 Good day, fellow investors. I hope you're doing great today. Today's topic are agricultural food stocks. Yesterday we have discussed the agricultural sector, how it is very cheap, relatively cheap now in a downward cycle, and how we could take advantage of that. Today we're going to look more into depth into the sector by analyzing seven agricultural stocks. A little bit all across the board in order to see in which sectors we really need to go deeper to find some value and the potential reversal. So let's immediately start with the seven stocks. Hope you like it. Please share in the comments any other stocks that you want to see analyzed as I'm very, very interested in food stocks because I see them as a very, very good investment in the next five years. So definitely a sector to keep an eye on. The first stock I want to talk about is Monsanto. It is in the process of being acquired by buyer for $128 per share. Buffett has been buying Monsanto in order to play this game on arbitrage. He has been buying it at 100, 110, so he will get 128 when the deal goes through and that's called arbitrage, merger arbitrage. He's happy with the 10-15% he will get on this deal. Nevertheless, what's interesting is to look that Monsanto, the stock price was a little bit lower and then buyer immediately jumped in. So there is a lot of consolidation in the sector. Big players try to buy out the weaker players because it seems like really there is high, high potential and as we have been saying, the structural trend food demand in the world is going to grow and therefore it's good to take advantage of the cheapness of it. Nevertheless, buyer paid for Monsanto a cape ratio, cyclically adjusted price to earnings ratio of $33 which is very, very high. Monsanto has a book value of $15 so they really didn't buy the assets but they bought the technology and future potential in case of higher food prices. However, I think it's a little bit expensive but perhaps buyer that can borrow with negative interest rates probably knows what they are doing. Any kind of return on that they will make money and that's what is important for them. Another very interesting stock is Deer and Company. They are producing agricultural machinery and therefore extremely cyclical. What is interesting is that after a long period of going nowhere Deer's stock more than doubled in the last two years. The surge in stock prices thanks to Deer's current and future expected growth. In the last two years Deer has seen a huge improvement in sales and orders that will probably push earnings it's expected to aid in 2018. However, as it has been in the case in 2012 and afterwards it is difficult to predict when will this growth stop and revert. At that point in time Deer might even have earnings of 10 and trade at the price earnings ratio of 10 which would give a price of 100. Thus there is plenty of upside for Deer if earnings continue to grow but remember this is a cyclical. So after the investment cycle is done with agriculture their earnings their revenues really fall. Further the book value is just 40 and it doesn't really give much safety. So Deer is an example of a cyclical company. People get excited they see growth and then sometimes the stock explodes. I wanted to show this example not because I think it's a good investment now there might be more trend there might be more momentum but as you know I'm not such a trader. What I want to show is what happened to the stock price at Deer in the last year and a half can happen to any other cyclical stock when the trend turns positive when there is growth and that's why I really like to look at these cyclicals and see if I can come somewhere close to the bottom. I buy first I if the stock price if I bought a good company goes down if the stock price goes down I buy a little bit more and I sit on the stock I can wait for a few years five years and when it rebounds I double I triple my money. So that's the investment I like and especially in an environment of extremely high prices like now I like to have defensive stocks that no matter what happens in the economy people still got to eat. A company that still hasn't exploded and it's pretty cheap is Mosaic. It's a fertilizer company and the situation in the sector isn't positive at all. If we look at potash prices they are still 40% below 2014 highs. In such a difficult environment of course many companies don't show earnings cut their dividends and that affects negatively the stock price. In the last five years the Mosaic has seen its stock price decline 56% which is a terrible investment and I'm really sorry for those that invested in 2013 but you have to understand all these things are cyclical. They go up and down and you have to buy on the chip and sell on the high. That's how you make money in cyclicals. When the potash and phosphate environment turns around Mosaic will be a definitive winner because they are the market leader the market leader in supply of potash and potassium so when the market turns they will have huge improvements in margins, huge growth, great earnings, reintegrate the dividend and you can bet on this company being a winner. I will probably make a real deep intrinsic value calculation on Mosaic to see where it can go in the next five years. So if you are interested please subscribe to the channel also for channel support. Mosaic also expects faster demand growth than supply growth in the next years. It has been the opposite way in the last few years and that's why fertilizer prices are extremely low. I'll be also digging deeper into the fertilizer sector because I see it really at bottom lows so there might be some cheap investments even if it doesn't look like that now. Another very very interesting company is Archer Daniels Midland which is attractive because it has really nothing to do with the cyclicality of the economy but only with the cyclicality of food prices. So thanks to its processing business that processes food, they get their margin, they have a stable business, stable demand and it looks like a good company. What's very interesting Jack said in the comments that they have had a dividend since 1927 which is an extremely long period. Here you can see that they have been increasing their dividend even with declining food prices. Book value is at 31 not far from the stock price at 40 thus ADM is a very very interesting buy. Now the news in the last week I always time these things badly is that ADM is buying Bungie or BG. I don't know how to pronounce it. Nevertheless that's another food processing stock that is very very interesting. As you can see the stock price really jumped since Wall Street has announced that there are merger talks or acquisition talks that will be a very difficult acquisition because there will be a lot of regulatory problems to solve across the world because nobody wants a monopoly in food prices. We want low food prices so that we can feed the world. Nevertheless Bungie Limited is very interesting cheap relatively cheap now it will be taken over or by Glencore or by ADM. Nevertheless margins are tied but as the company is investing they expect much more demand for corn much more demand for soy crushing so with a cyclical adjusted price earnings ratio of 14 BG looks like another relatively cheap defensive stock and that's why ADM and Glencore are after it. Probably there is still some potential to see it go to 90 when the deal goes through 20 25 premium on the current price. Now Nutrient is a company that has recently been formed from yet another consolidation play merger between Agrium and Potash and they have formed Nutrient. Potash is the world's largest potash producer and Agrium has a lot of nutrients and the great is distribution infrastructure so the companies expect to make 500 million in synergies per year. How will that affect the companies. I don't know yet will they be able will there be trouble will there be higher lower prices. Nevertheless Potash was extremely cheap just a few years ago however they own 33% of SQM which is expected to be the big lithium producer in the future and that's already something that's worth 5 billion which has been 30% of Potash's market capitalization before the acquisition so that's another stock to really look deeper into to see what is the cyclic quality to see what's the potential and that's something that I will do and share with you happily in the future. Another fertilizer stock is CF Industries which is not in Potash and Potassium but on nitrogen fertilizers. Here lower oil prices huge new supply in the US have really killed fertilizer prices nitrogen fertilizer prices however demand is expected to grow at 2% per year while new significant production additions aren't expected as low fertilizer prices don't incentivize new supply however CF has seen a very very huge increase in the stock price in the last year too however it's still much lower than it was in 2015. There is still a huge upside for CF but what happened doubling in stock price shows what can happen to companies like Mosaic and other companies in the environment that have a low stock prices being from a takeover or being just from higher earnings in a reversal of the cycle. What I want to finish is temporal diversification if you invest in a good company that's currently in a cyclical downturn every year let's say fertilizers are cheap you buy those one next year miners are cheap you buy that one three years from now I don't know beer companies are cheap you buy beer companies then after 10 years you have a great portfolio of cheap stocks so if you diversify across time what you buy you end up with a great defensive portfolio that will give you huge returns with low risk because you have bought all those companies on the cheap that's something that I have discussed in a video but I will discuss it again because temporal diversification video had only 500 views and I think is a key for long-term profitable investing we'll be digging deeper into food stocks share more food stocks in the comments I'll be happy to look at them especially as my book is almost done so I will have more time to do what I love the most which is analyze stocks thank you for watching click like subscribe and I'll see you in the next video