Agricultural stocks are one of the rising stars in the commodities complex. At InvestingHaven we only care about results, in particular future profits. To that end we have identified 4 agrilcultural stocks which should be on your radar worth considering to buy in 2018. Note that the agricultural stocks we identified are breakout stocks in 2018, and breakouts are one of the most beautiful events in markets.
The origins of most food products such as bread, milk, meat, fruit, vegetables, sugar, rice, flours, … are basically derived from agriculture. They are either produced directly on farms or based on food coming from farms that includes poultry. Farmers grow crops with the help of fertilizers after which they harvest, store and transport to markets or food processing giants. These processing companies have factories for preservating and transformating into a variety of food products. This entire food chain is a massive business that involves many companies across the chain.
Due to our constant sector analysis InvestingHaven’s team identified a potentially important sector that is heating up. Note that we talked about this sector in the past: Agriculture Stocks Set Up for a Major Breakout in 2018 in February of 2018, After A False Breakout, What’s Next For Agricultural Markets And Stocks last April and 3 Reasons Why Agricultural Commodities Could Start A New Bull Market almost 1.5 year ago.
As usual, we start with a sector review, and then identify 4 agricultural stocks that have potential for more upside in 2018.
4 agricultural stocks worth considering to buy in 2018
The PowerShares DB Agriculture Fund – DBA was issued by Invesco PowerShares on Jan. 5, 2007. It is an index fund that seeks to provide investment results corresponding to the DBIQ Diversified Agriculture Index Excess Return, its underlying index, in addition to any interest income generated from the fund’s holdings in U.S. Treasury securities. To achieve its investment objective, the fund primarily invests in futures contracts on agriculture commodities included in its underlying index. DBA uses a rules-based methodology to roll its futures contracts as they approach maturity, in an attempt to minimize the effects of contango.
Monthly chart of DBA
The monthly chart of DBA has an obvious descending triangle pattern. For the past 9 months or so, price has been resisting any attempt to break down. We suspect price is basing and is setting up for a potential move higher. Breaking above 19.5 will validate our bullish stance while falling below 18 spells the resumption of the larger downtrend.
To double check our suspicion we look at another agriculture stock ETF: VanEck Vectors Agribusiness ETF (MOO). It seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS® Global Agribusiness Index (MVMOOTR), which is intended to track the overall performance of companies involved in: (i) agri-chemicals, animal health and fertilizers, seeds and traits, from farm/irrigation equipment and farm machinery, aquaculture and fishing, livestock, cultivation and plantations (including grain, oil palms, sugar cane, tobacco leafs, grapevines, etc.), and trading of agricultural products.
Read the following post to find tips for buying farming equipment – what to know about upcoming auctions of farm equipment.
Monthly chart of MOO
Since inception of trading the monthly chart of MOO has been moving in an ascending triangle pattern. Price was temporarily experiencing a sell down because of its previous secular resistance at ~66. Going forward, we will be bullish if price breaks above 66 and remains neutral if price is stagnated at current price level. A break down below 57.6 will be bearish for this sector.
As we are managing funds and having lots of readers, InvestingHaven seeks to be ahead of the trend before financial media picks it up just like our blog post on the telecom sector that was published before Sprint Corp and T-Mobile announced a merger.
We found the following 4 agricultural stocks for 2018 worth considering to buy once this sector confirms its bullish intent.
Top agricultural stock #1 – Monsanto Company (NYSE: MON)
Monsanto Company is a multinational agrochemical and agricultural biotechnology corporation headquartered in Creve Coeur, Greater St. Louis, Missouri. It developed Roundup, a glyphosate-based herbicide in the 1970s and is now a major producer of genetically engineered crops. Love it or hate it, Monsanto is working with others to address the world’s food challenges and sustain the environment. They are juggling between having to protect the crops without being destroyed by insects, bugs while making sure the amount of herbicide applied are not toxic or poisonous to kill the crops.
