Investing in Booming Chinese Food Stocks
Companies / Agricultural Commodities Aug 06, 2008 - 05:01 AMBy: Money_and_Markets
Tony Sagami writes: As a teenager, I couldn't wait to get off the family vegetable farm. While the rest of my friends were joyriding around town, swimming, and otherwise having tons of fun, I was always working.
But attitudes sure do change over time. Now I live in Montana to recapture that rural lifestyle that I hated so much as a teenager.
That's why I laced up my hiking boots and headed to Glacier National Park for one more hike before I jet off to Beijing in six days. I just can't get enough of the outdoors.
I guess you can take the boy off the farm but you can't take the farm out of the boy.
My love of the outdoors and my farming roots have helped me in the investment world, too. And they'll be especially useful for this upcoming China trip. I say that because I am going to visit several of the key agricultural companies in China ...
These Companies Happen to Be Making a Fortune From the Booming Business of Food!
Why am I so interested in agricultural companies? First of all, food is an essential commodity for life. And since the world's population is forecast to be three times bigger by 2010 than it was in 1950, the demand for food is exploding.
Just as important, a greater proportion of that growing population is becoming affluent enough to eat well.
Thanks to growing incomes, the demand for better diets and more protein is just beginning. I believe that you've only seen the early stages of an agricultural boom, and that it will be one of the most profitable sectors you can invest in.
At the same time, the growing consumption of corn, sugar, and wheat to produce ethanol is essentially taking food out of hungry mouths. President Bush, in his last State of the Union address, proposed increasing the production of alternative fuels fivefold to 35 billion gallons by 2017.
And as is often the case for many of today's new hot investment trends, you need look no further than China to find some of the best investment opportunities.
Four Reasons to Jump on The Chinese Food Bandwagon ...
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| While China is known for rice farming, there are plenty of other attractive agriculture investment areas ... |
#1. China has changed from being a net exporter to being a net importer of major agricultural crops. With 1.3 billion hungry mouths to feed, China can't produce enough food to meet its own demand, let alone other country's needs.
#2. Chinese agricultural companies are protected by the government and foreign competition is heavily regulated. There are two Great Walls in China; the physical Great Wall and the governmental "great wall" that protects Chinese companies against foreign competitors. Chinese agricultural companies enjoy a state-sanctioned monopoly.
#3. Recent droughts and extreme water pollution have negatively impacted China's food supply. Rapid industrialization has severely polluted China's water supply and made the current drought even more painful.
#4. As more Chinese move from the rural interior to more affluent coastal cities, consumption of all food commodities have exploded. And this will only continue as more Chinese move into urban settings!
If you're interested in the Chinese agricultural companies, there is no shortage of investment options, many of which are traded on U.S. exchanges. Here is a partial list of companies that have piqued my interest:
American Dairy is the largest dairy company in China.
AgFeed Corp sells premixed food for livestock, particularly hogs.
Agria Corp produces corn seed and sheep breeding products.
Chaoda Modern Agriculture is China's largest vegetable and fruit grower.
China Green Agriculture makes humic acid, a liquid fertilizer.
China Mengniu Dairy is another Chinese dairy producer.
China Organic Agriculture is one of the largest producers of organic rice in the world.
Global Bio-Chem Technology deals in corn starch, corn sweeteners, and corn feed.
Origin Agritech makes bioengineered rice, corn, canola, and cotton seeds.
New Oriental Energy & Chemical manufactures urea, a chemical used for fertilizer.
Sinofert is a major Chinese fertilizer distributor.
There are also dozens of American companies that are doing a substantial — and growing — amount of business in China. Some of the familiar names are Mosiac, Potash, Archer-Daniels-Midland, Bunge, and Monsanto.
Now, don't rush out and buy any of these stocks. I haven't even had the chance to conduct my customary in-person due diligence and research on these companies yet.
Sure, I've done the nerdy financial homework on these companies, and I've found some spectacular bargains on paper. But I need to visit these companies in person before I will make any recommendations to my Asia Stock Alert subscribers.
I've learned the hard way that just because a company looks good on paper doesn't make it a winning investment. Kicking the tires in person has been my key to finding home run stocks.
Best of all, I'll get to dig around in some dirt, and get back to my farming roots this trip. My dad will be very proud of me!
Best wishes,
Tony
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