Who said grains were better than gold? Oh, that's right. WE did
("Agribusiness Outshines Gold").
Well, truth be told, we actually compared agribusiness - chemical
and equipment production related to raising grain, together with
other agriculture ventures in livestock and oilseeds - to the yellow
metal.
Back in November, agribusiness stocks were leaving gold in the dust.
Now, after more than a couple of lead changes in the profit derby,
agribusiness and gold are neck and neck. The Market Vectors
Agribusiness Fund (AMEX: MOO), an exchange-traded fund that tracks
the DAXglobal Agribusiness Index, has ticked up 40% since its
September 2007 launch. The SPDR Gold Shares Trust (NYSE Arca: GLD)
just caught up with a 40% gain of its own.
Not that these two trackers have come to their present positions
similarly, mind you. The correlation between them is only 30%. When
one zigs, the other heads in a zaggy direction. Agribusiness, too,
is much more volatile. Gold's almost stock-like standard deviation
makes it, oddly enough, less risky than agribusiness.
But MOO's underlying index encompasses more than three dozen stocks
in diverse lines of business. There's, of course, only one thing
being tracked by the bullion trust. Normally, that kind of
diversification would make for less volatility. When an index is
populated by agrichemical companies like Agrium, Inc. (NYSE: AGU),
however, that may not be the case.
Agrium is probably best known for its Vigoro-branded seeds and lawn
care products, but the company supplies a wide range of other
agricultural nutrients, chemicals and fertilizers.
The company's been a driver of the DAXglobal Agribusiness Index,
making up nearly 5% of the benchmark's market capitalization. Since
the launch of the Market Vectors Agribusiness Fund, Agrium's shot up
117%, though the stock's correlation to the ETF has weakened
recently.
AGU Vs. MOO And GLD
Agribusiness Still Has Upside
Heading into earnings season, Agrium's prospects continue to look
rosy. Consensus earnings estimates are $3.21 a share now, but some
analysts are more optimistic given the fact that Agrium came up with
outsized earnings in the last two quarters. In the quarter ending in
March, actual earnings were more than double analysts' estimates,
following a 40% earnings surprise in the previous reporting period.
Nobody's expecting such grand outperformance when Agrium next
releases its numbers August 9. In this environment, though, even
modest upside surprises are welcomed.
AGU Vs. MOO And GLD
Agribusiness Still Has Upside
