Anyone who has been to the grocery store during the past few years has first-hand experience with just how real the trend in food inflation
is. Nowadays, it's easy to spend close to $4 on a gallon of milk. A carton of eggs can be $2.99 or more.
The story is the same across the board: bread, meat, dairy products, orange juice and cereal -- just about every single food item under the sun has seen sharp price increases that have easily outpaced general inflation. It also shows up in the United Nation's food index, with its most recent reading from early May coming in at 214, not far off from its all-time high of 235 from April of 2011.
Global population growth is driving this trend. The U.N. estimates that global food production will have to increase at least 50% in the next 20 years just to keep pace with demand. And when you throw in the threat of inflation from the central banks of the world monetizing their debt to avoid the threat of a deflationary black hole -- and generally erratic weather patterns that have wreaked havoc on production -- you have the making of a secular bull market in food and agriculture.
But just because your local grocery store is sticking you with a higher bill doesn't mean you have to stay on the wrong side of the trade. In fact, with so many great investment opportunities in food and agriculture, every investor should be looking closely at how they can benefit from this long-term trend, and hedge their exposure to rising food costs.
One of the top stocks in the group is Syngenta AG (NYSE: SYT), a company out of Switzerland that specializes in seed development, and a wide range of herbicides and pesticides designed to protect crops and increase yields. With a market cap of $29 billion, Syngenta is a large-cap stock with a established brand in agriculture and a leader in market share.
With a bullish trend in agriculture supporting the cause, there are more than a few reasons to like this stock. In fact, it's exactly the kind of stock that might find its way in to Nathan Slaughter's newsletter, The 100% Letter. That's because, as I'm about to show you, this stock has more than doubled -- again and again -- over the last decade. And while the law of large numbers makes it obvious that it's hard to keep repeating this kind of performance, I think it could easily continue to be a strong performer.
The first is the company's diversified product strategy. On the front side, Syngenta has a strong seed-development program, where its genetic engineers have succeeded in producing new strains with higher yields and better resistance to pests and drought. It also covers a wide range of crops, from corn and soybeans to sunflower and oilseed and vegetables and flowers.
But once the seeds have hit the ground, Syngenta builds on its diverse product strategy, offering a wide range of herbicides, pesticides and fungicides to further boost yield and resistance to stress.
This is also a global company, with regional market exposure in North America, Europe, Africa, the Middle East and key emerging markets like Asia and Latin America. This will help insulate Syngenta from regional volatility and smooth its earnings profile.
Operating in an industry with high barriers to entry will also continue to benefit Syngenta, providing the company with tremendous pricing power and margin support.
From a valuation perspective, Syngenta also looks fairly cheap right now. This has a lot to do with rising estimates and a recent pullback in the stock. In the past 60 days, the full-year 2012 earnings estimate is up nine cents to $4.68, a 21% growth projection from last year. The full-year 2013 estimate is up seven cents in the same period to $5.17, a very respectable growth projection of 10%.
This has shares trading at about 14 times forward earnings, safely below the 10-year median of 16 and much closer to the low print of 10 than the high of 24.
Riding the megatrend
On the chart, you'll see a mind-bending trend over the last 10 years that has absolutely crushed the S&P 500. Shares have recently pulled back with the market, but longer term, the trend is still very bullish. Take a look...
Risks to Consider: In terms of threats, no company is immune from economic volatility, and the same applies to Syngenta. Inflationary pressure in seeds, fertilizers and farming equipment stand to crimp aggregate farm spending, a factor that would weigh on sales and earnings. Political instability and the threat of austerity in Europe will also play a factor, a very key agricultural region and market for Syngenta. The company reported strong results out of Europe in its late April second-quarter earnings report, so thus far it doesn't seem to be too much of an issue.
Action to Take--> Syngenta AG should remain a global leader in seed-development and crop-protection technology. The company has broad product and geographical diversification that provides it with insulation against weakness in specific markets or regions. This strategy continues to show up in earnings, where growing income and estimates have helped push the stock's valuation to historically-lower levels. And with a secular bull trend supporting food and agriculture, this stock looks well positioned to benefit and continue its upward ascent.
(Note: Nathan's 100% Letter is dedicated to one thing... doubling investors' money. Since 2003, this exclusive portfolio has done exactly that -- returning 111.4% while also nearly doubling the performance of the S&P 500. The 100% Letter isn't available to the public yet, but you can go here to be the first to know when it is.)
Michael Vodicka does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.
This article originally appeared on StreetAuthority
Author: Michael Vodicka