Investing 101: "Stagflation"-Wall Street's flavor of the week-is a market environment comprised of anemic GDP growth and persistently high inflation, especially from food and energy. How does one invest in this climate? Not surprisingly, through commodities trading.
In the current market, certain sectors are cashing in on the record prices of oil futures by playing a role in the ever-intensifying quest for new oils sources. Similarly, anyone fully-invested in agriculture stocks is well-positioned to profit from soaring food prices.
Monsanto (MON), for example, is in the agricultural seeds business. This company is a ring-leader when it comes to finding innovative ways for farmers to increase their productivity. Grain demand is at an all time high, and MON is ahead of the game as it plans and cashes in on future agricultural needs.
Similarly, Syngenta (SYT) produces seeds and chemicals used by farmers to expand crop harvests. Both SYT and MON are seeing tremendous sales and earnings growth due to rising commodities prices and are great stocks to buy if you're a commodities trader.
But food demand isn't the only factor pushing these stocks' prices higher. The race is on: Companies-and the nations that harbor them-are competing for the largest slice of the energy pie. Alternative energy stocks are hot investments as more investors see "green." But what's really driving up the prices of agriculture stocks is the brewing of biofuels, which places a strain on grain products.
It's estimated that one third of U.S. corn crops are committed to ethanol production as a means to offset oil dependency. Ethanol is in huge demand all over the world, which means corn farmers have their work cut out for them. According to a report released by the U.S. Department of Agriculture, farmers use about 137 pounds of nitrogen fertilizer per acre. As these corn growers look to expand their acreage, they require exorbitant amounts of fertilizer- which they have to buy from somewhere!
Companies like Mosaic (MOS), Potash (POT) and Agrium (AGU) are experiencing unprecedented growth and margin expansion thanks to the demand for their fertilizer products. These three stocks are a great way to profit from rising food prices-and commodities trading in general.
It's important to remember that the commodities bubble isn't going to pop any time soon. The fact is, we've witnessed a major spike in worldwide demand for both food and energy. Even if people drive less and buy more fuel-efficient cars, crude oil supplies are waning. There's no quick-fix solution to high oil prices. It doesn't matter how much we've changed our behavior as of late-the changes haven't been drastic enough to make a significant difference.
Another lesson in Investing 101: As long as demand continues to grow and supply, at best, flat lines, this type of market behavior will persist. The way to profit from this stagflationary environment is through commodities trading. There are no ifs, ands or buts about it.