The agricultural sector is growing fast--is it time for you to cash in on the crop?
In her 17 years as a licensed stockbroker and now as the owner of institutional brokerage firm Divine Capital Markets in New York City, Danielle Hughes has always had an appetite for risk. "I know what it means to go to zero," she says about chances she's taken with her personal portfolio. "I've done it before."
With the volatility of the market these days, Hughes admits she has more of her retirement dollars in cash reserves, but the new mom says part of her still enjoys rolling the dice. So she's putting a portion of her nest egg in the agriculture sector, which has ballooned over the past year. The Dow Jones-AIG Commodity Index has outpaced the broader Dow Jones Industrial Average by 24 percent in the past year. "We haven't seen this kind of rise in the past 10 years," says Hughes, 38, who's confident the sector is a secure long-term bet, despite some possible intermediary pullbacks. For one, the costs of farm-grown commodities like wheat, soybeans and corn are heating up as populations multiply in China, India and other overseas markets. Also increasing demand domestically is the United States' commitment to producing biofuels, especially corn-based ethanol. "Organic farming is in vogue," adds Hughes. Agricultural inflows were nearly $4.6 billion in mid-April, compared with inflows of about $6 billion in all of 2007, according to AIG Financial Products.
What's more, the investment category has widened to include stocks and funds that closely reflect movements in agriculture prices. No need to get caught up in the frantic futures market. Here are some ways to get in on the action.
Only the riskiest investors may want to pick up some ag names that have gotten "fairly expensive," says Michael Church, a portfolio manager with Church Capital Management. That includes Monsanto (MON), which rose more than 90 percent between April 2007 and April 2008. The stock is trading at almost 50 times earnings. Mosaic (MOS), a leading maker of potash crop nutrients, jumped by more than 300 percent. A lower-risk name Church sees is Archer Daniels Midland, which has a "nice base of revenue and nice exposure to ethanol," he says. For more aggressive investors, he suggests fertilizer companies like Agrium (AGU) and CF Industries (CF). "Be careful; these are highly cyclical," says Church. "Some of these stocks have run really hard."
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