3 Agricultural Stocks Poised to Benefit from Drought
As a result of their success, they've been readily adopted by U.S. farmers. Now about 90% of the nation's corn and soybean crops include genetically modified traits, though not necessarily of the drought-resistant kind.
But critics claim such seeds can potentially be harmful to the environment since they allow for the use of pesticides that are dangerous to the environment or to humans. Instead, they favor organically grown crops. Europe in particular has fought the use of genetically modified seeds by its farmers.
As a result, there is a continuing battle over the use of genetically modified seeds and the potential for increased government oversight of their development and use.
Nevertheless, the increasing growing demand for food given the rising world population, coupled with rapid climate change, is likely to result in wider acceptance of new seed technologies.
New applications are being developed and introduced each year. For example, in addition to its work on drought-tolerant corn, Monsanto is engineering cotton, wheat and sugar cane seeds that have been genetically modified.
The fertilizers and agricultural chemicals sector of stocks, as tracked by Standard & Poor's, is among the top-performing categories this year, with an 18.4% gain this year, including 7% in the past three months, versus the S&P 500's 10.5% rise.
Here is a snapshot of the three international agricultural firms most likely to see growth in demand for their seed and protective chemical products:
Company profile: Monsanto, with a market value of $45 billion, produces leading seed brands and develops biotechnology traits that assist farmers in controlling insects and weeds, and provides other seed companies with genetic material and biotech traits. Its Roundup herbicides are used for agricultural, industrial and residential weed control. Seeds and genomics made up 73% of sales and 87% of gross profits in its 2011 fiscal year.
Investor takeaway: Its shares are up 23% this year, including 11.6% over the past three months, and have a three-year, average annual return of 5.5%. Over 10 years the average return is an amazing 28% annually.Analysts give its shares eight "buy" ratings, six "buy/holds" and eight "holds," according to a survey of analysts by S&P. For fiscal year 2012, analysts' consensus earnings estimate is for $3.74 per share, and that that will grow 15% to $4.29 per share next year.