Where we’re going, we don’t need paved roads. The agriculture sector is comprised of several quality companies. Market experts dwelling on diversification and getting exposure to commodities are demonstrating, quite simply, prudent investing. Where does an investor start? The mere mention of futures contracts furrows brows and increases heart rates. Let’s take a look at two companies profiting from the upturn in global agriculture.
Equipment manufacturers currently have a “virtual hedge” by being exposed to agriculture and construction trends. There may be a short window of time where construction activity returns in full-force while agriculture stays strong. It certainly is possible, but buyers beware!
In these unprecedented times, the fear of an inflation monster lurks over the market and commodities are the benefiting class. The general agriculture space is seeing increased margins due to rising commodities prices. When farmers make money, they would rather take an income deduction by “buying paint” (machinery), than pay the taxman. Large equipment purchases can approach $200,000-300,000.
Keeping this in mind, the party in machinery-related stocks like Deere and Titan will likely be over if commodities fall steeply. Many wise traders have spoken these words: Commodities take the stairs on the way up, and the elevator on the way down.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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