Commodities prices have done a complete 180 since the end of June. To reflect for a moment: oil was trading above $147/ barrel, copper was $4/ pound, and corn was trading in Chicago for almost $8/ bushel! It seemed that commodities would be the leading asset class of the year and supply concerns justified inflated prices. However, commodities were dragged down as sentiment turned on oil, culminating in a 25% drop in the iPath Commodity Index since the end of June. Many fear the commodities bull has passed and the sustained high commodities prices demand has deteriorated. Many market participants have decided to take their cash out of commodities companies. This provides the ideal opportunity for those with the conviction and tolerance for a little volatility to purchase some solid companies at a favorable price. Bunge Limited, an industrial grains processor, is the perfect example of an international leader with long-term viability whose stock price has been caught in the commodities craze.
What does Bunge actually do?
Headquartered in White Plains, NY, their operations are broken into three segments: agribusiness, fertilizer, and food products. Currently the world’s largest oilseed processor, a majority of revenues come from their agribusiness capabilities which include the purchase, storage, transportation, and sale of various grain commodities including soybeans, wheat, corn, and canola. In addition to grain processing, Bunge has made efforts to enter the alternative energy industry by making investments in a sugar-based ethanol facility, which is much more productive and cost-effective than its corn-based counterpart. Their fertilizer segment has enjoyed outstanding revenue growth in the past two years. Growth has been driven by strong global demand and tight fertilizer supplies, with their revenues reflecting global prices typically driven by companies such as Potash and Mosaic, whose share prices have skyrocketed over the past two years. Food products, their final segment, is broken into edible goods and milling products. Edible goods include vegetable oils, shortenings, margarine, and mayonnaise sold to retail markets. Milling products include corn meal, flours, and other wheat products often sold to food service companies and wheat milling companies.
Valuation
Looking at the fundamentals of this company, they are trading extremely cheaply. With a beta of 1.17x, they are a typically a stable company, but with the headline-driven nature of the markets today they are a bit more volatile.
