% or more of their salary. This says "a lot about the perceived importance of telecommunications in that society," Julie Pohlig points out.


There are many other good emerging market telecom companies out there, but the four companies above represent good wireless telecom companies that cover a good portion of the emerging markets.

Simplest Buy and Hold Portfolio

So you have some discretionary money that you can risk, don't need the money within five years, and want some growth. But you may not know too much about individual stocks and you don't have the time nor the inclination to follow individual stocks.

Here's a very simple and easy Buy and Hold Portfolio that you don't have to monitor often, and offers good performance and diversification. (Do know that while the stock market averages 10% per year over a long time, that during any individual year, you could lose or gain 40%?)

The strategy is based on buying and holding certain ETFs, or Exchange Traded Funds. An Exchange Traded Fund is essentially a mutual fund (mostly indexed to a particular index. The ETF company just mirrors the index, and doesn't make active stock decisions) that trades on the major exchanges just like a regular stock. You normally buy and sell them and pay commissions. For example, the stock symbol "DIA", isn't really an individual company. The "DIA" ETF represents the Dow Jones Industrial Average ETF. It holds the 30 stocks in the Dow Jones Industrial Average. However, from your point of view, you are buying and selling "DIA" directly, a single trading instrument. You lose money and profit just as if you were holding a single stock.

The Portfolio

Here's the recommended simple buy and hold portfolio that you do not have to monitor that often:

• SPY -- The S&P 500 ETF representing 500 of the US biggest and most influential companies.
  
• MDY -- The Midcap US ETF representing the middle size US companies.
  
• IWM -- The Small Cap US ETF representing some of the smaller companies in the US
  
• EFA -- The iShares Developed International Market ETF representing investments in Europe, Japan and Australia
  
• EEM -- The iShares International Emerging Market ETF which covers international emerging markets such as Taiwan, Korea, China, Mexico, Brazil, Russia and India.
  

That's it! You are diversified throughout the US and the world. You can monitor your portfolio once a year, or twice a year.

If you don't have that much money, you can start with one or two ETFs first. I suggest SPY and EFA as your first two ETFs. The third ETF should be IWM. The fourth should be EEM, and the last MDY.

If you wish to learn more, or even start learning about individual stock investments, you might have to do some studying. You can read the books recommended here, or start browsing some good investment sites on the internet.