Weekly chart of Monsanto
The weekly line chart of Monsanto has demonstrated a confirmed breakout above the symmetrical triangle consolidation that took a decade to form. Immediate target to break is ~128.9 and the next target will be ~144 and beyond. Should it reverse and break below 113, we will have to re-evaluate it as it would suggest a neutral to bearish scenario.
Top agricultural stock #2 – Intrepid Potash, Inc. (NYSE: IPI)
Intrepid Potash, Inc. produces and sells potash and langbeinite products in the United States and internationally. It operates through two segments, Potash and Trio. The Potash segment offers muriate of potash or potassium chloride for use as a fertilizer input in the agricultural market; as a component in drilling and fracturing fluids for oil and gas wells, as well as an input to other industrial processes in the industrial market; and as a nutrient supplement in the animal feed market. The Trio segment provides Trio, a specialty fertilizer that delivers potassium, sulfate, and magnesium in a single particle. The company also sells water for use in the oil and gas services industry. In addition, it offers salt for use in animal feeds, industrial applications, pool salts, and treatment of roads and walkways; magnesium chloride for use in the deicing and dedusting of roads; brines for well development and completion applications in the oil and gas industry; and metal recovery salt, a combination of potash and salt to enhance the recovery of aluminum in the aluminum recycling processing facilities. Since Potassium base fertilizer is one of the very important nutrients for crops and agri-plants, we reckon this company has potential to grow.
Monthly chart of IPI
Monthly chart of IPI shows a persistent downtrend channel that fits the movement of price. However, if this channel is drawn and identified correctly, we noticed a breakout as per our annotation (weekly chart has a confirmed breakout while the April candle is not completed yet at the moment of writing).
The next immediate resistance is queueing ahead at ~5, once this is breached the next price target is ~7 and ~10.60 respectively should bullishness continue. That said it will not be a surprise if price retraces back to ~3.50 to retest support before going up again. As long as ~3.1 is not violated lower, we will have our stance intact.
Top agricultural stock #3 – Archer Daniels Midland Company (NYSE: ADM)
This gigantic global food processing and commodities trading corporation needs no further introduction. The company operates more than 270 plants and 420 crop procurement facilities worldwide, where cereal grains and oilseeds are processed into products used in food, beverage, nutraceutical, industrial, and animal feed markets worldwide.
Monthly chart of ADM
The best way to describe the monthly chart of ADM is the zig-zag price movement. Seems almost like a slow but steady inflow of bulls. The onset of consolidation goes back 14 years when price was trading at ~20. Although consolidation is still ongoing we do have a bullish stance that price will ultimately move to the upper triangle line and break out from it. At the time of writing the closing price was 46.05. Immediate resistance and next target sits at ~53.9, the ability to break above it will hit a target price of ~65.
Top agricultural stock #4 – Cal-Maine Foods Inc (NASDAQ: CALM)
Cal-Maine Foods, Inc. is a fresh egg producer, established in 1969 and based in Jackson, Mississippi, United States. Its eggs are sold mostly in mid-Atlantic, midwestern, southeastern, and southwestern states. It accounts for approximately a quarter of US egg consumption.
Monthly chart of CALM:
We can easily identify a rising wedge pattern for CALM. And currently price has been consolidating at dual support (by two separate uptrend lines)
Zooming in on the weekly chart:
There is an inverted head and shoulder pattern which is generally considered bullish. For it to remain bullish, price should break above ~49.90, and set to challenge ~55.3 next. Ultimately, will it break 63.2 is hard to tell. As long as price does not break below the uptrend line, we will remain neutral to bullish.
The above mentioned are staple, cyclical and defensive stocks that will not see stellar movements like the tech sector, but well suited more consistent dividend play during time of uncertainty.
We strongly urge you to seek advice of certified financials or a wealth planner to get the fundamental information in case you are interested buying these stocks.
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