Honestly, I hope you hate this idea.
I sure did.
Then I realized it may be the best possible investment today.
It has everything.
First, it has been in steady decline for years. This isn’t a “dip.” This is a multi-year bear market.
Second, it’s hated. It’s been so bad for so long most people think it will never turn around.
I’d even expect many of your fellow readers will close out this message once I reveal it below.
Third -- and this is the major part -- there’s a clear catalyst for a turnaround that few see and no one is talking about right.
Well, here it is if you can stomach it.
Embrace The Hate
The sector setting up to be the absolute best investment today is agriculture.
Don’t worry, I cringed just as much writing it as you did reading it.
At the risk of understating, agriculture has been out of favor for awhile. For years, really.
And now, after years of waiting, I expect it to make a major turnaround.
Just look at what’s been setting up over the last few years to see the turnaround point.
It all starts with the original agriculture bubble.
It was epic.
As your editor surmised in 2006:
If we took one-third of the nation’s housing supply and burned them down, housing prices would soar.
Why would taking one third of the nation’s corn production and burning it (ethanol) have any different results?
That’s what happened. Crop prices soared. And they brought everything agriculture-related along with them.
Corn spent years trading between $1.50 and $2.50 a bushel.
In 2006 though it broke out to $3.00 a bushel. Then to $4.00. It eventually passed $7.00 in 2007 and went on to set a new modern day high of more than $8.00 in 2012.
The reverberations were felt throughout the industry.
Prime Iowa farmland was going for $500 an acre in 2002. By 2011 it was changing hands for more than $10,000 an acre.
That’s a 2,000% return from land!
Fertilizer was there too. Nitrogen, potassium, and phosphate prices doubled and tripled. There were fears of shortages.
That rise propelled fertilizer-producing stocks up as much as 10-fold.
By the time these long-dormant stocks peaked, Canadian fertilizer giant Potash Corp (POT) was one of the most widely-held companies in the world.
Years later, all that’s changed.
Corn prices have dropped significantly. It’s going for about $3.50 a bushel today, less than half what they were three years ago.
Iowa farmland has gone from a seller’s market to a buyer’s market. It’s back down to closer to $5,000 an acre lower than it has been in nearly a decade.
And as we mentioned earlier this week, the companies which make farm equipment like Deere (DE) which boomed a few years ago, are now facing their worst years of the last decade.
It’s ugly all around.
But there’s something unique about agriculture that makes the downturn especially ugly and long and conversely explosive today.
Know When To Fold’em
One of the most pervasive (and eventually costly) ideas surrounding the agriculture boom was that it was inherently “safe.”
Investors would think “people gotta’ eat” and they couldn’t have been more wrong.
They would think: Sure, the world is awash in debt, stocks could collapse any day, but agriculture stocks will always do OK.
That thinking is, frankly, complete nonsense.
Yes, people have to eat. But there are so many factors that drive stock prices beyond that which makes the original principle meaningless.
People have to drive. Does that make automakers good stocks?
People have to have bank accounts. Does that make bank stocks safe buys?
People need shelter. Does that make homebuilder stocks safe?
Of course not. There’s so much more to it than that. But when it came to agriculture though, that thinking prevailed. And because it did, the downturn in agriculture has been far longer than usually because of the ability of the hope-fueled people gotta’ eat crowd to hold on.
Eventually, even they gave in and now there are historic values in the sector.
As you know, farm equipment makers like Deere are way down. So is the PowerShares DB Agriculture Fund (DBA), an ETF which is tracks crop prices. It’s down more than 40% from it’s past highs.
And one of the hardest hit sectors of all is the fertilizer stocks. Case in point is Potash Corp we mentioned above. It was a darling at the height of the ag bubble and trading for $76 a share after adjusting for splits. Today you can pick up as much as you want for less than $17.
Of course, agriculture is down. It’s cheap too.
As you know if you’ve been reading along for awhile, that’s only half the equation.
There also must be a catalyst for a turnaround to actually cause a turnaround.
Without a catalyst, a cheap stock will stay cheap or get even cheaper.
We’ll go over that catalyst when your editor returns next Tuesday.
Stay tuned. You are not going to see what I’ve found anywhere else.
Well, you will see it. Probably six months from now and after the recovery in ag stocks is well underway.
Have a great weekend.