Stock prices are bouncing up and down like a basketball in a high
school gym class. Dow 14,000. . .Dow 13,000. . . .Dow
14,000. The 200 and 300 point wings we see every day make
picking the right stock all the more important.
As we discussed earlier this week, banking stocks have been destroyed
and are setting themselves up for more of the same. Energy
stocks continue to rally as oil prices constantly push to new highs,
and the salivating press drools more each day as we near $100 per
barrel. Technology stocks which have shown considerable strength in
the last few weeks, have recently suffered a slide of their own.
This leaves many investors on the sidelines asking the question:
"Where is today's growth market?"
I think I have the answer to that, but first a little background.
Commodity prices across the board are rallying. Gold is over
$800 and is on its way to who knows where. Silver meanwhile has
crossed $15 per ounce. All of the news seems to be about oil
approaching the $100 dollar a barrel level, and natural gas futures
reaching new highs. What is lost in the information overload is
that the more common commodities are also reaching new highs. Corn is
a mere 12% from its highs reached earlier this year.
Wheat prices are double the previous highs achieved in the last
decade.
Soybeans, oats, barley. . . .the list goes on of agricultural
commodities that are reaching new 52-week or lifetime highs.
Increasing demand for commodities is driving many agricultural stocks
to new highs. Look at Deere & Co. (DE), a leading supplier
of farm and forestry equipment throughout the world. The stock
has been hitting new highs for the last few years as their business
performance has been nothing short of spectacular.
So, what is driving their business? Let's let Deere CEO Bob Lane
explain:
"Farm commodity production, as an example, has been expanding across
the world in recent years yet has consistently fallen short of
demand.Global carryover stocks of corn and wheat are at 30-year lows
in relation
to use. Consumption is being driven by a global population
growing in both size and affluence, and by the increasing popularity
of renewable fuels."
Put simply, demand for commodities is growing faster than the supply
of those commodities. This is causing prices to rise. When
prices rise, the commodity producers - farmers - rush out to plant
more crops, and create more supply. To do this they need more
equipment, seed, and fertilizer. They need the products that
agricultural-related companies are selling.
This demand can't be satiated overnight. It can take several
years for a previously unfarmed piece of land to produce high yields
of a quality crop. As amazing as it sounds, the agricultural
industry is in a period of dynamic growth. Growth which is
expected to continue for a few more years at a minimum.
There are a number of companies in the agricultural industry that I
like. Deere is only one example of a company benefiting from this
growing market. The other major player worth mentioning is
Monsanto (MON) which provides seeds and herbicides to farmers in an
effort to expand their crop yields.
With the market volatility increasing, I am focusing on fundamental
stories and long term growth prospects. For me, the agricultural
industry, and the companies supplying to it, have a lot of growth
ahead. It clearly deserves a very close look.
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�y close look.
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